Question 1

What are the three sources of funding for the public sector? Can the government rely on all of these sources in the long run? Explain.

Accepted Answer

The three sources are (1) explicit user

Question 2

In what type of analysis will an increase in the tax rate always lead to an increase in tax revenues?

Accepted Answer

A)  Ad valorem taxation 
B)  Excise taxation 
C)  Dynamic tax analysis 
D)  Static tax analysis 
A)  Ad valorem taxation 
B)  Excise taxation 
C)  Dynamic tax analysis 
D)  Static tax analysis

Question 3

The imposition of a new excise tax will

Accepted Answer

A)  increase equilibrium price and increase equilibrium quantity. 
B)  increase equilibrium price and decrease equilibrium quantity. 
C)  decrease equilibrium price and increase equilibrium quantity. 
D)  decrease equilibrium price and decrease equilibrium quantity. 
A)  increase equilibrium price and increase equilibrium quantity. 
B)  increase equilibrium price and decrease equilibrium quantity. 
C)  decrease equilibrium price and increase equilibrium quantity. 
D)  decrease equilibrium price and decrease equilibrium quantity.

Question 4

Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $40,000 and Family B has income of $100,000. What is the marginal and average tax rate for each family?

Accepted Answer

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

Question 5

Ad valorem taxes

Accepted Answer

A)  are not used in the United States. 
B)  are assessed as a percentage of a good's price. 
C)  are based on income levels. 
D)  are applied only to imports. 
A)  are not used in the United States. 
B)  are assessed as a percentage of a good's price. 
C)  are based on income levels. 
D)  are applied only to imports.

Question 6

Suppose you are making $50,000 per year and paying $5,000 per year in income taxes. You get a $10,000 per year raise and your income taxes are now $6,500 per year. Based on this information, the income tax system is

Accepted Answer

A)  proportional. 
B)  progressive. 
C)  regressive. 
D)  bracketed. 
A)  proportional. 
B)  progressive. 
C)  regressive. 
D)  bracketed.

Question 7

Corporate profits are

Accepted Answer

A)  taxed at too low a rate. 
B)  taxed only when a stockholder sells his or her shares of stock. 
C)  taxed twice-once by the corporate tax system, and again by personal tax system when they are paid to stockholders as dividends. 
D)  taxed three times-once by the corporate tax system, again by the personal tax system, and again as capital gains. 
A)  taxed at too low a rate. 
B)  taxed only when a stockholder sells his or her shares of stock. 
C)  taxed twice-once by the corporate tax system, and again by personal tax system when they are paid to stockholders as dividends. 
D)  taxed three times-once by the corporate tax system, again by the personal tax system, and again as capital gains.

Question 8

Assume a family that earns $20,000 pays $1,500 in income taxes, while a family that earns $40,000 pays $3,200 in income taxes. In this situation, the income tax system is

Accepted Answer

A)  progressive. 
B)  regressive. 
C)  proportional. 
D)  one of the above but we cannot tell which one without more information. 
A)  progressive. 
B)  regressive. 
C)  proportional. 
D)  one of the above but we cannot tell which one without more information.

Question 9

Over the long run, a government's fundamental source of revenues is

Accepted Answer

A)  printing money. 
B)  user fees and taxes. 
C)  exports. 
D)  gold sales. 
A)  printing money. 
B)  user fees and taxes. 
C)  exports. 
D)  gold sales.

Question 10

-Using the above figure, which of the lines in the above diagram represents a progressive tax?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  none of them 
A)  A 
B)  B 
C)  C 
D)  none of them

Question 11

Should the government wish to lower the price of gasoline to the consumer, one approach might be

Accepted Answer

A)  to raise the gasoline excise tax. 
B)  to reduce the gasoline excise tax. 
C)  to take action to shift the supply curve of gasoline to the left. 
D)  to lower taxes on automobiles. 
A)  to raise the gasoline excise tax. 
B)  to reduce the gasoline excise tax. 
C)  to take action to shift the supply curve of gasoline to the left. 
D)  to lower taxes on automobiles.

Question 12

According to dynamic tax analysis, continually increasing the tax rate will eventually

Accepted Answer

A)  cause an increase in the tax base. 
B)  have no impact on the tax base. 
C)  cause a decrease in the tax base. 
D)  result in an initial decrease in the tax base followed ultimately by a rise in the tax base. 
A)  cause an increase in the tax base. 
B)  have no impact on the tax base. 
C)  cause a decrease in the tax base. 
D)  result in an initial decrease in the tax base followed ultimately by a rise in the tax base.

Question 13

An excise tax is a tax that is levied on

Accepted Answer

A)  the value of a piece of property. 
B)  the purchase of a given good or service. 
C)  the value of an estate. 
D)  that part of a person's income coming from interest payments. 
A)  the value of a piece of property. 
B)  the purchase of a given good or service. 
C)  the value of an estate. 
D)  that part of a person's income coming from interest payments.

Question 14

A government wishing to maximize its tax revenues should

Accepted Answer

A)  always assess the highest possible tax rate. 
B)  always assess the lowest possible tax rate. 
C)  determine the highest possible tax rate and then back it down by exactly 4 percentage points. 
D)  push tax rates up to the point where revenues peak, but raise the tax rate no farther. 
A)  always assess the highest possible tax rate. 
B)  always assess the lowest possible tax rate. 
C)  determine the highest possible tax rate and then back it down by exactly 4 percentage points. 
D)  push tax rates up to the point where revenues peak, but raise the tax rate no farther.

Question 15

Dynamic tax analysis is an economic evaluation of tax rate changes

Accepted Answer

A)  by the National Tax Institute in Burlington, Massachusetts. 
B)  by various state governments. 
C)  by the tax institutes established by a consortium of business schools. 
D)  based on the assumption that tax base declines if tax rates continuously increase. 
A)  by the National Tax Institute in Burlington, Massachusetts. 
B)  by various state governments. 
C)  by the tax institutes established by a consortium of business schools. 
D)  based on the assumption that tax base declines if tax rates continuously increase.

Question 16

Dynamic tax analysis assumes

Accepted Answer

A)  all of the present tax rates will be in place for a minimum of twenty years. 
B)  changes in the tax rates have no effect on the tax base. 
C)  changes in the tax rates have no effect on tax revenue. 
D)  changes in the tax rates will change the tax base. 
A)  all of the present tax rates will be in place for a minimum of twenty years. 
B)  changes in the tax rates have no effect on the tax base. 
C)  changes in the tax rates have no effect on tax revenue. 
D)  changes in the tax rates will change the tax base.

Question 17

Ultimately, the real burden of paying for Social Security benefits will be paid for by

Accepted Answer

A)  taxes levied on workers. 
B)  Social Security trust fund bonds. 
C)  new federally issued Treasury bills. 
D)  a new tax levied on businesses. 
A)  taxes levied on workers. 
B)  Social Security trust fund bonds. 
C)  new federally issued Treasury bills. 
D)  a new tax levied on businesses.

Question 18

Sales taxes are

Accepted Answer

A)  assessed on the prices paid on a large set of goods and services. 
B)  levied on purchases of a particular good or service. 
C)  based on each individual taxpayer's income level. 
D)  collected only by the U.S. government. 
A)  assessed on the prices paid on a large set of goods and services. 
B)  levied on purchases of a particular good or service. 
C)  based on each individual taxpayer's income level. 
D)  collected only by the U.S. government.

Question 19

-Refer to the above figure. A unit tax of $.30 has been placed on the good. Which of the following statements is true about the vertical distance between   and   ?

Accepted Answer

A)  The distance is less than $0.30. 
B)  The distance is $0.30. 
C)  The distance is more than $0.30. 
D)  The distance cannot be determined with the information given. 
A)  The distance is less than $0.30. 
B)  The distance is $0.30. 
C)  The distance is more than $0.30. 
D)  The distance cannot be determined with the information given.

Question 20

Assume that the government one day decides to tax greens fees at all state golf courses. To the government's dismay, not only was the amount of tax collected small, but there was a 90 percent decline in golfing. What type of tax analysis did the government apparently rely upon when it imposed this tax?

Accepted Answer

A)  static tax analysis 
B)  dynamic tax analysis 
C)  transaction cost analysis 
D)  ad hoc tax analysis 
A)  static tax analysis 
B)  dynamic tax analysis 
C)  transaction cost analysis 
D)  ad hoc tax analysis

Exam 6: Funding the Public Sector

What are the three sources of funding for the public sector? Can the government rely on all of these sources in the long run? Explain.

In what type of analysis will an increase in the tax rate always lead to an increase in tax revenues?

The imposition of a new excise tax will

Ad valorem taxes

Suppose you are making $50,000 per year and paying $5,000 per year in income taxes. You get a $10,000 per year raise and your income taxes are now $6,500 per year. Based on this information, the income tax system is

Corporate profits are

Assume a family that earns $20,000 pays $1,500 in income taxes, while a family that earns $40,000 pays $3,200 in income taxes. In this situation, the income tax system is

Over the long run, a government's fundamental source of revenues is

-Using the above figure, which of the lines in the above diagram represents a progressive tax?

Should the government wish to lower the price of gasoline to the consumer, one approach might be

According to dynamic tax analysis, continually increasing the tax rate will eventually

An excise tax is a tax that is levied on

A government wishing to maximize its tax revenues should

Dynamic tax analysis is an economic evaluation of tax rate changes

Dynamic tax analysis assumes

Ultimately, the real burden of paying for Social Security benefits will be paid for by

Sales taxes are

-Refer to the above figure. A unit tax of $.30 has been placed on the good. Which of the following statements is true about the vertical distance between and ?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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