Question 1

In what way is corporate income subject to double taxation?

Accepted Answer

The double taxation of corpora

Question 2

Suppose you purchased 100 shares of stock in 2016 for $25 a share and you sell them today for $30 a share. If the capital gains tax is 30 percent, your tax liability is

Accepted Answer

A)  $70. 
B)  $150. 
C)  $500. 
D)  indeterminate without knowing the inflation rate. 
A)  $70. 
B)  $150. 
C)  $500. 
D)  indeterminate without knowing the inflation rate.

Question 3

If a tax system is progressive, then

Accepted Answer

A)  the average and the marginal tax rates are equal. 
B)  the marginal tax rate is greater than the average tax rate as income rises. 
C)  the marginal tax rate is lower than the average tax rate as income rises. 
D)  the average tax rate is constant, but the dollar amount paid in taxes increases as income increases. 
A)  the average and the marginal tax rates are equal. 
B)  the marginal tax rate is greater than the average tax rate as income rises. 
C)  the marginal tax rate is lower than the average tax rate as income rises. 
D)  the average tax rate is constant, but the dollar amount paid in taxes increases as income increases.

Question 4

The imposition of a new excise tax will

Accepted Answer

A)  increase equilibrium price and increase equilibrium quantity. 
B)  increase equilibrium price and decrease equilibrium quantity. 
C)  decrease equilibrium price and increase equilibrium quantity. 
D)  decrease equilibrium price and decrease equilibrium quantity. 
A)  increase equilibrium price and increase equilibrium quantity. 
B)  increase equilibrium price and decrease equilibrium quantity. 
C)  decrease equilibrium price and increase equilibrium quantity. 
D)  decrease equilibrium price and decrease equilibrium quantity.

Question 5

Retained earnings are

Accepted Answer

A)  the funds held back to pay out dividends. 
B)  the funds used to pay corporate taxes. 
C)  profits not given out to stockholders. 
D)  the reason there is double taxation. 
A)  the funds held back to pay out dividends. 
B)  the funds used to pay corporate taxes. 
C)  profits not given out to stockholders. 
D)  the reason there is double taxation.

Question 6

Over the long run, the fundamental funding sources for the government include

Accepted Answer

A)  borrowing. 
B)  transfers between government agencies. 
C)  taxes. 
D)  lending. 
A)  borrowing. 
B)  transfers between government agencies. 
C)  taxes. 
D)  lending.

Question 7

What are the three sources of funding for the public sector? Can the government rely on all of these sources in the long run? Explain.

Accepted Answer

The three sources are (1) explicit user

Question 8

The marginal income tax rate applies to

Accepted Answer

A)  all income earned by a family. 
B)  the income in the highest tax bracket reached. 
C)  the income of the highest income U.S. taxpayers. 
D)  the income received by people above the national average. 
A)  all income earned by a family. 
B)  the income in the highest tax bracket reached. 
C)  the income of the highest income U.S. taxpayers. 
D)  the income received by people above the national average.

Question 9

An excise tax

Accepted Answer

A)  acts as a negative incentive to consume that good or service. 
B)  is illegal in Florida, Georgia, and Alaska. 
C)  is often used to encourage the use of a good. 
D)  is a value added tax (VAT). 
A)  acts as a negative incentive to consume that good or service. 
B)  is illegal in Florida, Georgia, and Alaska. 
C)  is often used to encourage the use of a good. 
D)  is a value added tax (VAT).

Question 10

Explain how corporate profits are taxed twice.

Accepted Answer

Corporate profits are taxed by the corpo

Question 11

Which of the following statements about taxation is TRUE?

Accepted Answer

A)  Increasing taxes will always increase tax revenues. 
B)  Static tax analysis recognizes that an increase in taxation could lead to a decrease in tax revenues. 
C)  Dynamic tax analysis assumes that an increase in taxation will leave the tax base unchanged. 
D)  There is a tax rate at which tax revenues are maximized. 
A)  Increasing taxes will always increase tax revenues. 
B)  Static tax analysis recognizes that an increase in taxation could lead to a decrease in tax revenues. 
C)  Dynamic tax analysis assumes that an increase in taxation will leave the tax base unchanged. 
D)  There is a tax rate at which tax revenues are maximized.

Question 12

An ad valorem sales tax can be thought of as

Accepted Answer

A)  a proportional tax. 
B)  not part of the tax base. 
C)  a progressive tax. 
D)  none of the above. 
A)  a proportional tax. 
B)  not part of the tax base. 
C)  a progressive tax. 
D)  none of the above.

Question 13

A 5 percent tax is going to be applied to a $100,000 tax base. What can be said about the revenue collected assuming static tax analysis?

Accepted Answer

A)  The total revenue will be zero. 
B)  The total revenue will be between $0 and $5,000. 
C)  The total revenue will be $5,000. 
D)  There is not enough information to determine what revenues will equal. 
A)  The total revenue will be zero. 
B)  The total revenue will be between $0 and $5,000. 
C)  The total revenue will be $5,000. 
D)  There is not enough information to determine what revenues will equal.

Question 14

A local government currently has a tax base of $4 million and a tax rate of 5 percent. If the tax rate is increased to 6 percent, the tax base will decrease to $3.5 million. If the goal is to maximize tax revenues the tax rate should be

Accepted Answer

A)  lowered below 5 percent. 
B)  kept at 5 percent. 
C)  raised to 6 percent. 
D)  abolished. 
A)  lowered below 5 percent. 
B)  kept at 5 percent. 
C)  raised to 6 percent. 
D)  abolished.

Question 15

A current concern about Social Security is that

Accepted Answer

A)  funds set aside by past generations to pay benefits for future generations are growing too rapidly and may trigger inflation. 
B)  promised benefit payouts are growing more rapidly than likely sources of revenues, indicating a future inability to keep the system operating. 
C)  continued political bickering between the president and Congress could lead to an end to any funding of the program. 
D)  the payroll taxes used to fund the program are being eliminated as part of an effort to generate employment increases, thus leaving the program bankrupt. 
A)  funds set aside by past generations to pay benefits for future generations are growing too rapidly and may trigger inflation. 
B)  promised benefit payouts are growing more rapidly than likely sources of revenues, indicating a future inability to keep the system operating. 
C)  continued political bickering between the president and Congress could lead to an end to any funding of the program. 
D)  the payroll taxes used to fund the program are being eliminated as part of an effort to generate employment increases, thus leaving the program bankrupt.

Question 16

The tax that brings in the most revenue in the United States is the

Accepted Answer

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

Question 17

A state tax assessed specifically on cigarettes is an example of

Accepted Answer

A)  an excise tax. 
B)  a consumption tax. 
C)  a social tax. 
D)  a tariff. 
A)  an excise tax. 
B)  a consumption tax. 
C)  a social tax. 
D)  a tariff.

Question 18

What happens when the government imposes a unit excise tax on a good?

Accepted Answer

A)  The amount of the tax is added to the current equilibrium price. 
B)  The demand for the newly taxed good decreases. 
C)  That good's supply curve shifts down by the amount of the tax. 
D)  The newly taxed good's supply curve shifts vertically upward by the amount of the per-unit tax being levied. 
A)  The amount of the tax is added to the current equilibrium price. 
B)  The demand for the newly taxed good decreases. 
C)  That good's supply curve shifts down by the amount of the tax. 
D)  The newly taxed good's supply curve shifts vertically upward by the amount of the per-unit tax being levied.

Question 19

The average tax rate is defined as

Accepted Answer

A)  total tax due/change in taxable income. 
B)  total tax due/total taxable income. 
C)  change in taxes due/change in taxable income. 
D)  change in taxes due/total taxable income. 
A)  total tax due/change in taxable income. 
B)  total tax due/total taxable income. 
C)  change in taxes due/change in taxable income. 
D)  change in taxes due/total taxable income.

Question 20

Some economists argue that corporate income taxes are typically not paid by firms, but by

Accepted Answer

A)  stockholders, employees, and consumers. 
B)  the government. 
C)  bond holders. 
D)  the board of directors of the firm. 
A)  stockholders, employees, and consumers. 
B)  the government. 
C)  bond holders. 
D)  the board of directors of the firm.

Exam 6: Funding the Public Sector

In what way is corporate income subject to double taxation?

Suppose you purchased 100 shares of stock in 2016 for $25 a share and you sell them today for $30 a share. If the capital gains tax is 30 percent, your tax liability is

If a tax system is progressive, then

The imposition of a new excise tax will

Retained earnings are

Over the long run, the fundamental funding sources for the government include

What are the three sources of funding for the public sector? Can the government rely on all of these sources in the long run? Explain.

The marginal income tax rate applies to

An excise tax

Explain how corporate profits are taxed twice.

Which of the following statements about taxation is TRUE?

An ad valorem sales tax can be thought of as

A 5 percent tax is going to be applied to a $100,000 tax base. What can be said about the revenue collected assuming static tax analysis?

A local government currently has a tax base of $4 million and a tax rate of 5 percent. If the tax rate is increased to 6 percent, the tax base will decrease to $3.5 million. If the goal is to maximize tax revenues the tax rate should be

A current concern about Social Security is that

The tax that brings in the most revenue in the United States is the

A state tax assessed specifically on cigarettes is an example of

What happens when the government imposes a unit excise tax on a good?

The average tax rate is defined as

Some economists argue that corporate income taxes are typically not paid by firms, but by

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

Filters