Question 1

The average tax rate measures the

Accepted Answer

A)  fraction of spending paid in taxes. 
B)  fraction of income paid in taxes. 
C)  incremental rate of tax on income. 
D)  average deadweight loss from all taxes. 
A)  fraction of spending paid in taxes. 
B)  fraction of income paid in taxes. 
C)  incremental rate of tax on income. 
D)  average deadweight loss from all taxes.

Question 2

Horizontal equity refers to a tax system in which individuals with similar incomes pay similar taxes.

Accepted Answer

A) True 
 B)False

Question 3

An efficient tax system is one that imposes small

Accepted Answer

A)  deadweight losses and administrative burdens. 
B)  marginal rates and deadweight losses. 
C)  administrative burdens and transfers of money. 
D)  marginal rates and transfers of money. 
A)  deadweight losses and administrative burdens. 
B)  marginal rates and deadweight losses. 
C)  administrative burdens and transfers of money. 
D)  marginal rates and transfers of money.

Question 4

How can a proportional tax achieve vertical equity?

Accepted Answer

Vertical equity is the idea that taxpaye

Question 5

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

Accepted Answer

Some economists believe that t

Question 6

The deadweight loss associated with a tax on a commodity is generated by

Accepted Answer

A)  the consumers who still choose to consume the commodity but pay a higher price that reflects the tax. 
B)  the consumers who choose to not consume the commodity that is taxed. 
C)  all citizens who are able to use services provided by government. 
D)  the consumers who are unable to avoid paying the tax. 
A)  the consumers who still choose to consume the commodity but pay a higher price that reflects the tax. 
B)  the consumers who choose to not consume the commodity that is taxed. 
C)  all citizens who are able to use services provided by government. 
D)  the consumers who are unable to avoid paying the tax.

Question 7

Suppose a recent increase in federal gasoline taxes is estimated to cause a $150 million reduction in the total surplus (consumer plus producer surplus) in the gasoline market. If tax revenues increased by $100 million, what is the deadweight loss associated with the tax? As a result of the tax, 10,000 people sold their cars and started riding their bicycles to work. How much of the burden of the deadweight loss is incurred by the bicycle riders?

Accepted Answer

The direct deadweight loss is $50 millio

Question 8

Which of the following statements is correct?

Accepted Answer

A)  Both tax avoidance and tax evasion are legal. 
B)  Both tax avoidance and tax evasion are illegal. 
C)  Tax avoidance is legal, whereas tax evasion is illegal. 
D)  Tax avoidance is illegal, whereas tax evasion is legal. 
A)  Both tax avoidance and tax evasion are legal. 
B)  Both tax avoidance and tax evasion are illegal. 
C)  Tax avoidance is legal, whereas tax evasion is illegal. 
D)  Tax avoidance is illegal, whereas tax evasion is legal.

Question 9

Table 12-17
The following table shows the marginal tax rates for unmarried individuals for two years.
2009 2010  
-Refer to Table 12-17. Suppose one goal of the tax system was to achieve vertical equity. While people may disagree about what is "equitable," based on the marginal tax rates given for the two years, which of the following statements is true?

Accepted Answer

A)  Vertical equity is possible in both years. 
B)  Vertical equity is possible in 2009 but not in 2010. 
C)  Vertical equity is not possible in 2009 but is possible in 2010. 
D)  Vertical equity is not possible in either year. 
A)  Vertical equity is possible in both years. 
B)  Vertical equity is possible in 2009 but not in 2010. 
C)  Vertical equity is not possible in 2009 but is possible in 2010. 
D)  Vertical equity is not possible in either year.

Question 10

Table 12-23
The dollar amounts in the last three columns are the taxes owed under the three different tax systems.  
-Refer to Table 12-23. Which of the three tax systems is proportional?

Accepted Answer

A)  Tax System A 
B)  Tax System B 
C)  Tax System C 
D)  None of the systems are proportional. 
A)  Tax System A 
B)  Tax System B 
C)  Tax System C 
D)  None of the systems are proportional.

Question 11

Which of the following statements is correct?

Accepted Answer

A)  The average tax rate gauges the sacrifice made by a taxpayer, whereas the marginal tax rate gauges the distortion of taxes on consumer decisions. 
B)  The marginal tax rate gauges the sacrifice made by a taxpayer, whereas the average tax rate gauges the distortion of taxes on consumer decisions. 
C)  The average tax rate measures how much the tax system discourages people from working. 
D)  The marginal tax rate measures total taxes paid divided by total income. 
A)  The average tax rate gauges the sacrifice made by a taxpayer, whereas the marginal tax rate gauges the distortion of taxes on consumer decisions. 
B)  The marginal tax rate gauges the sacrifice made by a taxpayer, whereas the average tax rate gauges the distortion of taxes on consumer decisions. 
C)  The average tax rate measures how much the tax system discourages people from working. 
D)  The marginal tax rate measures total taxes paid divided by total income.

Question 12

A tax on all forms of income will

Accepted Answer

A)  lower the effective rate of interest on savings. 
B)  have no effect on savings. 
C)  enhance social welfare because the benefits will outweigh the costs. 
D)  enhance the incentives to save. 
A)  lower the effective rate of interest on savings. 
B)  have no effect on savings. 
C)  enhance social welfare because the benefits will outweigh the costs. 
D)  enhance the incentives to save.

Question 13

Table 12-9
United States Income Tax Rates for a Single Individual, 2012 and 2013.  
-Refer to Table 12-9. Samantha is a single person whose taxable income is $100,000 a year. What happened to her average tax rate between 2012 and 2013?

Accepted Answer

A)  It increased. 
B)  It decreased. 
C)  It did not change. 
D)  We do not have enough information to answer this question. 
A)  It increased. 
B)  It decreased. 
C)  It did not change. 
D)  We do not have enough information to answer this question.

Question 14

If a government simplified its tax system the likeliest result would be a decrease in

Accepted Answer

A)  consumer surplus. 
B)  producer surplus. 
C)  in deadweight loss. 
D)  tax revenues. 
A)  consumer surplus. 
B)  producer surplus. 
C)  in deadweight loss. 
D)  tax revenues.

Question 15

High marginal income tax rates

Accepted Answer

A)  distort incentives to work. 
B)  are used to encourage saving behavior. 
C)  will invariably lead to lower average tax rates. 
D)  are not associated with deadweight losses. 
A)  distort incentives to work. 
B)  are used to encourage saving behavior. 
C)  will invariably lead to lower average tax rates. 
D)  are not associated with deadweight losses.

Question 16

Suppose Tyler values a basketball at $20. Jacqui values a basketball at $16. The pre-tax price of a basketball $15.The government imposes a tax of $2 on each basketball, and the price rises to $17. The deadweight loss from the tax is

Accepted Answer

A)  $1. 
B)  $2. 
C)  $3. 
D)  $6. 
A)  $1. 
B)  $2. 
C)  $3. 
D)  $6.

Question 17

Table 12-18
United States Income Tax Rates for a Single Individual, 2009 and 2010.  
-Refer to Table 12-18. What type of tax structure did the United States have in 2009 for single individuals?

Accepted Answer

A)  a proportional tax structure 
B)  a regressive tax structure 
C)  a progressive tax structure 
D)  a lump-sum tax structure 
A)  a proportional tax structure 
B)  a regressive tax structure 
C)  a progressive tax structure 
D)  a lump-sum tax structure

Question 18

The largest category of federal government spending is growing because

Accepted Answer

A)  the U.S. must spend more on national defense due to the war against terror. 
B)  the elderly population is increasing due to rising life expectancies. 
C)  expenditures on space exploration have increased dramatically. 
D)  expenditures on school voucher programs have increased dramatically. 
A)  the U.S. must spend more on national defense due to the war against terror. 
B)  the elderly population is increasing due to rising life expectancies. 
C)  expenditures on space exploration have increased dramatically. 
D)  expenditures on school voucher programs have increased dramatically.

Question 19

The government's health plan for the elderly is called

Accepted Answer

A)  Medicaid. 
B)  Medicare. 
C)  Social Security. 
D)  food stamps. 
A)  Medicaid. 
B)  Medicare. 
C)  Social Security. 
D)  food stamps.

Question 20

Table 12-4  
-Refer to Table 12-4. What is the average tax rate for a person who makes $130,000?

Accepted Answer

A)  30% 
B)  40% 
C)  50% 
D)  60% 
A)  30% 
B)  40% 
C)  50% 
D)  60%

Exam 12: The Design of the Tax System

The average tax rate measures the

Horizontal equity refers to a tax system in which individuals with similar incomes pay similar taxes.

An efficient tax system is one that imposes small

How can a proportional tax achieve vertical equity?

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

The deadweight loss associated with a tax on a commodity is generated by

Which of the following statements is correct?

Table 12-23 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-23. Which of the three tax systems is proportional?

Which of the following statements is correct?

A tax on all forms of income will

Table 12-9 United States Income Tax Rates for a Single Individual, 2012 and 2013. -Refer to Table 12-9. Samantha is a single person whose taxable income is $100,000 a year. What happened to her average tax rate between 2012 and 2013?

If a government simplified its tax system the likeliest result would be a decrease in

High marginal income tax rates

Suppose Tyler values a basketball at $20. Jacqui values a basketball at $16. The pre-tax price of a basketball $15.The government imposes a tax of $2 on each basketball, and the price rises to $17. The deadweight loss from the tax is

Table 12-18 United States Income Tax Rates for a Single Individual, 2009 and 2010. -Refer to Table 12-18. What type of tax structure did the United States have in 2009 for single individuals?

The largest category of federal government spending is growing because

The government's health plan for the elderly is called

Table 12-4 -Refer to Table 12-4. What is the average tax rate for a person who makes $130,000?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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