Question 1

The amount of income tax that must be paid on an additional dollar of income is determined by the

Accepted Answer

A)  total tax rate.
B)  highest tax rate.
C)  payroll tax rate.
D)  marginal tax rate.
E)  average tax rate. D

Question 2

If a welfare payment is reduced for every additional dollar a person earns, then the welfare program creates an incentive for that person to work.

Accepted Answer

A) True 
 B)False  False

Question 3

Exhibit 14-3 
-Refer to Exhibit 14-3. Calculate the tax to be paid on $45,000 in gross income when the standard deduction and exemptions total $7,500.

Accepted Answer

$7,500
Taxable income = $45,000 - $7,500 = $37,500
Tax on first = $25,000 = $25,000 * 0.15 = $3,750
Tax on next = $12,500 = $12,500* 0.3 = $3,750
Total tax = $3,750 + $3,750 = $7,500

Question 4

What is the difference between means-tested transfer programs and social insurance programs?

Accepted Answer

The answer of What is the difference between means-tested transfer...

Question 5

Suppose an economic historian discovers that a tax on a particular good resulted in a large price change while having little effect on the quantity demanded. Was this good most likely a necessity or a luxury good? Explain.

Accepted Answer

The answer of Suppose an economic historian discovers that a...

Question 6

According to the Laffer curve, it is possible for the government to

Accepted Answer

A)  raise tax revenues by reducing the tax rate.
B)  raise tax revenues without changing the tax rate.
C)  raise tax revenues by not imposing any tax.
D)  lose only tax revenues by imposing a tax.
E)  do nothing to raise tax revenues.

Question 7

Suppose a new law requires that employers pay for employees' total retirement benefits. Show how the law affects the supply of and demand for labor. What happens to wages and employment relative to the pre-law situation?

Accepted Answer

The answer of Suppose a new law requires that employers...

Question 8

The greatest degree of income inequality is achieved when the Gini coefficient equals

Accepted Answer

A)  -1.
B)  negative infinity.
C)  zero.
D)  infinity.
E)  1.

Question 9

In the case of a per-unit tax on a good, which of the following situations will lead to the greatest change in price?

Accepted Answer

A)  Supply and demand are relatively inelastic.
B)  Supply and demand are relatively elastic.
C)  Demand is relatively elastic and supply is relatively inelastic.
D)  Demand is relatively inelastic and supply is relatively elastic.
E)  Both supply and demand do not exist.

Question 10

If the average tax rate falls as income rises, the tax is called a

Accepted Answer

A)  sales tax.
B)  progressive tax.
C)  flat tax.
D)  proportional tax.
E)  regressive tax.

Question 11

Consider the following income tax schedule for a married couple who are combining their incomes and filing jointly:

Accepted Answer

The answer of Consider the following income tax schedule for...

Question 12

Why doesn't a Lorenz curve ever bow above the line of equality?

Accepted Answer

The answer of Why doesn't a Lorenz curve ever bow...

Question 13

All other things being equal, which of the following results in the most tax burden for consumers in the case of a per-unit tax on a good?

Accepted Answer

A)  Perfectly elastic demand
B)  Relatively elastic demand
C)  Unit-elastic demand
D)  Relatively inelastic demand
E)  Perfectly inelastic demand

Question 14

Suppose the government decides to decrease the payroll tax paid by employers. What will happen to workers' wages? If the labor supply curve is perfectly inelastic, what will happen to employment? What will be the effect on workers' wages?

Accepted Answer

The answer of Suppose the government decides to decrease the...

Question 15

The average tax rate is the amount of tax an individual would have to pay on one more dollar of income.

Accepted Answer

A) True 
 B)False

Question 16

It does not matter whether a worker or an employer physically pays a payroll tax; the net effect on wages is the same.

Accepted Answer

A) True 
 B)False

Question 17

Head Start is a program that gives interest-free loans to poor people to help them start their own businesses.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 14-2 
-Refer to Exhibit 14-2. The curve is referred to as the ____ curve.

Accepted Answer

A)  tax rate yield
B)  yield
C)  Laffer
D)  revenue
E)  Friedman

Question 19

Suppose that a four-person family can earn up to $15,120 and pay no income tax, and that income in the lowest tax bracket is taxed at 15 percent. Given the fact that the earned income tax credit falls by 21 cents for every additional dollar of gross income earned above $11,000, what is the marginal tax rate for a family of four if its gross income is $20,000?

Accepted Answer

A)  7 percent
B)  -7 percent
C)  15 percent
D)  21 percent
E)  36 percent

Question 20

The deadweight loss of a tax is larger if the price elasticity of demand is higher.

Accepted Answer

A) True 
 B)False

Exam 14: Taxes, Transfers, and Income Distribution

The amount of income tax that must be paid on an additional dollar of income is determined by the

If a welfare payment is reduced for every additional dollar a person earns, then the welfare program creates an incentive for that person to work.

Exhibit 14-3 -Refer to Exhibit 14-3. Calculate the tax to be paid on $45,000 in gross income when the standard deduction and exemptions total $7,500.

What is the difference between means-tested transfer programs and social insurance programs?

Suppose an economic historian discovers that a tax on a particular good resulted in a large price change while having little effect on the quantity demanded. Was this good most likely a necessity or a luxury good? Explain.

According to the Laffer curve, it is possible for the government to

Suppose a new law requires that employers pay for employees' total retirement benefits. Show how the law affects the supply of and demand for labor. What happens to wages and employment relative to the pre-law situation?

The greatest degree of income inequality is achieved when the Gini coefficient equals

In the case of a per-unit tax on a good, which of the following situations will lead to the greatest change in price?

If the average tax rate falls as income rises, the tax is called a

Consider the following income tax schedule for a married couple who are combining their incomes and filing jointly:

Why doesn't a Lorenz curve ever bow above the line of equality?

All other things being equal, which of the following results in the most tax burden for consumers in the case of a per-unit tax on a good?

Suppose the government decides to decrease the payroll tax paid by employers. What will happen to workers' wages? If the labor supply curve is perfectly inelastic, what will happen to employment? What will be the effect on workers' wages?

The average tax rate is the amount of tax an individual would have to pay on one more dollar of income.

It does not matter whether a worker or an employer physically pays a payroll tax; the net effect on wages is the same.

Head Start is a program that gives interest-free loans to poor people to help them start their own businesses.

Exhibit 14-2 -Refer to Exhibit 14-2. The curve is referred to as the ____ curve.

The deadweight loss of a tax is larger if the price elasticity of demand is higher.