Question 1

A 5 percent tax is going to be applied to a $100,000 tax base. What can be said about the revenue collected assuming dynamic 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 2

Which of the following statements about excise taxes is TRUE?

Accepted Answer

A)  The producer will increase the price of the good by the amount of the excise tax. 
B)  The equilibrium price will increase and the equilibrium quantity will remain unchanged. 
C)  Both the consumer and producer pay part of the excise tax. 
D)  Consumers will refuse to pay excise taxes forcing the producers to pay it. 
A)  The producer will increase the price of the good by the amount of the excise tax. 
B)  The equilibrium price will increase and the equilibrium quantity will remain unchanged. 
C)  Both the consumer and producer pay part of the excise tax. 
D)  Consumers will refuse to pay excise taxes forcing the producers to pay it.

Question 3

Which of the following is subject to double taxation?

Accepted Answer

A)  income earned by people in the lowest tax bracket 
B)  Social Security income 
C)  dividends and retained earnings 
D)  income earned by government employees 
A)  income earned by people in the lowest tax bracket 
B)  Social Security income 
C)  dividends and retained earnings 
D)  income earned by government employees

Question 4

Should the government wish to lower the price of gasoline to the consumer, one approach might be

Accepted Answer

A)  to raise the gasoline excise tax. 
B)  to reduce the gasoline excise tax. 
C)  to take action to shift the supply curve of gasoline to the left. 
D)  to lower taxes on automobiles. 
A)  to raise the gasoline excise tax. 
B)  to reduce the gasoline excise tax. 
C)  to take action to shift the supply curve of gasoline to the left. 
D)  to lower taxes on automobiles.

Question 5

Jamal earns $160,000 per year and Josephina earns $80,000 per year. If Jamal pays $16,000 in income taxes and Josephina pays $8,000 in income taxes, the income tax system would be

Accepted Answer

A)  regressive. 
B)  progressive. 
C)  proportional. 
D)  marginal. 
A)  regressive. 
B)  progressive. 
C)  proportional. 
D)  marginal.

Question 6

The imposition of a unit excise tax on red wine will

Accepted Answer

A)  lower equilibrium price and quantity in the market. 
B)  increase equilibrium quantity and price in the market. 
C)  lower equilibrium quantity and raise equilibrium price in the market. 
D)  raise equilibrium quantity and lower equilibrium price in the market. 
A)  lower equilibrium price and quantity in the market. 
B)  increase equilibrium quantity and price in the market. 
C)  lower equilibrium quantity and raise equilibrium price in the market. 
D)  raise equilibrium quantity and lower equilibrium price in the market.

Question 7

Ad valorem taxation

Accepted Answer

A)  refers to the personal income tax. 
B)  is used to tax goods but not services. 
C)  is assessed by charging a tax rate as a fraction of the market price of a good. 
D)  is a tax that is applied only to imported goods. 
A)  refers to the personal income tax. 
B)  is used to tax goods but not services. 
C)  is assessed by charging a tax rate as a fraction of the market price of a good. 
D)  is a tax that is applied only to imported goods.

Question 8

The corporate income tax in the United States

Accepted Answer

A)  excludes dividends paid out. 
B)  only taxes retained earnings. 
C)  results in individuals' being doubly taxed on corporate earnings. 
D)  does not apply to profits earned on exports. 
A)  excludes dividends paid out. 
B)  only taxes retained earnings. 
C)  results in individuals' being doubly taxed on corporate earnings. 
D)  does not apply to profits earned on exports.

Question 9

A capital gain is defined as

Accepted Answer

A)  the tax paid when one sells an asset. 
B)  the positive difference between the sale price and the purchase price of an asset. 
C)  the tax rate one pays when one moves into a higher tax bracket. 
D)  an unanticipated increase in income. 
A)  the tax paid when one sells an asset. 
B)  the positive difference between the sale price and the purchase price of an asset. 
C)  the tax rate one pays when one moves into a higher tax bracket. 
D)  an unanticipated increase in income.

Question 10

Of the following, which is the largest source of government funds in the long run?

Accepted Answer

A)  government borrowing 
B)  money creation 
C)  user fees 
D)  taxation 
A)  government borrowing 
B)  money creation 
C)  user fees 
D)  taxation

Question 11

A major criticism of static tax analysis is that it

Accepted Answer

A)  uses only ad valorem taxes. 
B)  does not use ad valorem taxes. 
C)  ignores the incentive effects created by higher tax rates. 
D)  assumes that the tax base will not increase. 
A)  uses only ad valorem taxes. 
B)  does not use ad valorem taxes. 
C)  ignores the incentive effects created by higher tax rates. 
D)  assumes that the tax base will not increase.

Question 12

What is a government's budget constraint in the long run as opposed to a given time period?

Accepted Answer

In a given time period, the government b

Question 13

The Social Security system was founded

Accepted Answer

A)  during the Civil War, to pay pensions for veterans. 
B)  during the last years of the nineteenth century, as people who had once depended on having a family farm found themselves without a means of support. 
C)  as the United States began to recover from the Great Depression. 
D)  in response to concerns that arose during the high inflation of the 1970s. 
A)  during the Civil War, to pay pensions for veterans. 
B)  during the last years of the nineteenth century, as people who had once depended on having a family farm found themselves without a means of support. 
C)  as the United States began to recover from the Great Depression. 
D)  in response to concerns that arose during the high inflation of the 1970s.

Question 14

When income is $15,000, the amount of income income taxes owed is $2,000; when income increases to $20,000, the amount owed increases to $3,000. The marginal tax rate in this case is

Accepted Answer

A)  20 percent. 
B)  13.3 percent. 
C)  15 percent. 
D)  25 percent. 
A)  20 percent. 
B)  13.3 percent. 
C)  15 percent. 
D)  25 percent.

Question 15

If the government wishes to maximize its tax revenue, it should

Accepted Answer

A)  recognize that too high of a tax rate can decrease the tax base. 
B)  engage in static tax analysis. 
C)  recognize that an increase in the tax rate will lead to an increase in tax revenues. 
D)  use only flat taxes. 
A)  recognize that too high of a tax rate can decrease the tax base. 
B)  engage in static tax analysis. 
C)  recognize that an increase in the tax rate will lead to an increase in tax revenues. 
D)  use only flat taxes.

Question 16

An example of ad valorem taxation is

Accepted Answer

A)  a tax on luxury items. 
B)  the corporate income tax. 
C)  the personal income tax. 
D)  the Social Security tax. 
A)  a tax on luxury items. 
B)  the corporate income tax. 
C)  the personal income tax. 
D)  the Social Security tax.

Question 17

The marginal tax rate shows

Accepted Answer

A)  the percentage of income which a typical family pays in tax. 
B)  the average rate of taxation in the economy. 
C)  the deductions which are permitted for child care and medical expenses. 
D)  the extra tax due on an extra dollar of income. 
A)  the percentage of income which a typical family pays in tax. 
B)  the average rate of taxation in the economy. 
C)  the deductions which are permitted for child care and medical expenses. 
D)  the extra tax due on an extra dollar of income.

Question 18

Ad valorem taxation means

Accepted Answer

A)  that only the value added by a service provider is taxed. 
B)  that the tax rate is a percentage of the price paid for a product. 
C)  a negative income tax. 
D)  a progressive property tax imposed in some states. 
A)  that only the value added by a service provider is taxed. 
B)  that the tax rate is a percentage of the price paid for a product. 
C)  a negative income tax. 
D)  a progressive property tax imposed in some states.

Question 19

The tax base is

Accepted Answer

A)  the minimum amount of tax revenue that government must collect each year. 
B)  the maximum amount of tax revenue that government must collect each year. 
C)  the sum of all incomes earned in the United States. 
D)  the value of all goods, services, incomes, or wealth subject to taxation. 
A)  the minimum amount of tax revenue that government must collect each year. 
B)  the maximum amount of tax revenue that government must collect each year. 
C)  the sum of all incomes earned in the United States. 
D)  the value of all goods, services, incomes, or wealth subject to taxation.

Question 20

A tax levied on the purchase of a specific good or service is

Accepted Answer

A)  an excise tax. 
B)  a consumption tax. 
C)  a purchase tax. 
D)  a value tax. 
A)  an excise tax. 
B)  a consumption tax. 
C)  a purchase tax. 
D)  a value tax.

Exam 6: Funding the Public Sector

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

Which of the following statements about excise taxes is TRUE?

Which of the following is subject to double taxation?

Should the government wish to lower the price of gasoline to the consumer, one approach might be

Jamal earns $160,000 per year and Josephina earns $80,000 per year. If Jamal pays $16,000 in income taxes and Josephina pays $8,000 in income taxes, the income tax system would be

The imposition of a unit excise tax on red wine will

Ad valorem taxation

The corporate income tax in the United States

A capital gain is defined as

Of the following, which is the largest source of government funds in the long run?

A major criticism of static tax analysis is that it

What is a government's budget constraint in the long run as opposed to a given time period?

The Social Security system was founded

When income is $15,000, the amount of income income taxes owed is $2,000; when income increases to $20,000, the amount owed increases to $3,000. The marginal tax rate in this case is

If the government wishes to maximize its tax revenue, it should

An example of ad valorem taxation is

The marginal tax rate shows

Ad valorem taxation means

The tax base is

A tax levied on the purchase of a specific good or service is

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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