Question 1

Taxable income is

Accepted Answer

A)  total income less deductions and exemptions. 
B)  the same as gross income. 
C)  the only income to which marginal tax rates apply. 
D)  the sum of all wage and property income. 
A)  total income less deductions and exemptions. 
B)  the same as gross income. 
C)  the only income to which marginal tax rates apply. 
D)  the sum of all wage and property income.

Question 2

If everyone pays a fixed dollar amount of tax, then the tax is a

Accepted Answer

A)  proportional tax. 
B)  regressive tax. 
C)  personal tax. 
D)  marginal tax. 
A)  proportional tax. 
B)  regressive tax. 
C)  personal tax. 
D)  marginal tax.

Question 3

Most economists believe that property taxes

Accepted Answer

A)  should be eliminated. 
B)  are progressive. 
C)  are regressive. 
D)  should become an important source of revenue for the federal government. 
A)  should be eliminated. 
B)  are progressive. 
C)  are regressive. 
D)  should become an important source of revenue for the federal government.

Question 4

Tax shifting refers to the fact that

Accepted Answer

A)  sellers will try to pass the burden of an excise tax on to the buyers. 
B)  high-income groups tend to pay a higher average tax rate than low-income groups. 
C)  as one earns a higher income, one shifts to a high tax bracket. 
D)  a nation can sometimes shift from a progressive tax structure to one that is regressive. 
A)  sellers will try to pass the burden of an excise tax on to the buyers. 
B)  high-income groups tend to pay a higher average tax rate than low-income groups. 
C)  as one earns a higher income, one shifts to a high tax bracket. 
D)  a nation can sometimes shift from a progressive tax structure to one that is regressive.

Question 5

(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 after the excise tax is imposed is

Accepted Answer

A)  750 units. 
B)  850 units. 
C)  875 units. 
D)  950 units. 
A)  750 units. 
B)  850 units. 
C)  875 units. 
D)  950 units.

Question 6

Given demand, the more inelastic the supply of a product, the larger the portion of an excise tax that is borne by producers.

Accepted Answer

A) True 
 B)False

Question 7

Total governmental purchases-federal, state, and local combined-accounted for about what percentage of domestic output in 2015?

Accepted Answer

A)  35 percent 
B)  18 percent 
C)  10 percent 
D)  5 percent 
A)  35 percent 
B)  18 percent 
C)  10 percent 
D)  5 percent

Question 8

The circular flow model with government included would show that government

Accepted Answer

A)  controls economic resources and sells them in the resource market. 
B)  produces goods and services and sells them in the product market to generate net taxes. 
C)  provides goods and services to businesses and households and pays for them with net taxes. 
D)  obtains revenues in the product market and uses them to cover costs in the resource market. 
A)  controls economic resources and sells them in the resource market. 
B)  produces goods and services and sells them in the product market to generate net taxes. 
C)  provides goods and services to businesses and households and pays for them with net taxes. 
D)  obtains revenues in the product market and uses them to cover costs in the resource market.

Question 9

A person whose income has increased from $10,000 to $20,000 finds that her federal marginal tax rate has increased from 18 percent to 22 percent. This is an example of a

Accepted Answer

A)  regressive tax. 
B)  progressive tax. 
C)  proportional tax. 
D)  fair tax. 
A)  regressive tax. 
B)  progressive tax. 
C)  proportional tax. 
D)  fair tax.

Question 10

(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 efficiency loss of this tax is

Accepted Answer

A)  $125.00. 
B)  $62.50. 
C)  $87.50. 
D)  $1.00. 
A)  $125.00. 
B)  $62.50. 
C)  $87.50. 
D)  $1.00.

Question 11

In 2013, U.S. governments (local, state, and federal) employed roughly what percentage of the U.S. labor force?

Accepted Answer

A)  5 percent 
B)  14 percent 
C)  42 percent 
D)  64 percent 
A)  5 percent 
B)  14 percent 
C)  42 percent 
D)  64 percent

Question 12

The rationale for ability-to-pay taxation and the contention that those with large incomes should pay more taxes both absolutely and relatively is that

Accepted Answer

A)  high-income receivers are generally in a better position to shift taxes than are low-income receivers. 
B)  the transfer system is regressive and it is therefore essential to have an offsetting progressive tax structure. 
C)  rational consumers spend their first dollars of income on the most urgently desired goods and successive dollars on less essential goods. 
D)  taxes should be paid for financing public goods in direct proportion to the satisfaction an individual derives from those goods. 
A)  high-income receivers are generally in a better position to shift taxes than are low-income receivers. 
B)  the transfer system is regressive and it is therefore essential to have an offsetting progressive tax structure. 
C)  rational consumers spend their first dollars of income on the most urgently desired goods and successive dollars on less essential goods. 
D)  taxes should be paid for financing public goods in direct proportion to the satisfaction an individual derives from those goods.

Question 13

(Consider This) A value-added tax (VAT)

Accepted Answer

A)  is another name for a retail sales tax but is otherwise the same. 
B)  is like a sales tax but is only imposed on the difference between a firm's sales and its purchases from other firms. 
C)  is like an income tax but is only imposed on the difference between a person's income and his or her consumption. 
D)  only applies to imported goods. 
A)  is another name for a retail sales tax but is otherwise the same. 
B)  is like a sales tax but is only imposed on the difference between a firm's sales and its purchases from other firms. 
C)  is like an income tax but is only imposed on the difference between a person's income and his or her consumption. 
D)  only applies to imported goods.

Question 14

Indy currently earns $50,000 in taxable income and pays $8,000 in taxes. Suppose that Indy faces a marginal tax rate of 25 percent and his boss offers him a raise of $2,000 per year. Indy should

Accepted Answer

A)  accept the raise because his after-tax income will rise by $1,500. 
B)  reject the raise because his after-tax income will fall by $3,000. 
C)  reject the raise because his after-tax income will fall by $4,500. 
D)  reject the raise because his after-tax income will fall by $6,000. 
A)  accept the raise because his after-tax income will rise by $1,500. 
B)  reject the raise because his after-tax income will fall by $3,000. 
C)  reject the raise because his after-tax income will fall by $4,500. 
D)  reject the raise because his after-tax income will fall by $6,000.

Question 15

The largest expenditure of the U.S. federal government is for

Accepted Answer

A)  education. 
B)  national defense. 
C)  pensions and income security. 
D)  interest on public debt. 
A)  education. 
B)  national defense. 
C)  pensions and income security. 
D)  interest on public debt.

Question 16

From 1960 to 2015, government purchases in the United States have shrunk as a percentage of GDP, but transfer payments have expanded greatly.

Accepted Answer

A) True 
 B)False

Question 17

An income tax is progressive if the

Accepted Answer

A)  absolute amount paid as taxes varies directly with income. 
B)  percentage of income paid as taxes is the same regardless of the size of income. 
C)  percentage of income paid as taxes increases as income increases. 
D)  tax rate varies inversely with income. 
A)  absolute amount paid as taxes varies directly with income. 
B)  percentage of income paid as taxes is the same regardless of the size of income. 
C)  percentage of income paid as taxes increases as income increases. 
D)  tax rate varies inversely with income.

Question 18

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that consumers pay $1.80 of the tax and the producers pay $.20, we can conclude that the

Accepted Answer

A)  supply of X is highly inelastic. 
B)  supply of X is highly elastic. 
C)  demand for X is highly inelastic. 
D)  demand for X is highly elastic. 
A)  supply of X is highly inelastic. 
B)  supply of X is highly elastic. 
C)  demand for X is highly inelastic. 
D)  demand for X is highly elastic.

Question 19

A tax that takes a larger proportion of income from low-income groups than from high-income groups is a

Accepted Answer

A)  stabilizing tax. 
B)  regressive tax. 
C)  progressive tax. 
D)  proportional tax. 
A)  stabilizing tax. 
B)  regressive tax. 
C)  progressive tax. 
D)  proportional tax.

Question 20

Which of the following is an exhaustive governmental outlay?

Accepted Answer

A)  a federal $5,000 subsidy check to an Illinois farmer 
B)  a Temporary Assistance to Needy Families payment made by the state of New York 
C)  a NASA payment to Boeing Corporation for space hardware 
D)  a federal old age insurance payment to a retired coal miner 
A)  a federal $5,000 subsidy check to an Illinois farmer 
B)  a Temporary Assistance to Needy Families payment made by the state of New York 
C)  a NASA payment to Boeing Corporation for space hardware 
D)  a federal old age insurance payment to a retired coal miner

Exam 20: Public Finance: Expenditures and Taxes

Taxable income is

If everyone pays a fixed dollar amount of tax, then the tax is a

Most economists believe that property taxes

Tax shifting refers to the fact that

Given demand, the more inelastic the supply of a product, the larger the portion of an excise tax that is borne by producers.

Total governmental purchases-federal, state, and local combined-accounted for about what percentage of domestic output in 2015?

The circular flow model with government included would show that government

A person whose income has increased from $10,000 to $20,000 finds that her federal marginal tax rate has increased from 18 percent to 22 percent. This is an example of a

In 2013, U.S. governments (local, state, and federal) employed roughly what percentage of the U.S. labor force?

The rationale for ability-to-pay taxation and the contention that those with large incomes should pay more taxes both absolutely and relatively is that

(Consider This) A value-added tax (VAT)

Indy currently earns $50,000 in taxable income and pays $8,000 in taxes. Suppose that Indy faces a marginal tax rate of 25 percent and his boss offers him a raise of $2,000 per year. Indy should

The largest expenditure of the U.S. federal government is for

From 1960 to 2015, government purchases in the United States have shrunk as a percentage of GDP, but transfer payments have expanded greatly.

An income tax is progressive if the

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that consumers pay $1.80 of the tax and the producers pay $.20, we can conclude that the

A tax that takes a larger proportion of income from low-income groups than from high-income groups is a

Which of the following is an exhaustive governmental outlay?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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