Question 1

A friend tells you he is studying the incidence of the corporate income tax. What is the subject of his study?

Accepted Answer

A)  how frequently corporations should be taxed 
B)  how inflation affects the amount of tax revenue collected from firms 
C)  how corporations can aid the government in collecting delinquent taxes 
D)  how the burden of corporate taxation is distributed among stockholders, employees, and consumers 
A)  how frequently corporations should be taxed 
B)  how inflation affects the amount of tax revenue collected from firms 
C)  how corporations can aid the government in collecting delinquent taxes 
D)  how the burden of corporate taxation is distributed among stockholders, employees, and consumers D

Question 2

Dynamic tax analysis generally predicts

Accepted Answer

A)  that the higher the tax rate is, the higher the tax revenue will continue to be into the future. 
B)  that the higher tax rates lead to higher revenues only to a point at which revenues will begin to decrease due to a diminishing tax base. 
C)  that lower tax rates will always and continuously lead to increased tax revenues. 
D)  that lower tax rates are always going to lead to decreased tax revenues. 
A)  that the higher the tax rate is, the higher the tax revenue will continue to be into the future. 
B)  that the higher tax rates lead to higher revenues only to a point at which revenues will begin to decrease due to a diminishing tax base. 
C)  that lower tax rates will always and continuously lead to increased tax revenues. 
D)  that lower tax rates are always going to lead to decreased tax revenues. B

Question 3

Assume a family that earns $20,000 pays $2,000 in income taxes, while a family that earns $40,000 pays $3,000 in income taxes. In this situation, the income tax system is

Accepted Answer

A)  progressive. 
B)  regressive. 
C)  proportional. 
D)  one of the above but we cannot tell which one without more information. 
A)  progressive. 
B)  regressive. 
C)  proportional. 
D)  one of the above but we cannot tell which one without more information. B

Question 4

The U.S. Social Security tax is an example of a

Accepted Answer

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

Question 5

Which of the following statements is TRUE of static tax analysis?

Accepted Answer

A)  A government receives lower tax revenues by raising the tax rate. 
B)  A government receives higher tax revenues by raising the tax rate. 
C)  A government cannot change it tax revenues by changing the tax rate. 
D)  A change in the tax rate can raise or lower tax revenues, depending on other factors. 
A)  A government receives lower tax revenues by raising the tax rate. 
B)  A government receives higher tax revenues by raising the tax rate. 
C)  A government cannot change it tax revenues by changing the tax rate. 
D)  A change in the tax rate can raise or lower tax revenues, depending on other factors.

Question 6

Suppose the income tax rate is 0 percent on the first $10,000; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on all income above $70,000. Family A has income of $100,000 while Family B has income of $40,000. The marginal tax rates faced by the two families are

Accepted Answer

A)  40 percent on A and 10 percent on B. 
B)  40 percent on A and 20 percent on B. 
C)  30 percent on A and 20 percent on B. 
D)  30 percent on A and 30 percent on B. 
A)  40 percent on A and 10 percent on B. 
B)  40 percent on A and 20 percent on B. 
C)  30 percent on A and 20 percent on B. 
D)  30 percent on A and 30 percent on B.

Question 7

Unit excise taxes imposed on gasoline are

Accepted Answer

A)  largely paid by the producers because gasoline is a necessity. 
B)  largely paid by consumers because they are not very responsive to price changes. 
C)  shared equally between the producer and the consumer. 
D)  paid by the wholesalers of these products. 
A)  largely paid by the producers because gasoline is a necessity. 
B)  largely paid by consumers because they are not very responsive to price changes. 
C)  shared equally between the producer and the consumer. 
D)  paid by the wholesalers of these products.

Question 8

According to the government budget constraint, any excess of public expenditures and transfers over taxes and user fees must be funded by

Accepted Answer

A)  private borrowing. 
B)  government borrowing. 
C)  U.S. Treasury money creation. 
D)  Federal Reserve money creation. 
A)  private borrowing. 
B)  government borrowing. 
C)  U.S. Treasury money creation. 
D)  Federal Reserve money creation.

Question 9

Local government expenditures depend on which taxes?

Accepted Answer

A)  revenues from licenses and permits 
B)  local property, sales, and excise taxes 
C)  capital gains taxes 
D)  Social Security taxes 
A)  revenues from licenses and permits 
B)  local property, sales, and excise taxes 
C)  capital gains taxes 
D)  Social Security taxes

Question 10

-An excise tax is a tax that is levied on

Accepted Answer

A)  the value of a piece of property. 
B)  the purchase of a given good or service. 
C)  the value of an estate. 
D)  that part of a person's income coming from interest payments. 
A)  the value of a piece of property. 
B)  the purchase of a given good or service. 
C)  the value of an estate. 
D)  that part of a person's income coming from interest payments.

Question 11

The distribution of tax burdens among various groups in society is referred to as

Accepted Answer

A)  sectioning. 
B)  regressive placement. 
C)  zero-base budgeting. 
D)  tax incidence. 
A)  sectioning. 
B)  regressive placement. 
C)  zero-base budgeting. 
D)  tax incidence.

Question 12

-Using the above figure, which of the lines in the above diagram represents a proportional tax?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  none of them 
A)  A 
B)  B 
C)  C 
D)  none of them

Question 13

A local government currently has a tax base of $10 million and a tax rate of 10 percent. If the tax rate is increased to 12 percent, the tax base becomes $8.5 million. If the goal is to maximize tax revenues the tax rate should be

Accepted Answer

A)  raised above 12 percent. 
B)  kept at 10 percent. 
C)  raised to 12 percent. 
D)  abolished. 
A)  raised above 12 percent. 
B)  kept at 10 percent. 
C)  raised to 12 percent. 
D)  abolished.

Question 14

The largest source of receipts for the federal government is

Accepted Answer

A)  corporate income taxes. 
B)  personal income taxes. 
C)  capital gains taxes. 
D)  Social Security taxes. 
A)  corporate income taxes. 
B)  personal income taxes. 
C)  capital gains taxes. 
D)  Social Security taxes.

Question 15

-Refer to the above figure. A unit tax has been placed on the good. The producer pays what amount of the tax?

Accepted Answer

A)  none of the tax 
B)  P2 - P0 
C)  P2 - P1 
D)  P1 - P0 
A)  none of the tax 
B)  P2 - P0 
C)  P2 - P1 
D)  P1 - P0

Question 16

The sum of public spending on goods and services and transfer payments during a given period cannot exceed tax revenues plus borrowed funds. This is the statement for

Accepted Answer

A)  ad valorem taxation. 
B)  an excise tax. 
C)  a sales tax. 
D)  the government budget constraint. 
A)  ad valorem taxation. 
B)  an excise tax. 
C)  a sales tax. 
D)  the government budget constraint.

Question 17

Social Security taxes are regressive because

Accepted Answer

A)  they apply only to rich people. 
B)  they are not applied to income beyond a certain amount. 
C)  they are applied to welfare recipients. 
D)  they are applied to retired people only. 
A)  they apply only to rich people. 
B)  they are not applied to income beyond a certain amount. 
C)  they are applied to welfare recipients. 
D)  they are applied to retired people only.

Question 18

Current concern about Social Security is that

Accepted Answer

A)  the fund is growing too rapidly and would trigger inflation. 
B)  the fund might be depleted before long and might not be there for workers who retire later. 
C)  the government is planning to phase out the program. 
D)  none of the above 
A)  the fund is growing too rapidly and would trigger inflation. 
B)  the fund might be depleted before long and might not be there for workers who retire later. 
C)  the government is planning to phase out the program. 
D)  none of the above

Question 19

A tax rate system characterized by higher marginal tax rates as income increases is known as

Accepted Answer

A)  a progressive tax system. 
B)  a regressive tax system. 
C)  a proportional tax system. 
D)  a flat-rate tax system. 
A)  a progressive tax system. 
B)  a regressive tax system. 
C)  a proportional tax system. 
D)  a flat-rate tax system.

Question 20

What is meant by the term "tax incidence"? What is the tax incidence of the personal income tax? What is the tax incidence of the corporate income tax?

Accepted Answer

Tax incidence refers to the distribution

Exam 6: Funding the Public Sector

A friend tells you he is studying the incidence of the corporate income tax. What is the subject of his study?

Dynamic tax analysis generally predicts

Assume a family that earns $20,000 pays $2,000 in income taxes, while a family that earns $40,000 pays $3,000 in income taxes. In this situation, the income tax system is

The U.S. Social Security tax is an example of a

Which of the following statements is TRUE of static tax analysis?

Unit excise taxes imposed on gasoline are

According to the government budget constraint, any excess of public expenditures and transfers over taxes and user fees must be funded by

Local government expenditures depend on which taxes?

-An excise tax is a tax that is levied on

The distribution of tax burdens among various groups in society is referred to as

-Using the above figure, which of the lines in the above diagram represents a proportional tax?

A local government currently has a tax base of $10 million and a tax rate of 10 percent. If the tax rate is increased to 12 percent, the tax base becomes $8.5 million. If the goal is to maximize tax revenues the tax rate should be

The largest source of receipts for the federal government is

-Refer to the above figure. A unit tax has been placed on the good. The producer pays what amount of the tax?

The sum of public spending on goods and services and transfer payments during a given period cannot exceed tax revenues plus borrowed funds. This is the statement for

Social Security taxes are regressive because

Current concern about Social Security is that

A tax rate system characterized by higher marginal tax rates as income increases is known as

What is meant by the term "tax incidence"? What is the tax incidence of the personal income tax? What is the tax incidence of the corporate income tax?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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