Question 1

In addition to tax payments,the two other primary costs that a tax system inevitably imposes on taxpayers are

Accepted Answer

A)  deadweight losses and administrative burdens. 
B)  deadweight losses and frustration with the political system. 
C)  administrative burdens and tax-preparation costs. 
D)  administrative burdens and the risk of punishment for failure to comply with tax laws. 
A)  deadweight losses and administrative burdens. 
B)  deadweight losses and frustration with the political system. 
C)  administrative burdens and tax-preparation costs. 
D)  administrative burdens and the risk of punishment for failure to comply with tax laws.

Question 2

In the absence of taxes,Janet would prefer to purchase a large sport utility vehicle (SUV).The government has recently decided to place a $10,000 nuisance tax on SUVs.If Janet decides to purchase a small economy car as a result of the tax,which of the following statements is correct?

Accepted Answer

A)  Other people who choose to purchase SUVs 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 SUVs. 
C)  In order to determine the magnitude of the deadweight loss,we must add the revenues from the tax to the loss in Janet's consumer surplus. 
D)  Janet is worse off,and her loss of welfare is part of the deadweight loss of the tax. 
A)  Other people who choose to purchase SUVs 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 SUVs. 
C)  In order to determine the magnitude of the deadweight loss,we must add the revenues from the tax to the loss in Janet's consumer surplus. 
D)  Janet is worse off,and her loss of welfare is part of the deadweight loss of the tax.

Question 3

Table 12-8
  
-Refer to Table 12-8.If the government imposes a $2,000 lump-sum tax,the average tax rate for Marcia and Charles would be

Accepted Answer

A)  5 percent and 6.7 percent,respectively. 
B)  8 percent and 6 percent,respectively. 
C)  12 percent and 9 percent,respectively. 
D)  13 percent and 10 percent,respectively. 
A)  5 percent and 6.7 percent,respectively. 
B)  8 percent and 6 percent,respectively. 
C)  12 percent and 9 percent,respectively. 
D)  13 percent and 10 percent,respectively.

Question 4

Marcus faces a progressive federal income tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.In addition,he must pay 5 percent of his income in state income tax and 15.3 percent of his labor income in federal payroll taxes.Marcus earns $60,000 per year in salary and another $10,000 per year in non-labor income.What is his average tax rate?

Accepted Answer

A)  17.19 percent 
B)  46.69 percent 
C)  48.87 percent 
D)  56.01 percent 
A)  17.19 percent 
B)  46.69 percent 
C)  48.87 percent 
D)  56.01 percent

Question 5

Table 12-14
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown.
  
-Refer to Table 12-14.Which tax schedule could be considered a lump-sum tax?

Accepted Answer

A)  Tax Schedule B only 
B)  Tax Schedule B and Tax Schedule C 
C)  Tax Schedule D only 
D)  None of the tax schedules could be considered a lump-sum tax. 
A)  Tax Schedule B only 
B)  Tax Schedule B and Tax Schedule C 
C)  Tax Schedule D only 
D)  None of the tax schedules could be considered a lump-sum tax.

Question 6

A recent increase in federal gasoline taxes was estimated to cause a $150 million reduction in the total surplus (consumer plus producer surplus)in the gasoline market.If tax revenues increased by $100 million,what is the deadweight loss associated with the tax? As a result of the tax,10,000 people sold their cars and started riding their bicycles to work.How much of the burden of the deadweight loss is incurred by the bicycle riders?

Accepted Answer

The direct deadweight loss is $50 millio

Question 7

Part of the administrative burden of a tax is

Accepted Answer

A)  the money people pay to the government in taxes. 
B)  reducing the size of the market because of the tax. 
C)  the hassle of filling out tax forms that is imposed on taxpayers who comply with the tax. 
D)  the cost of administering programs that use tax revenue. 
A)  the money people pay to the government in taxes. 
B)  reducing the size of the market because of the tax. 
C)  the hassle of filling out tax forms that is imposed on taxpayers who comply with the tax. 
D)  the cost of administering programs that use tax revenue.

Question 8

Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

Accepted Answer

A) True 
 B)False

Question 9

Stacy places a $20 value on a bottle of wine,and Andrea places a $17 value on it.The equilibrium price for a bottle of wine is $15.Suppose the government levies a tax of $1 on each bottle of wine,and the equilibrium price of a bottle of wine increases to $16.How much tax revenue is collected?

Accepted Answer

A)  $0 
B)  $1 
C)  $2 
D)  $4 
A)  $0 
B)  $1 
C)  $2 
D)  $4

Question 10

Which of the following is not an important reason for the projected increase in government spending as a percentage of GDP over the next several decades?

Accepted Answer

A)  The increase in life expectancy resulting from advances in healthcare 
B)  A reduction in the average number of children per family. 
C)  The increase in the number of jobs lost each year to foreign countries as a result of outsourcing 
D)  The increase in the cost of healthcare 
A)  The increase in life expectancy resulting from advances in healthcare 
B)  A reduction in the average number of children per family. 
C)  The increase in the number of jobs lost each year to foreign countries as a result of outsourcing 
D)  The increase in the cost of healthcare

Question 11

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.How much total consumer surplus do Joan and Jim collectively receive from consuming cheesecake?

Accepted Answer

A)  $3 
B)  $6 
C)  $9 
D)  $13 
A)  $3 
B)  $6 
C)  $9 
D)  $13

Question 12

If a tax takes a smaller fraction of income as income rises,it is

Accepted Answer

A)  proportional. 
B)  regressive. 
C)  progressive. 
D)  based on the ability-to-pay principle. 
A)  proportional. 
B)  regressive. 
C)  progressive. 
D)  based on the ability-to-pay principle.

Question 13

From 1950 to today,government spending on Social Security,Medicare,and Medicaid as a percentage of GDP has

Accepted Answer

A)  decreased from about eight percent to less than one percent. 
B)  increased from less than one percent to about eight percent. 
C)  remained constant at less than one percent. 
D)  remained constant at about eight percent. 
A)  decreased from about eight percent to less than one percent. 
B)  increased from less than one percent to about eight percent. 
C)  remained constant at less than one percent. 
D)  remained constant at about eight percent.

Question 14

A consumption tax is a tax on

Accepted Answer

A)  goods but not on services. 
B)  the amount of income that people spend. 
C)  the amount of income that people earn. 
D)  the amount of income that people save. 
A)  goods but not on services. 
B)  the amount of income that people spend. 
C)  the amount of income that people earn. 
D)  the amount of income that people save.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  Both tax avoidance and tax evasion are legal. 
B)  Both tax avoidance and tax evasion are illegal. 
C)  Tax avoidance is legal,whereas tax evasion is illegal. 
D)  Tax avoidance is illegal,whereas tax evasion is legal. 
A)  Both tax avoidance and tax evasion are legal. 
B)  Both tax avoidance and tax evasion are illegal. 
C)  Tax avoidance is legal,whereas tax evasion is illegal. 
D)  Tax avoidance is illegal,whereas tax evasion is legal.

Question 16

Table 12-10
The following table shows the marginal tax rates for unmarried individuals for two years.
  
-Refer to Table 12-10.For an individual who earned $35,000 in taxable income in both years,which of the following describes the change in the individual's average tax rate between the two years?

Accepted Answer

A)  The average tax rate increased from 2005 to 2006. 
B)  The average tax rate decreased from 2005 to 2006. 
C)  The average tax rate remained constant from 2005 to 2006. 
D)  The change in the average tax rate cannot be determined for the two tax schedules shown. 
A)  The average tax rate increased from 2005 to 2006. 
B)  The average tax rate decreased from 2005 to 2006. 
C)  The average tax rate remained constant from 2005 to 2006. 
D)  The change in the average tax rate cannot be determined for the two tax schedules shown.

Question 17

The three largest categories of spending by the Federal government in order from first to third would be

Accepted Answer

A)  Social Security,Medicare,and national defense. 
B)  National defense,net interest,and Social Security. 
C)  Social Security,national defense,and Medicare. 
D)  Income security,Social Security,and national defense. 
A)  Social Security,Medicare,and national defense. 
B)  National defense,net interest,and Social Security. 
C)  Social Security,national defense,and Medicare. 
D)  Income security,Social Security,and national defense.

Question 18

Taxes create deadweight loss when they

Accepted Answer

A)  distort behavior. 
B)  cause the price of the product to increase. 
C)  don't raise sufficient government revenue. 
D)  cannot be computed easily. 
A)  distort behavior. 
B)  cause the price of the product to increase. 
C)  don't raise sufficient government revenue. 
D)  cannot be computed easily.

Question 19

When government receipts exceed total government spending during a fiscal year,the difference is

Accepted Answer

A)  a budget surplus. 
B)  a budget deficit. 
C)  the national debt. 
D)  automatically refunded. 
A)  a budget surplus. 
B)  a budget deficit. 
C)  the national debt. 
D)  automatically refunded.

Question 20

Most people agree that the tax system

Accepted Answer

A)  should be both efficient and equitable. 
B)  cannot raise enough revenue to cover government expenditures. 
C)  would raise more revenue if tax rates were lowered. 
D)  should be rewritten to require everyone to pay the same percentage of income in taxes. 
A)  should be both efficient and equitable. 
B)  cannot raise enough revenue to cover government expenditures. 
C)  would raise more revenue if tax rates were lowered. 
D)  should be rewritten to require everyone to pay the same percentage of income in taxes.

Exam 12: The Design of the Tax System

In addition to tax payments,the two other primary costs that a tax system inevitably imposes on taxpayers are

In the absence of taxes,Janet would prefer to purchase a large sport utility vehicle (SUV).The government has recently decided to place a $10,000 nuisance tax on SUVs.If Janet decides to purchase a small economy car as a result of the tax,which of the following statements is correct?

Table 12-8 -Refer to Table 12-8.If the government imposes a $2,000 lump-sum tax,the average tax rate for Marcia and Charles would be

Table 12-14 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-14.Which tax schedule could be considered a lump-sum tax?

Part of the administrative burden of a tax is

Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

Stacy places a $20 value on a bottle of wine,and Andrea places a $17 value on it.The equilibrium price for a bottle of wine is $15.Suppose the government levies a tax of $1 on each bottle of wine,and the equilibrium price of a bottle of wine increases to $16.How much tax revenue is collected?

Which of the following is not an important reason for the projected increase in government spending as a percentage of GDP over the next several decades?

If a tax takes a smaller fraction of income as income rises,it is

From 1950 to today,government spending on Social Security,Medicare,and Medicaid as a percentage of GDP has

A consumption tax is a tax on

Which of the following statements is correct?

Table 12-10 The following table shows the marginal tax rates for unmarried individuals for two years. -Refer to Table 12-10.For an individual who earned $35,000 in taxable income in both years,which of the following describes the change in the individual's average tax rate between the two years?

The three largest categories of spending by the Federal government in order from first to third would be

Taxes create deadweight loss when they

When government receipts exceed total government spending during a fiscal year,the difference is

Most people agree that the tax system

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

Filters