Question 1

To set a tax rate at the appropriate level to maximize its tax revenues, a government must engage in

Accepted Answer

A)  static tax analysis. 
B)  dynamic tax analysis. 
C)  debt-free tax analysis. 
D)  ad valorem tax analysis. 
A)  static tax analysis. 
B)  dynamic tax analysis. 
C)  debt-free tax analysis. 
D)  ad valorem tax analysis.

Question 2

Jamal earns $160,000 per year and Josephina earns $80,000 per year. They both pay the same price to buy the identical automobile and each pays $1,600 in sales tax. In relation to their relative incomes, this is an example of a

Accepted Answer

A)  regressive tax. 
B)  progressive tax. 
C)  proportional tax. 
D)  marginal tax. 
A)  regressive tax. 
B)  progressive tax. 
C)  proportional tax. 
D)  marginal tax.

Question 3

Imposing a unit excise tax on the final sale of a good or service can be displayed graphically as

Accepted Answer

A)  a vertical shift upward of the demand curve. 
B)  a vertical shift upward of the supply curve. 
C)  a vertical shift downward of the demand curve. 
D)  a vertical shift downward of the supply curve. 
A)  a vertical shift upward of the demand curve. 
B)  a vertical shift upward of the supply curve. 
C)  a vertical shift downward of the demand curve. 
D)  a vertical shift downward of the supply curve.

Question 4

If a tax system is progressive, then

Accepted Answer

A)  the average and the marginal tax rates are equal. 
B)  the marginal tax rate is greater than the average tax rate as income rises. 
C)  the marginal tax rate is lower than the average tax rate as income rises. 
D)  the average tax rate is constant, but the dollar amount paid in taxes increases as income increases. 
A)  the average and the marginal tax rates are equal. 
B)  the marginal tax rate is greater than the average tax rate as income rises. 
C)  the marginal tax rate is lower than the average tax rate as income rises. 
D)  the average tax rate is constant, but the dollar amount paid in taxes increases as income increases.

Question 5

Suppose the tax rate on the first $10,000 of income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on income over $70,000. Family A has an income of $120,000 and Family B an income of $55,000. What is the tax bill of each?

Accepted Answer

A)  $48,000 for A and $16,500 for B 
B)  $32,000 for A and $6600 for B 
C)  $32,000 for A and $7500 for B 
D)  $34,000 for A and $7500 for B 
A)  $48,000 for A and $16,500 for B 
B)  $32,000 for A and $6600 for B 
C)  $32,000 for A and $7500 for B 
D)  $34,000 for A and $7500 for B

Question 6

Which of the following statements is FALSE about the issues faced by the government when contemplating a tax?

Accepted Answer

A)  Consideration must be given to how tax rates relate to the amount actually received. 
B)  Consideration must be given to how taxes influence market prices. 
C)  Consideration must be given to how taxes influence equilibrium quantity. 
D)  Consideration must be given to the amount of funds the government will be receiving from the transfer payments paid by the public to the government. 
A)  Consideration must be given to how tax rates relate to the amount actually received. 
B)  Consideration must be given to how taxes influence market prices. 
C)  Consideration must be given to how taxes influence equilibrium quantity. 
D)  Consideration must be given to the amount of funds the government will be receiving from the transfer payments paid by the public to the government.

Question 7

Suppose the tax amount on the first $10,000 income is $0; $2000 on the next $20,000; $4000 on the next $20,000; $6000 on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $30,000 and Family B has income of $80,000. What is the marginal and average tax rate for each family?

Accepted Answer

A)  Family A: marginal-10 percent; average-6.7 percent; Family B: marginal-30 percent; average-15 percent. 
B)  Family A: marginal-10 percent; average-20 percent; Family B: marginal-30 percent; average-23 percent. 
C)  Family A: marginal-10 percent; average-10 percent; Family B: marginal-40 percent; average-40 percent. 
D)  Family A: marginal-10 percent; average-15 percent; Family B: marginal-40 percent; average-20 percent. 
A)  Family A: marginal-10 percent; average-6.7 percent; Family B: marginal-30 percent; average-15 percent. 
B)  Family A: marginal-10 percent; average-20 percent; Family B: marginal-30 percent; average-23 percent. 
C)  Family A: marginal-10 percent; average-10 percent; Family B: marginal-40 percent; average-40 percent. 
D)  Family A: marginal-10 percent; average-15 percent; Family B: marginal-40 percent; average-20 percent.

Question 8

-Using the above figure, if the government levies a new unit tax in this market, S represents the original supply curve, and St represents the after-tax supply curve, then the revenues that the government collects from imposing this tax is represented on this graph by

Accepted Answer

A)  OAEG. 
B)  OBCG. 
C)  BAEC. 
D)  CEF. 
A)  OAEG. 
B)  OBCG. 
C)  BAEC. 
D)  CEF.

Question 9

The earnings that a corporation saves for investment in other productive activities are

Accepted Answer

A)  capital gains. 
B)  tax incidence. 
C)  transfers in kind. 
D)  retained earnings. 
A)  capital gains. 
B)  tax incidence. 
C)  transfers in kind. 
D)  retained earnings.

Question 10

Advocates of a progressive income tax use arguments EXCEPT for which of the following?

Accepted Answer

A)  A progressive tax system taxes according to ability to pay. 
B)  A progressive tax system taxes according to benefits received. 
C)  A progressive tax system helps redistribute income away from the rich and towards the poor. 
D)  A progressive tax system maximizes government revenues. 
A)  A progressive tax system taxes according to ability to pay. 
B)  A progressive tax system taxes according to benefits received. 
C)  A progressive tax system helps redistribute income away from the rich and towards the poor. 
D)  A progressive tax system maximizes government revenues.

Question 11

A capital gain is defined as

Accepted Answer

A)  the tax paid when one sells an asset. 
B)  the positive difference between the sale price and the purchase price of an asset. 
C)  the tax rate one pays when one moves into a higher tax bracket. 
D)  an unanticipated increase in income. 
A)  the tax paid when one sells an asset. 
B)  the positive difference between the sale price and the purchase price of an asset. 
C)  the tax rate one pays when one moves into a higher tax bracket. 
D)  an unanticipated increase in income.

Question 12

A current concern about Social Security is that

Accepted Answer

A)  funds set aside by past generations to pay benefits for future generations are growing too rapidly and may trigger inflation. 
B)  promised benefit payouts are growing more rapidly than likely sources of revenues, indicating a future inability to keep the system operating. 
C)  continued political bickering between the president and Congress could lead to an end to any funding of the program. 
D)  the payroll taxes used to fund the program are being eliminated as part of an effort to generate employment increases, thus leaving the program bankrupt. 
A)  funds set aside by past generations to pay benefits for future generations are growing too rapidly and may trigger inflation. 
B)  promised benefit payouts are growing more rapidly than likely sources of revenues, indicating a future inability to keep the system operating. 
C)  continued political bickering between the president and Congress could lead to an end to any funding of the program. 
D)  the payroll taxes used to fund the program are being eliminated as part of an effort to generate employment increases, thus leaving the program bankrupt.

Question 13

Which of the following forms of taxation accounts for the largest share of taxes received by state and local governments?

Accepted Answer

A)  sales, excise, and gross receipts taxes 
B)  personal and corporate income taxes 
C)  license and permit fees 
D)  property taxes 
A)  sales, excise, and gross receipts taxes 
B)  personal and corporate income taxes 
C)  license and permit fees 
D)  property taxes

Question 14

What is meant by the term "tax incidence"? What is the tax incidence of the personal income tax? What is the tax incidence of the corporate income tax?

Accepted Answer

Tax incidence refers to the distribution

Question 15

Imposing a tax on sales of a product

Accepted Answer

A)  shifts the market demand curve for the product. 
B)  shifts the market supply curve for the product. 
C)  shifts both the market supply and demand curve for the product. 
D)  has no effect on either the market demand or the market supply curve for the product. 
A)  shifts the market demand curve for the product. 
B)  shifts the market supply curve for the product. 
C)  shifts both the market supply and demand curve for the product. 
D)  has no effect on either the market demand or the market supply curve for the product.

Question 16

The Social Security program is financed directly from

Accepted Answer

A)  voluntary contributions by the elderly. 
B)  sales taxes on goods with inelastic demand. 
C)  payroll taxes. 
D)  poll taxes. 
A)  voluntary contributions by the elderly. 
B)  sales taxes on goods with inelastic demand. 
C)  payroll taxes. 
D)  poll taxes.

Question 17

Governments have to rely on taxes for financing because

Accepted Answer

A)  they cannot borrow unlimited amounts. 
B)  they usually spend all of the gold reserves. 
C)  gold prices have fallen steadily over the years. 
D)  they are not allowed to sell bonds. 
A)  they cannot borrow unlimited amounts. 
B)  they usually spend all of the gold reserves. 
C)  gold prices have fallen steadily over the years. 
D)  they are not allowed to sell bonds.

Question 18

Static tax analysis assumes that

Accepted Answer

A)  an increase in a tax rate may lead to a decrease in the tax base. 
B)  an increase in a tax rate will lead to an increase in the tax base. 
C)  an increase in a tax rate will leave the tax base unchanged. 
D)  the tax base will always remain unchanged. 
A)  an increase in a tax rate may lead to a decrease in the tax base. 
B)  an increase in a tax rate will lead to an increase in the tax base. 
C)  an increase in a tax rate will leave the tax base unchanged. 
D)  the tax base will always remain unchanged.

Question 19

Tax incidence refers to

Accepted Answer

A)  determining who sends the taxes into the government. 
B)  the tendency of some people to avoid paying taxes at all. 
C)  the distribution of tax burdens among groups, or who really pays a tax. 
D)  determining the marginal tax rate applied to any increase in income. 
A)  determining who sends the taxes into the government. 
B)  the tendency of some people to avoid paying taxes at all. 
C)  the distribution of tax burdens among groups, or who really pays a tax. 
D)  determining the marginal tax rate applied to any increase in income.

Question 20

A unit tax of $0.60 will always

Accepted Answer

A)  shift the supply curve upward by more than $0.60. 
B)  shift the supply curve upward by less than $0.60. 
C)  shift the supply curve up by exactly $0.60. 
D)  leave the supply curve unchanged. 
A)  shift the supply curve upward by more than $0.60. 
B)  shift the supply curve upward by less than $0.60. 
C)  shift the supply curve up by exactly $0.60. 
D)  leave the supply curve unchanged.

Exam 6: Funding the Public Sector

To set a tax rate at the appropriate level to maximize its tax revenues, a government must engage in

Jamal earns $160,000 per year and Josephina earns $80,000 per year. They both pay the same price to buy the identical automobile and each pays $1,600 in sales tax. In relation to their relative incomes, this is an example of a

Imposing a unit excise tax on the final sale of a good or service can be displayed graphically as

If a tax system is progressive, then

Which of the following statements is FALSE about the issues faced by the government when contemplating a tax?

-Using the above figure, if the government levies a new unit tax in this market, S represents the original supply curve, and St represents the after-tax supply curve, then the revenues that the government collects from imposing this tax is represented on this graph by

The earnings that a corporation saves for investment in other productive activities are

Advocates of a progressive income tax use arguments EXCEPT for which of the following?

A capital gain is defined as

A current concern about Social Security is that

Which of the following forms of taxation accounts for the largest share of taxes received by state and local governments?

What is meant by the term "tax incidence"? What is the tax incidence of the personal income tax? What is the tax incidence of the corporate income tax?

Imposing a tax on sales of a product

The Social Security program is financed directly from

Governments have to rely on taxes for financing because

Static tax analysis assumes that

Tax incidence refers to

A unit tax of $0.60 will always

The Nature of Economics

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Filters

-Using the above figure, if the government levies a new unit tax in this market, S represents the original supply curve, and S_t represents the after-tax supply curve, then the revenues that the government collects from imposing this tax is represented on this graph by