Question 1

If you were to face a marginal tax rate of 15 percent, how much would your tax bill increase when your income increased by $2,000?

Accepted Answer

A)  $30 
B)  $300 
C)  $450 
D)  $600 
A)  $30 
B)  $300 
C)  $450 
D)  $600

Question 2

A capital gain results when

Accepted Answer

A)  an asset is sold for more than it was purchased. 
B)  a debt is settled. 
C)  a person purchases a bond. 
D)  a person buys gold. 
A)  an asset is sold for more than it was purchased. 
B)  a debt is settled. 
C)  a person purchases a bond. 
D)  a person buys gold.

Question 3

According to dynamic tax analysis, will continuing to push up the tax lead to steady increases in tax revenues? Why?

Accepted Answer

In dynamic tax analysis, the t

Question 4

Social Security taxes are paid by

Accepted Answer

A)  employers only. 
B)  employees only. 
C)  both employers and employees. 
D)  neither employers nor employees. 
A)  employers only. 
B)  employees only. 
C)  both employers and employees. 
D)  neither employers nor employees.

Question 5

The marginal tax rate and the average tax rate are the same under a

Accepted Answer

A)  progressive income tax system. 
B)  regressive income tax system. 
C)  proportional income tax system. 
D)  none of the above. 
A)  progressive income tax system. 
B)  regressive income tax system. 
C)  proportional income tax system. 
D)  none of the above.

Question 6

A 2 percent tax is going to be applied to a $100,000 tax base. What can be said about the revenue collected assuming static tax analysis?

Accepted Answer

A)  The total revenue will be zero. 
B)  The total revenue will be between $0 and $2,000. 
C)  The total revenue will be $2,000. 
D)  There is not enough information to determine what revenues will equal. 
A)  The total revenue will be zero. 
B)  The total revenue will be between $0 and $2,000. 
C)  The total revenue will be $2,000. 
D)  There is not enough information to determine what revenues will equal.

Question 7

Some economists argue that corporate income taxes are typically not paid by firms, but by

Accepted Answer

A)  stockholders, employees, and consumers. 
B)  the government. 
C)  bond holders. 
D)  the board of directors of the firm. 
A)  stockholders, employees, and consumers. 
B)  the government. 
C)  bond holders. 
D)  the board of directors of the firm.

Question 8

-Using the above table, a unit tax of $2 is imposed on the product. The equilibrium price of this product after the tax is imposed is

Accepted Answer

A)  $5. 
B)  $4. 
C)  $3. 
D)  $2. 
A)  $5. 
B)  $4. 
C)  $3. 
D)  $2.

Question 9

The Mayor of Stuckeyville is considering increasing the tax on bowling. He is confident that tax revenues will increase but recognizes the possibility that they may decrease. The mayor is engaging in

Accepted Answer

A)  dynamic tax analysis. 
B)  static tax analysis. 
C)  a policy that will cause the tax base to increase. 
D)  a policy that will cause the tax base to remain unchanged. 
A)  dynamic tax analysis. 
B)  static tax analysis. 
C)  a policy that will cause the tax base to increase. 
D)  a policy that will cause the tax base to remain unchanged.

Question 10

A local government currently has a tax base of $4 billion and a tax rate of 5 percent. If the tax rate is increased to 6 percent, the tax base will decrease to $3.2 billion. If the goal is to maximize tax revenues the tax rate should be

Accepted Answer

A)  raised above 6 percent. 
B)  kept at 5 percent. 
C)  raised to 6 percent. 
D)  abolished. 
A)  raised above 6 percent. 
B)  kept at 5 percent. 
C)  raised to 6 percent. 
D)  abolished.

Question 11

If the government wishes to maximize its tax revenue, it should

Accepted Answer

A)  recognize that too high of a tax rate can decrease the tax base. 
B)  engage in static tax analysis. 
C)  recognize that an increase in the tax rate will lead to an increase in tax revenues. 
D)  use only flat taxes. 
A)  recognize that too high of a tax rate can decrease the tax base. 
B)  engage in static tax analysis. 
C)  recognize that an increase in the tax rate will lead to an increase in tax revenues. 
D)  use only flat taxes.

Question 12

The marginal tax rate can be calculated by which of the following formulas?

Accepted Answer

A)  the change in taxes due divided by the change in taxable income 
B)  the change in taxable income divided by the change in taxes due 
C)  total taxes due divided by total taxable income 
D)  total taxable income divided by total taxes due 
A)  the change in taxes due divided by the change in taxable income 
B)  the change in taxable income divided by the change in taxes due 
C)  total taxes due divided by total taxable income 
D)  total taxable income divided by total taxes due

Question 13

Sales taxes are routinely collected by

Accepted Answer

A)  the merchants selling the good or services. 
B)  the Internal Revenue Service. 
C)  the Department of Commerce. 
D)  the Federal Trade Commission. 
A)  the merchants selling the good or services. 
B)  the Internal Revenue Service. 
C)  the Department of Commerce. 
D)  the Federal Trade Commission.

Question 14

-Refer to the above figure. A unit tax has been placed on the good. The producer pays what amount of the tax?

Accepted Answer

A)  None of the tax. 
B)    -   
C)    -   
D)    -   
A)  None of the tax. 
B)    -   
C)    -   
D)    -

Question 15

Dynamic tax analysis generally predicts

Accepted Answer

A)  that the higher the tax rate is, the higher the tax revenue will continue to be into the future. 
B)  that the higher tax rates lead to higher revenues only to a point at which revenues will begin to decrease due to a diminishing tax base. 
C)  that lower tax rates will always and continuously lead to increased tax revenues. 
D)  that lower tax rates are always going to lead to decreased tax revenues. 
A)  that the higher the tax rate is, the higher the tax revenue will continue to be into the future. 
B)  that the higher tax rates lead to higher revenues only to a point at which revenues will begin to decrease due to a diminishing tax base. 
C)  that lower tax rates will always and continuously lead to increased tax revenues. 
D)  that lower tax rates are always going to lead to decreased tax revenues.

Question 16

A government is thinking about increasing the sales tax rate. Should it use static or dynamic tax analysis? Explain why one approach is better than the other.

Accepted Answer

The government should use dynamic tax an

Question 17

In a proportional income tax system,

Accepted Answer

A)  marginal tax rates are the same regardless of the level of taxable income. 
B)  marginal tax rates increase as the level of taxable income increases. 
C)  marginal tax rates decline as the level of taxable income declines. 
D)  everyone pays the same dollar amount in taxes. 
A)  marginal tax rates are the same regardless of the level of taxable income. 
B)  marginal tax rates increase as the level of taxable income increases. 
C)  marginal tax rates decline as the level of taxable income declines. 
D)  everyone pays the same dollar amount in taxes.

Question 18

Eight years ago you purchased an asset for $100,000 that has yielded a nominal capital gain of $30,000. If you sold the asset today, your inflation-adjusted capital gains would be zero due to inflation over the last eight years. The capital gains tax is 28 percent. If you sold the asset today your tax liability would be

Accepted Answer

A)  zero. 
B)  $28,000. 
C)  $8,400. 
D)  cannot be determined without more information. 
A)  zero. 
B)  $28,000. 
C)  $8,400. 
D)  cannot be determined without more information.

Question 19

Briefly compare the three tax systems based on the relationship between the marginal tax rate and the average tax rate as income rises.

Accepted Answer

The three tax systems are proportional,

Question 20

One criticism of the corporate income tax is that

Accepted Answer

A)  it is too regressive. 
B)  it is too flat. 
C)  it is so complex to administer that corporate income taxes are rarely collected by the Internal Revenue Service. 
D)  a portion of the corporations' tax burden is passed on to consumers via higher prices for goods and services and to workers via lower wages. 
A)  it is too regressive. 
B)  it is too flat. 
C)  it is so complex to administer that corporate income taxes are rarely collected by the Internal Revenue Service. 
D)  a portion of the corporations' tax burden is passed on to consumers via higher prices for goods and services and to workers via lower wages.

Exam 6: Funding the Public Sector

If you were to face a marginal tax rate of 15 percent, how much would your tax bill increase when your income increased by $2,000?

A capital gain results when

According to dynamic tax analysis, will continuing to push up the tax lead to steady increases in tax revenues? Why?

Social Security taxes are paid by

The marginal tax rate and the average tax rate are the same under a

A 2 percent tax is going to be applied to a $100,000 tax base. What can be said about the revenue collected assuming static tax analysis?

Some economists argue that corporate income taxes are typically not paid by firms, but by

-Using the above table, a unit tax of $2 is imposed on the product. The equilibrium price of this product after the tax is imposed is

The Mayor of Stuckeyville is considering increasing the tax on bowling. He is confident that tax revenues will increase but recognizes the possibility that they may decrease. The mayor is engaging in

A local government currently has a tax base of $4 billion and a tax rate of 5 percent. If the tax rate is increased to 6 percent, the tax base will decrease to $3.2 billion. If the goal is to maximize tax revenues the tax rate should be

If the government wishes to maximize its tax revenue, it should

The marginal tax rate can be calculated by which of the following formulas?

Sales taxes are routinely collected by

-Refer to the above figure. A unit tax has been placed on the good. The producer pays what amount of the tax?

Dynamic tax analysis generally predicts

A government is thinking about increasing the sales tax rate. Should it use static or dynamic tax analysis? Explain why one approach is better than the other.

In a proportional income tax system,

Briefly compare the three tax systems based on the relationship between the marginal tax rate and the average tax rate as income rises.

One criticism of the corporate income tax is that

The Nature of Economics

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Unions and Labor Market Monopoly Power

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