Question 1

Briefly describe why taxes create deadweight loss.

Accepted Answer

When the government imposes a

Question 2

In which of the following tax systems do taxes increase as income increases?

Accepted Answer

A)  both proportional and progressive 
B)  proportional but not progressive 
C)  progressive but not proportional 
D)  neither proportional nor progressive 
A)  both proportional and progressive 
B)  proportional but not progressive 
C)  progressive but not proportional 
D)  neither proportional nor progressive

Question 3

Individual Retirement Accounts and 401(k) plans make the current U.S. tax system

Accepted Answer

A)  more like a consumption tax and so more like the tax system of many European countries. 
B)  more like a consumption tax and so less like the tax system of many European countries. 
C)  less like a consumption tax and so more like the tax system of many European countries. 
D)  less like a consumption tax and so less like the tax system of many European countries. 
A)  more like a consumption tax and so more like the tax system of many European countries. 
B)  more like a consumption tax and so less like the tax system of many European countries. 
C)  less like a consumption tax and so more like the tax system of many European countries. 
D)  less like a consumption tax and so less like the tax system of many European countries.

Question 4

Table 12-3  
-Refer to Table 12-3. What is the average tax rate for a person who makes $60,000?

Accepted Answer

A)  20% 
B)  30% 
C)  40% 
D)  50% 
A)  20% 
B)  30% 
C)  40% 
D)  50%

Question 5

The U.S. federal government finances budget deficits by

Accepted Answer

A)  selling stock, much like a corporation. 
B)  printing additional currency. 
C)  borrowing from the public. 
D)  raising property taxes. 
A)  selling stock, much like a corporation. 
B)  printing additional currency. 
C)  borrowing from the public. 
D)  raising property taxes.

Question 6

The marginal tax rates on the richest Americans when Ronald Reagan was elected and when he left office were

Accepted Answer

A)  28 percent and 50 percent, respectively. 
B)  70 percent and 40 percent, respectively. 
C)  40 percent and 70 percent, respectively. 
D)  50 percent and 28 percent, respectively. 
A)  28 percent and 50 percent, respectively. 
B)  70 percent and 40 percent, respectively. 
C)  40 percent and 70 percent, respectively. 
D)  50 percent and 28 percent, respectively.

Question 7

Scenario 12-3
Suppose Roger and Regina receive great satisfaction from their consumption of cheesecake. Regina would be willing to purchase only one slice and would pay up to $8 for it. Roger would be willing to pay $11 for his first slice,$9 for his second slice, and $5 for his third slice. The current market price is $5 per slice.
-Refer to Scenario 12-3. Assume that the government places a $4 tax on each slice of cheesecake and that the new equilibrium price is $9. How much tax revenue will be generated from sales to Regina and Roger?

Accepted Answer

A)  zero 
B)  $4 
C)  $8 
D)  $12 
A)  zero 
B)  $4 
C)  $8 
D)  $12

Question 8

In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct?

Accepted Answer

A)  Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax. 
B)  There are no deadweight losses as long as some people still choose to purchase large boats. 
C)  In order to determine the size of the deadweight loss, we must add the revenues from the tax to the loss in Carlos's consumer surplus. 
D)  Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax. 
A)  Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax. 
B)  There are no deadweight losses as long as some people still choose to purchase large boats. 
C)  In order to determine the size of the deadweight loss, we must add the revenues from the tax to the loss in Carlos's consumer surplus. 
D)  Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.

Question 9

The U.S. income tax

Accepted Answer

A)  discourages saving. 
B)  encourages saving. 
C)  has no effect on saving. 
D)  will reduce the administrative burden of taxation. 
A)  discourages saving. 
B)  encourages saving. 
C)  has no effect on saving. 
D)  will reduce the administrative burden of taxation.

Question 10

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 is her average tax rate in 2012?

Accepted Answer

A)  22.3% 
B)  25.3% 
C)  27.8% 
D)  28.4% 
A)  22.3% 
B)  25.3% 
C)  27.8% 
D)  28.4%

Question 11

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 is her average tax rate in 2013?

Accepted Answer

A)  24.1% 
B)  26.4% 
C)  27.8% 
D)  30.9% 
A)  24.1% 
B)  26.4% 
C)  27.8% 
D)  30.9%

Question 12

When taxes are imposed on a commodity,

Accepted Answer

A)  there is never a deadweight loss. 
B)  some consumers alter their consumption by not purchasing the taxed commodity. 
C)  tax revenue will rise by the amount of the tax multiplied by the before-tax level of consumption. 
D)  the taxes do not distort incentives. 
A)  there is never a deadweight loss. 
B)  some consumers alter their consumption by not purchasing the taxed commodity. 
C)  tax revenue will rise by the amount of the tax multiplied by the before-tax level of consumption. 
D)  the taxes do not distort incentives.

Question 13

The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than poorer ones on the basis that

Accepted Answer

A)  police services are more frequently used in poor neighborhoods. 
B)  the wealthy benefit more from services provided by government than the poor. 
C)  the poor are more active in political processes. 
D)  the poor receive welfare payments. 
A)  police services are more frequently used in poor neighborhoods. 
B)  the wealthy benefit more from services provided by government than the poor. 
C)  the poor are more active in political processes. 
D)  the poor receive welfare payments.

Question 14

In order to determine tax incidence, one must

Accepted Answer

A)  consider issues of equity. 
B)  also determine the legal liability of the tax. 
C)  evaluate where the tax burden eventually falls. 
D)  use the "flypaper theory" of taxation. 
A)  consider issues of equity. 
B)  also determine the legal liability of the tax. 
C)  evaluate where the tax burden eventually falls. 
D)  use the "flypaper theory" of taxation.

Question 15

The revenue that the federal government collects from payroll taxes is earmarked to pay for

Accepted Answer

A)  national defense and income security (welfare) programs 
B)  national defense and Medicare 
C)  Social Security and public schools 
D)  Social Security and Medicare 
A)  national defense and income security (welfare) programs 
B)  national defense and Medicare 
C)  Social Security and public schools 
D)  Social Security and Medicare

Question 16

Table 12-6
The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income.  
-Refer to Table 12-6. For this tax schedule, what is the total income tax due for an individual with $49,000 in taxable income?

Accepted Answer

A)  $12,650 
B)  $14,370 
C)  $15,960 
D)  $16,220 
A)  $12,650 
B)  $14,370 
C)  $15,960 
D)  $16,220

Question 17

Scenario 12-1
Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15.
-Refer to Scenario 12-1. Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. Because total consumer surplus has

Accepted Answer

A)  fallen by more than the tax revenue, the tax has a deadweight loss. 
B)  fallen by less than the tax revenue, the tax has no deadweight loss. 
C)  fallen by exactly the amount of the tax revenue, the tax has no deadweight loss. 
D)  increased by less than the tax revenue, the tax has a deadweight loss. 
A)  fallen by more than the tax revenue, the tax has a deadweight loss. 
B)  fallen by less than the tax revenue, the tax has no deadweight loss. 
C)  fallen by exactly the amount of the tax revenue, the tax has no deadweight loss. 
D)  increased by less than the tax revenue, the tax has a deadweight loss.

Question 18

Horizontal equity in taxation refers to the idea that people

Accepted Answer

A)  in unequal conditions should be treated differently. 
B)  in equal conditions should pay equal taxes. 
C)  should be taxed according to their ability to pay. 
D)  should receive government benefits according to how much they have been taxed. 
A)  in unequal conditions should be treated differently. 
B)  in equal conditions should pay equal taxes. 
C)  should be taxed according to their ability to pay. 
D)  should receive government benefits according to how much they have been taxed.

Question 19

All of the following are transfer payments except

Accepted Answer

A)  welfare payments. 
B)  unemployment compensation. 
C)  personal income taxes. 
D)  Social Security. 
A)  welfare payments. 
B)  unemployment compensation. 
C)  personal income taxes. 
D)  Social Security.

Question 20

In 2011, federal government receipts were approximately

Accepted Answer

A)  $4,000 per person and federal government spending was approximately $8,000 per person, resulting in a budget deficit. 
B)  $8,000 per person and federal government spending was approximately $12,000 per person, resulting in a budget deficit. 
C)  $12,000 per person and federal government spending was approximately $8,000 per person, resulting in a budget surplus. 
D)  $8,000 per person and federal government spending was approximately $4,000 per person, resulting in a budget surplus. 
A)  $4,000 per person and federal government spending was approximately $8,000 per person, resulting in a budget deficit. 
B)  $8,000 per person and federal government spending was approximately $12,000 per person, resulting in a budget deficit. 
C)  $12,000 per person and federal government spending was approximately $8,000 per person, resulting in a budget surplus. 
D)  $8,000 per person and federal government spending was approximately $4,000 per person, resulting in a budget surplus.

Exam 12: The Design of the Tax System

Briefly describe why taxes create deadweight loss.

In which of the following tax systems do taxes increase as income increases?

Individual Retirement Accounts and 401(k) plans make the current U.S. tax system

Table 12-3 -Refer to Table 12-3. What is the average tax rate for a person who makes $60,000?

The U.S. federal government finances budget deficits by

The marginal tax rates on the richest Americans when Ronald Reagan was elected and when he left office were

The U.S. income tax

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 is her average tax rate in 2012?

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 is her average tax rate in 2013?

When taxes are imposed on a commodity,

The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than poorer ones on the basis that

In order to determine tax incidence, one must

The revenue that the federal government collects from payroll taxes is earmarked to pay for

Table 12-6 The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. -Refer to Table 12-6. For this tax schedule, what is the total income tax due for an individual with $49,000 in taxable income?

Horizontal equity in taxation refers to the idea that people

All of the following are transfer payments except

In 2011, federal government receipts were approximately

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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