Question 1

With a lump-sum tax, the:

Accepted Answer

A)  marginal tax rate is always less than the average tax rate 
B)  average tax rate is always less than the marginal tax rate 
C)  marginal tax rate falls as income rises 
D)  marginal tax rate rises as income rises 
A)  marginal tax rate is always less than the average tax rate 
B)  average tax rate is always less than the marginal tax rate 
C)  marginal tax rate falls as income rises 
D)  marginal tax rate rises as income rises

Question 2

If everyone had to pay a tax of $100 to register their cars, this would be an example of a:

Accepted Answer

A)  transport tax 
B)  consumption tax 
C)  lump-sum tax 
D)  marginal tax 
A)  transport tax 
B)  consumption tax 
C)  lump-sum tax 
D)  marginal tax

Question 3

Lump-sum taxes are equitable but not efficient.

Accepted Answer

A) True 
 B)False

Question 4

To gauge the extent to which the tax system distorts incentives, the marginal tax rate is the appropriate tax rate to use.

Accepted Answer

A) True 
 B)False

Question 5

Amy paid a tax of $0.33 on the last dollar she earned in 2007. Amy's marginal tax rate in 2007 was:

Accepted Answer

A)  more than 33 per cent 
B)  exactly 33 per cent 
C)  definitely higher than her average tax rate 
D)  definitely lower than her average tax rate 
A)  more than 33 per cent 
B)  exactly 33 per cent 
C)  definitely higher than her average tax rate 
D)  definitely lower than her average tax rate

Question 6

The ability-to-pay principle states that people should pay taxes based on the benefits they receive from government services.

Accepted Answer

A) True 
 B)False

Question 7

A tax on the wages that a firm pays its workers is called a(n):

Accepted Answer

A)  payroll tax 
B)  excise tax 
C)  consumption tax 
D)  income tax 
A)  payroll tax 
B)  excise tax 
C)  consumption tax 
D)  income tax

Question 8

An income tax in which the average tax rate decreases as taxpayer income increases would be considered a:

Accepted Answer

A)  progressive tax 
B)  regressive tax 
C)  distortion-free tax 
D)  proportional tax 
A)  progressive tax 
B)  regressive tax 
C)  distortion-free tax 
D)  proportional tax

Question 9

While debate over tax policy is complex, economists do have an important role to play. This role is best defined as:

Accepted Answer

A)  arguing for policies that clearly lead to efficiency gains in the economy 
B)  shedding light on the trade-off between efficiency and equity in tax policy 
C)  articulating the importance of equity as the most important goal of tax policy 
D)  demonstrating that there are no trade-offs in tax policy; both efficiency and equity can be attained if the tax policy follows basic economic reasoning 
A)  arguing for policies that clearly lead to efficiency gains in the economy 
B)  shedding light on the trade-off between efficiency and equity in tax policy 
C)  articulating the importance of equity as the most important goal of tax policy 
D)  demonstrating that there are no trade-offs in tax policy; both efficiency and equity can be attained if the tax policy follows basic economic reasoning

Question 10

GST is widely regarded as a fair tax on all income earners.

Accepted Answer

A) True 
 B)False

Question 11

Since the wealthy own more and therefore have more to protect than the poor, the wealthy should pay more to support law enforcement. This argument is:

Accepted Answer

A)  based on the vertical equity principle 
B)  based on the benefits principle 
C)  based on the ability-to-pay principle 
D)  regressive in nature 
A)  based on the vertical equity principle 
B)  based on the benefits principle 
C)  based on the ability-to-pay principle 
D)  regressive in nature

Question 12

A budget deficit occurs whenever a government's inflows are greater than its outflows.

Accepted Answer

A) True 
 B)False

Question 13

When tax laws give preferential treatment to specific types of behaviour, it is called:

Accepted Answer

A)  tax evasion 
B)  a political pay-off 
C)  a tax loophole 
D)  compensation for the benefit of society 
A)  tax evasion 
B)  a political pay-off 
C)  a tax loophole 
D)  compensation for the benefit of society

Question 14

Explain why the New Zealand 15% GST is viewed as regressive.

Accepted Answer

GST is a flat tax that affects everyone

Question 15

The resource cost of tax compliance is:

Accepted Answer

A)  not considered in calculations of tax burden 
B)  solely a product of company income taxes 
C)  solely a product of property taxes 
D)  included in the administrative burden of a tax 
A)  not considered in calculations of tax burden 
B)  solely a product of company income taxes 
C)  solely a product of property taxes 
D)  included in the administrative burden of a tax

Question 16

Which of the following is a tax system in which higher income taxpayers pay a higher percentage of their income in taxes?

Accepted Answer

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

Question 17

In the absence of taxes, Jane would prefer to purchase a large four-wheel drive (4WD). However, the government has recently decided to place a $10 000 nuisance tax on 4WDs. Which of the following statements best reflects the effect of this tax if Jane decides to purchase a small economy car as a result of the tax?

Accepted Answer

A)  other people who choose to purchase 4WDs will incur the cost of the deadweight loss of the tax 
B)  there are no deadweight losses as long as some people still choose to purchase 4WDs 
C)  all deadweight losses are mitigated if there is a net decrease in air pollution 
D)  Jane is worse off, and her loss of welfare is part of the deadweight loss of the tax 
A)  other people who choose to purchase 4WDs will incur the cost of the deadweight loss of the tax 
B)  there are no deadweight losses as long as some people still choose to purchase 4WDs 
C)  all deadweight losses are mitigated if there is a net decrease in air pollution 
D)  Jane is worse off, and her loss of welfare is part of the deadweight loss of the tax

Question 18

Social security is an income support measure, designed primarily to maintain the living standards of the poor.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements least accurately reflects concerns about tax equity?

Accepted Answer

A)  there is a lot of disagreement about what tax equity means 
B)  few people would be in agreement about the process used to judge equity 
C)  tax efficiency is a less contentious issue to policymakers than tax equity 
D)  tax efficiency addresses how the burden of taxes should be divided among the population 
A)  there is a lot of disagreement about what tax equity means 
B)  few people would be in agreement about the process used to judge equity 
C)  tax efficiency is a less contentious issue to policymakers than tax equity 
D)  tax efficiency addresses how the burden of taxes should be divided among the population

Question 20

One reason why deadweight losses are so difficult to avoid is that:

Accepted Answer

A)  administrative burden and deadweight loss reflect a clear trade-off to policymakers 
B)  income taxes are not paid by everyone 
C)  consumption taxes must be universally applied to all commodities 
D)  taxes affect the decisions that people make 
A)  administrative burden and deadweight loss reflect a clear trade-off to policymakers 
B)  income taxes are not paid by everyone 
C)  consumption taxes must be universally applied to all commodities 
D)  taxes affect the decisions that people make

Exam 12: The Design of the Tax System

With a lump-sum tax, the:

If everyone had to pay a tax of $100 to register their cars, this would be an example of a:

Lump-sum taxes are equitable but not efficient.

To gauge the extent to which the tax system distorts incentives, the marginal tax rate is the appropriate tax rate to use.

Amy paid a tax of $0.33 on the last dollar she earned in 2007. Amy's marginal tax rate in 2007 was:

The ability-to-pay principle states that people should pay taxes based on the benefits they receive from government services.

A tax on the wages that a firm pays its workers is called a(n):

An income tax in which the average tax rate decreases as taxpayer income increases would be considered a:

While debate over tax policy is complex, economists do have an important role to play. This role is best defined as:

GST is widely regarded as a fair tax on all income earners.

Since the wealthy own more and therefore have more to protect than the poor, the wealthy should pay more to support law enforcement. This argument is:

A budget deficit occurs whenever a government's inflows are greater than its outflows.

When tax laws give preferential treatment to specific types of behaviour, it is called:

Explain why the New Zealand 15% GST is viewed as regressive.

The resource cost of tax compliance is:

Which of the following is a tax system in which higher income taxpayers pay a higher percentage of their income in taxes?

Social security is an income support measure, designed primarily to maintain the living standards of the poor.

Which of the following statements least accurately reflects concerns about tax equity?

One reason why deadweight losses are so difficult to avoid is that:

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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