Question 1

With a proportional tax, higher-income persons will pay

Accepted Answer

A)  the same amount of taxes as lower-income persons. 
B)  a bigger amount in taxes compared to lower-income persons. 
C)  a higher proportion of their income in taxes than lower-income persons. 
D)  a higher marginal tax rate as their incomes rise. 
A)  the same amount of taxes as lower-income persons. 
B)  a bigger amount in taxes compared to lower-income persons. 
C)  a higher proportion of their income in taxes than lower-income persons. 
D)  a higher marginal tax rate as their incomes rise.

Question 2

The burden of a specific sales tax falls entirely on the consumer when the

Accepted Answer

A)  elasticity of supply is zero. 
B)  demand curve is perfectly elastic. 
C)  price elasticity of demand is greater than the elasticity of supply. 
D)  price elasticity of demand is zero. 
A)  elasticity of supply is zero. 
B)  demand curve is perfectly elastic. 
C)  price elasticity of demand is greater than the elasticity of supply. 
D)  price elasticity of demand is zero.

Question 3

The marginal tax rate is

Accepted Answer

A)  less than the average tax rate when a tax is progressive. 
B)  calculated by dividing total taxes paid by one's total taxable income. 
C)  the percentage of one's total income that is paid in taxes. 
D)  the percentage of an increment of income that is paid in taxes. 
A)  less than the average tax rate when a tax is progressive. 
B)  calculated by dividing total taxes paid by one's total taxable income. 
C)  the percentage of one's total income that is paid in taxes. 
D)  the percentage of an increment of income that is paid in taxes.

Question 4

If the demand for a product is perfectly inelastic and the supply curve is upsloping, a $1 excise tax per unit of output will

Accepted Answer

A)  raise the price by less than $1. 
B)  raise the price by more than $1. 
C)  raise the price by $1. 
D)  lower the price by $1. 
A)  raise the price by less than $1. 
B)  raise the price by more than $1. 
C)  raise the price by $1. 
D)  lower the price by $1.

Question 5

(Consider This) Proponents of a value-added tax (VAT) claim that a VAT

Accepted Answer

A)  is progressive, leading to a more equitable distribution of income. 
B)  equalizes the tax burden between buyers and sellers of goods. 
C)  is proportional, so all income groups pay a fair share. 
D)  penalizes consumption and encourages savings and investment. 
A)  is progressive, leading to a more equitable distribution of income. 
B)  equalizes the tax burden between buyers and sellers of goods. 
C)  is proportional, so all income groups pay a fair share. 
D)  penalizes consumption and encourages savings and investment.

Question 6

If the demand for a product is perfectly inelastic, the incidence of an excise tax will be

Accepted Answer

A)  entirely on the buyer. 
B)  mostly on the buyer. 
C)  entirely on the seller. 
D)  mostly on the seller. 
A)  entirely on the buyer. 
B)  mostly on the buyer. 
C)  entirely on the seller. 
D)  mostly on the seller.

Question 7

In 2014, based on data from the OECD, the government's total tax revenue as a percentage of total output was highest in which of the following nations?

Accepted Answer

A)  Germany 
B)  France 
C)  United States 
D)  Mexico 
A)  Germany 
B)  France 
C)  United States 
D)  Mexico

Question 8

Which of the following statements about government borrowing is not true?

Accepted Answer

A)  It provides the government the ability to maintain spending levels during economic downturns. 
B)  "Crowding out" of private investments is a major opportunity cost of government borrowing. 
C)  Its opportunity cost is likely to be quite high during an economic downturn. 
D)  A bigger budget deficit will result in a bigger amount of government borrowing. 
A)  It provides the government the ability to maintain spending levels during economic downturns. 
B)  "Crowding out" of private investments is a major opportunity cost of government borrowing. 
C)  Its opportunity cost is likely to be quite high during an economic downturn. 
D)  A bigger budget deficit will result in a bigger amount of government borrowing.

Question 9

A regressive tax means that if someone earning $25,000 pays $5,000, someone earning $50,000 must pay

Accepted Answer

A)  less than $5,000. 
B)  less than $10,000. 
C)  more than $10,000 but less than $15,000. 
D)  more than $15,000 but less than $20,000. 
A)  less than $5,000. 
B)  less than $10,000. 
C)  more than $10,000 but less than $15,000. 
D)  more than $15,000 but less than $20,000.

Question 10

The benefits-received principle of taxation is used to support corporate and personal income taxes.

Accepted Answer

A) True 
 B)False

Question 11

From 1960 to 2015, government purchases as a percentage of U.S. output have

Accepted Answer

A)  remained approximately constant. 
B)  decreased. 
C)  increased slightly. 
D)  increased sharply. 
A)  remained approximately constant. 
B)  decreased. 
C)  increased slightly. 
D)  increased sharply.

Question 12

With a tax of $4,000 on $24,000 taxable income, the average tax rate is

Accepted Answer

A)  16.67 percent. 
B)  20 percent. 
C)  23.45 percent. 
D)  25 percent. 
A)  16.67 percent. 
B)  20 percent. 
C)  23.45 percent. 
D)  25 percent.

Question 13

(Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in units of 100. After an excise tax is imposed on the product, the supply equation is P = 3 + 0.4Q.The equilibrium quantity before the excise tax is imposed is

Accepted Answer

A)  800 units. 
B)  1,000 units. 
C)  1,200 units. 
D)  1,400 units. 
A)  800 units. 
B)  1,000 units. 
C)  1,200 units. 
D)  1,400 units.

Question 14

Government borrowing

Accepted Answer

A)  is the primary means of financing public expenditures. 
B)  provides a stimulus to government spending with no opportunity cost. 
C)  may crowd out private sector investment. 
D)  is prohibited by the U.S. constitution. 
A)  is the primary means of financing public expenditures. 
B)  provides a stimulus to government spending with no opportunity cost. 
C)  may crowd out private sector investment. 
D)  is prohibited by the U.S. constitution.

Question 15

Federal employment in the United States is dominated by what two functions?

Accepted Answer

A)  national defense and postal service 
B)  health care and police 
C)  postal service and education 
D)  health care and national defense 
A)  national defense and postal service 
B)  health care and police 
C)  postal service and education 
D)  health care and national defense

Question 16

Assume the supply curve for product X is perfectly elastic and that government imposes a $2-per-unit excise tax. We can conclude that the resulting

Accepted Answer

A)  increase in output will be greater the less elastic the demand curve. 
B)  decrease in output will be greater the less elastic the demand curve. 
C)  decrease in output will be greater the more elastic the demand curve. 
D)  increase in output will be greater the more elastic the demand curve. 
A)  increase in output will be greater the less elastic the demand curve. 
B)  decrease in output will be greater the less elastic the demand curve. 
C)  decrease in output will be greater the more elastic the demand curve. 
D)  increase in output will be greater the more elastic the demand curve.

Question 17

In designing taxes, the government economists might focus on the following goals, except

Accepted Answer

A)  minimizing efficiency losses. 
B)  redistributing income or wealth from one group to another. 
C)  reducing the negative externalities of certain activities. 
D)  simplifying the estimation of demand elasticities that are relevant to tax incidence. 
A)  minimizing efficiency losses. 
B)  redistributing income or wealth from one group to another. 
C)  reducing the negative externalities of certain activities. 
D)  simplifying the estimation of demand elasticities that are relevant to tax incidence.

Question 18

128. (Last Word) For each dollar paid in taxes, approximately how much do households in the top quintile receive back in the form of government expenditures?

Accepted Answer

A)  12 cents 
B)  41 cents 
C)  29 cents 
D)  71 cents 
A)  12 cents 
B)  41 cents 
C)  29 cents 
D)  71 cents

Question 19

Sales and excise taxes are levied on retailers, but retailers add these taxes to the prices of their products. This illustrates the

Accepted Answer

A)  equal sacrifice theory of taxation. 
B)  shifting of taxes to consumers. 
C)  ability-to-pay principle of taxation. 
D)  benefits-received principle of taxation. 
A)  equal sacrifice theory of taxation. 
B)  shifting of taxes to consumers. 
C)  ability-to-pay principle of taxation. 
D)  benefits-received principle of taxation.

Question 20

Economists Chamberlain and Prante of the Tax Foundation note that if the U.S. population in 2012 were grouped into quintiles by income,

Accepted Answer

A)  only the top income quintile paid more in taxes than the benefits they received from government spending. 
B)  the top two income quintiles paid more in taxes than the benefits they received from government spending. 
C)  the top three income quintiles paid more in taxes than the benefits they received from government spending. 
D)  only the bottom income quintile paid less in taxes than the benefits they received from government spending. 
A)  only the top income quintile paid more in taxes than the benefits they received from government spending. 
B)  the top two income quintiles paid more in taxes than the benefits they received from government spending. 
C)  the top three income quintiles paid more in taxes than the benefits they received from government spending. 
D)  only the bottom income quintile paid less in taxes than the benefits they received from government spending.

Exam 20: Public Finance: Expenditures and Taxes

With a proportional tax, higher-income persons will pay

The burden of a specific sales tax falls entirely on the consumer when the

The marginal tax rate is

If the demand for a product is perfectly inelastic and the supply curve is upsloping, a $1 excise tax per unit of output will

(Consider This) Proponents of a value-added tax (VAT) claim that a VAT

If the demand for a product is perfectly inelastic, the incidence of an excise tax will be

In 2014, based on data from the OECD, the government's total tax revenue as a percentage of total output was highest in which of the following nations?

Which of the following statements about government borrowing is not true?

A regressive tax means that if someone earning $25,000 pays $5,000, someone earning $50,000 must pay

The benefits-received principle of taxation is used to support corporate and personal income taxes.

From 1960 to 2015, government purchases as a percentage of U.S. output have

With a tax of $4,000 on $24,000 taxable income, the average tax rate is

Government borrowing

Federal employment in the United States is dominated by what two functions?

Assume the supply curve for product X is perfectly elastic and that government imposes a $2-per-unit excise tax. We can conclude that the resulting

In designing taxes, the government economists might focus on the following goals, except

128. (Last Word) For each dollar paid in taxes, approximately how much do households in the top quintile receive back in the form of government expenditures?

Sales and excise taxes are levied on retailers, but retailers add these taxes to the prices of their products. This illustrates the

Economists Chamberlain and Prante of the Tax Foundation note that if the U.S. population in 2012 were grouped into quintiles by income,

Limits, Alternatives, and Choices

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