Question 1

Most analysts expect the largest federal spending category to continue to grow in importance for many years into the future.What category of spending is this?

Accepted Answer

A)  National defense 
B)  Social Security 
C)  Income security 
D)  Farm support programs 
A)  National defense 
B)  Social Security 
C)  Income security 
D)  Farm support programs

Question 2

When compared to nonpoor countries,poor countries usually have

Accepted Answer

A)  very high tax burdens. 
B)  similar tax burdens. 
C)  relatively low tax burdens. 
D)  no taxes because of high poverty levels. 
A)  very high tax burdens. 
B)  similar tax burdens. 
C)  relatively low tax burdens. 
D)  no taxes because of high poverty levels.

Question 3

Table 12-12
United States Income Tax Rates for a Single Individual,2002 and 2003.
  
-Refer to Table 12-12.Samantha is a single person whose taxable income is $100,000 a year.What is her marginal tax rate in 2003?

Accepted Answer

A)  15% 
B)  27% 
C)  30% 
D)  35% 
A)  15% 
B)  27% 
C)  30% 
D)  35%

Question 4

Table 12-1
  
-Refer to Table 12-1.If Barb has $126,000 in taxable income,her marginal tax rate is

Accepted Answer

A)  25%. 
B)  28%. 
C)  33%. 
D)  35%. 
A)  25%. 
B)  28%. 
C)  33%. 
D)  35%.

Question 5

Table 12-15
The dollar amounts in the last three columns are the taxes owed under the three different tax systems.
  
-A lump-sum tax

Accepted Answer

A)  is also a proportional tax. 
B)  entails larger deadweight losses than other types of taxes. 
C)  is the most efficient tax possible. 
D)  is the most equitable tax possible. 
A)  is also a proportional tax. 
B)  entails larger deadweight losses than other types of taxes. 
C)  is the most efficient tax possible. 
D)  is the most equitable tax possible.

Question 6

A tax on all forms of income will

Accepted Answer

A)  lower the effective rate of interest on savings. 
B)  have no effect on savings. 
C)  enhance social welfare because the benefits will outweigh the costs. 
D)  enhance the incentives to save. 
A)  lower the effective rate of interest on savings. 
B)  have no effect on savings. 
C)  enhance social welfare because the benefits will outweigh the costs. 
D)  enhance the incentives to save.

Question 7

Country A's tax system is more efficient than Country B's tax system if

Accepted Answer

A)  Country A collects less tax revenue than Country B,and the cost to taxpayers is the same in both countries. 
B)  Country A collects more tax revenue than Country B,even though the cost to taxpayers is greater in Country A than in Country B. 
C)  the same amount of revenue is raised in both countries,but the cost to taxpayers is smaller in Country A than in Country B. 
D)  the same amount of revenue is raised in both countries,but the taxes are collected in a shorter amount of time in Country A than in Country B. 
A)  Country A collects less tax revenue than Country B,and the cost to taxpayers is the same in both countries. 
B)  Country A collects more tax revenue than Country B,even though the cost to taxpayers is greater in Country A than in Country B. 
C)  the same amount of revenue is raised in both countries,but the cost to taxpayers is smaller in Country A than in Country B. 
D)  the same amount of revenue is raised in both countries,but the taxes are collected in a shorter amount of time in Country A than in Country B.

Question 8

An advantage of a consumption tax over the present tax system is that a consumption tax

Accepted Answer

A)  raises more revenues. 
B)  would save the government millions in administrative costs. 
C)  places more of the tax burden on the wealthy. 
D)  does not discourage saving. 
A)  raises more revenues. 
B)  would save the government millions in administrative costs. 
C)  places more of the tax burden on the wealthy. 
D)  does not discourage saving.

Question 9

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

Accepted Answer

A) True 
 B)False

Question 10

If your income is $40,000 and your income tax liability is $5,000,your

Accepted Answer

A)  marginal tax rate is 8 percent. 
B)  average tax rate is 8 percent. 
C)  marginal tax rate is 12.5 percent. 
D)  average tax rate is 12.5 percent. 
A)  marginal tax rate is 8 percent. 
B)  average tax rate is 8 percent. 
C)  marginal tax rate is 12.5 percent. 
D)  average tax rate is 12.5 percent.

Question 11

In 2007,approximately what percentage of federal government receipts came from individual income taxes?

Accepted Answer

A)  15% 
B)  30% 
C)  45% 
D)  60% 
A)  15% 
B)  30% 
C)  45% 
D)  60%

Question 12

Table 12-12
United States Income Tax Rates for a Single Individual,2002 and 2003.
  
-Refer to Table 12-12.Samantha is a single person whose taxable income is $100,000 a year.What happened to her marginal tax rate between 2002 and 2003?

Accepted Answer

A)  It increased. 
B)  It decreased. 
C)  It did not change. 
D)  We do not have enough information to answer this question. 
A)  It increased. 
B)  It decreased. 
C)  It did not change. 
D)  We do not have enough information to answer this question.

Question 13

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

Accepted Answer

A) True 
 B)False

Question 14

Scenario 12-1
Suppose Jim and Joan receive great satisfaction from their consumption of cheesecake.Joan would be willing to purchase only one slice and would pay up to $6 for it.Jim would be willing to pay $9 for his first slice,$7 for his second slice,and $3 for his third slice.The current market price is $3 per slice.
-Refer to Scenario 12-1.Assume that the government places a $4 tax on each slice of cheesecake and that the new equilibrium price is $7.Which of the following statements is correct?

Accepted Answer

A)  Jim will bear the full burden of the deadweight loss. 
B)  Joan will bear the full burden of the deadweight loss. 
C)  Both Joan and Jim will share the burden of the deadweight loss. 
D)  There will be no deadweight loss. 
A)  Jim will bear the full burden of the deadweight loss. 
B)  Joan will bear the full burden of the deadweight loss. 
C)  Both Joan and Jim will share the burden of the deadweight loss. 
D)  There will be no deadweight loss.

Question 15

Many economists believe that the U.S.tax system would be made more efficient if the basis of taxation were changed so that people paid taxes,more so than they do now,based on

Accepted Answer

A)  their saving rather than their income. 
B)  their spending rather than their income. 
C)  their income rather than their wealth. 
D)  their wealth rather than their spending. 
A)  their saving rather than their income. 
B)  their spending rather than their income. 
C)  their income rather than their wealth. 
D)  their wealth rather than their spending.

Question 16

Table 12-4
  
-Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $5.00 to $7.00.Total consumer surplus

Accepted Answer

A)  falls by less than the tax revenue generated. 
B)  falls by more than the tax revenue generated. 
C)  falls by the same amount as the tax revenue generated. 
D)  will not fall since Jennifer will no longer be in the market. 
A)  falls by less than the tax revenue generated. 
B)  falls by more than the tax revenue generated. 
C)  falls by the same amount as the tax revenue generated. 
D)  will not fall since Jennifer will no longer be in the market.

Question 17

When a tax is justified on the basis that the taxpayers who pay the tax receive specific government services from payment of the tax,the tax

Accepted Answer

A)  is considered horizontally equitable. 
B)  burden is minimized. 
C)  satisfies the benefits principle. 
D)  is considered vertically equitable. 
A)  is considered horizontally equitable. 
B)  burden is minimized. 
C)  satisfies the benefits principle. 
D)  is considered vertically equitable.

Question 18

If Nebraska imposed a tax on milk of 10 cents per gallon,it would

Accepted Answer

A)  be an excise tax. 
B)  be an income tax. 
C)  reduce tax revenue. 
D)  cause the supply of milk to rise. 
A)  be an excise tax. 
B)  be an income tax. 
C)  reduce tax revenue. 
D)  cause the supply of milk to rise.

Question 19

Table 12-15
The dollar amounts in the last three columns are the taxes owed under the three different tax systems.
  
-Suppose an excise tax is imposed on luxury boats and yachts.Economists argue that such a tax

Accepted Answer

A)  is sure to be vertically equitable,since buyers of luxury boats and yachts are wealthy. 
B)  entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another. 
C)  violates the benefits principle of taxation. 
D)  may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts. 
A)  is sure to be vertically equitable,since buyers of luxury boats and yachts are wealthy. 
B)  entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another. 
C)  violates the benefits principle of taxation. 
D)  may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts.

Question 20

The single largest expenditure by state and local governments is on

Accepted Answer

A)  highways. 
B)  police. 
C)  public welfare. 
D)  education. 
A)  highways. 
B)  police. 
C)  public welfare. 
D)  education.

Exam 12: The Design of the Tax System

Most analysts expect the largest federal spending category to continue to grow in importance for many years into the future.What category of spending is this?

When compared to nonpoor countries,poor countries usually have

Table 12-12 United States Income Tax Rates for a Single Individual,2002 and 2003. -Refer to Table 12-12.Samantha is a single person whose taxable income is $100,000 a year.What is her marginal tax rate in 2003?

Table 12-1 -Refer to Table 12-1.If Barb has $126,000 in taxable income,her marginal tax rate is

Table 12-15 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -A lump-sum tax

A tax on all forms of income will

Country A's tax system is more efficient than Country B's tax system if

An advantage of a consumption tax over the present tax system is that a consumption tax

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

If your income is $40,000 and your income tax liability is $5,000,your

In 2007,approximately what percentage of federal government receipts came from individual income taxes?

Table 12-12 United States Income Tax Rates for a Single Individual,2002 and 2003. -Refer to Table 12-12.Samantha is a single person whose taxable income is $100,000 a year.What happened to her marginal tax rate between 2002 and 2003?

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

Many economists believe that the U.S.tax system would be made more efficient if the basis of taxation were changed so that people paid taxes,more so than they do now,based on

Table 12-4 -Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $5.00 to $7.00.Total consumer surplus

When a tax is justified on the basis that the taxpayers who pay the tax receive specific government services from payment of the tax,the tax

If Nebraska imposed a tax on milk of 10 cents per gallon,it would

Table 12-15 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Suppose an excise tax is imposed on luxury boats and yachts.Economists argue that such a tax

The single largest expenditure by state and local governments is on

Ten Principles of 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

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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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