Question 1

The U.S.tax-transfer system (as distinct from the tax system alone) is:

Accepted Answer

A)   progressive.
B)   proportional.
C)   bimodal.
D)   regressive.E) A) and D)
F) B) and C)

Question 2

Assume the Environmental Protection Agency imposes an excise tax on polluting firms.In which of the following situations would we expect the additional costs to be borne most heavily by consumers?

Accepted Answer

A)   Demand is highly elastic and supply is highly inelastic.
B)   Demand and supply are both highly elastic.
C)   Demand and supply are both highly inelastic.
D)   Demand is highly inelastic and supply is highly elastic.E) B) and C)
F) A) and C)

Question 3

Economists agree that corporations always shift the corporate income tax to consumers by raising product prices.

Accepted Answer

A) True 
 B)False

Question 4

The opportunity cost of borrowing funds to finance government deficits is:

Accepted Answer

A)   greatest when the economy is doing well.
B)   greatest when the economy is in a recession.
C)   zero.
D)   the same regardless of the state of the economy.E) None of the above
F) A) and B)

Question 5

(Consider This) Which of the following claims is not made by defenders of lotteries?

Accepted Answer

A)   Lotteries are a relatively painless way to fund important government services.
B)   Lotteries help reduce organized crime by providing an alternative to illegal gambling.
C)   Lotteries are preferable to taxes because they are voluntary.
D)   Lotteries are progressive in nature,with higher income families playing more frequently.E) All of the above
F) B) and D)

Question 6

Government purchases and transfer payments:

Accepted Answer

A)   differ because the latter absorb resources while the former do not.
B)   differ because the former absorb resources while the latter do not.
C)   are alike because both are more inflationary than private spending.
D)   are alike because both absorb resources.E) None of the above
F) B) and D)

Question 7

The marginal tax rate is:

Accepted Answer

A)   less than the average tax rate when a tax is progressive.
B)   calculated by dividing total taxes paid by one's total taxable income.
C)   the percentage of one's total income that is paid in taxes.
D)   the percentage of an increment of income that is paid in taxes.E) B) and C)
F) A) and B)

Question 8

About two-thirds of all federal spending is for national defense.

Accepted Answer

A) True 
 B)False

Question 9

The greater the elasticity of demand and supply,the greater is the efficiency loss of a tax.

Accepted Answer

A) True 
 B)False

Question 10

The addition of government to the circular-flow model illustrates that government:

Accepted Answer

A)   purchases resources in the resource market.
B)   provides services to businesses and households.
C)   purchases goods in the product market.
D)   does all of these.E) A) and B)
F) A) and C)

Question 11

Overall,the U.S.tax system (combined federal,state,and local) is:

Accepted Answer

A)   highly progressive.
B)   slightly progressive.
C)   slightly regressive.
D)   highly regressive.E) B) and D)
F) A) and D)

Question 12

The efficiency loss of a tax is:

Accepted Answer

A)   the net value of sacrificed output caused by the tax.
B)   that portion of the tax paid by producers minus the portion paid by consumers.
C)   that portion of the tax paid by consumers minus the portion paid by producers.
D)   the total tax revenue minus the output loss caused by the tax.E) B) and C)
F) C) and D)

Question 13

The basic tax rate on taxable corporate income is:

Accepted Answer

A)   15 percent.
B)   22 percent.
C)   35 percent.
D)   52 percent.E) A) and D)
F) A) and C)

Question 14

The benefits-received principle of taxation is most evident in:

Accepted Answer

A)   inheritance taxes.
B)   excise taxes on gasoline.
C)   the personal income tax.
D)   the corporate income tax.E) A) and D)
F) C) and D)

Question 15

The basic source of state government's revenue is the property tax.

Accepted Answer

A) True 
 B)False

Question 16

Answer the question on the basis of the following five schedules,all of which represent income tax schedules for an economy.All figures are in billions of dollars.   \quad    \quad    \quad    \quad  I \quad \quad \quad \quad \quad \quad \quad \quad  II \quad \quad \quad \quad \quad \quad \quad \quad  III \quad \quad \quad \quad \quad \quad \quad \quad  IV \quad \quad \quad \quad \quad \quad \quad  V
  Tax‾$30506070 Base  (Income)  ‾$100200300400 Tax ‾$10203040 Base  (Income)  ‾$100200300400 Tax ‾$5153050 Base  (Income)  ‾$100200300400 Tax ‾$306090120 Base  (Income)  ‾$100200300400 Tax‾$103060100 Base  (Income)  ‾$100200300400\begin{array}{c}\begin{array}{c}\\underline{	ext { Tax} } \ \$ 30 \50 \60 \70\end{array}\begin{array}{c}	ext { Base } \\underline{	ext { (Income)  }}\\$ 100 \200 \300 \400\end{array}\begin{array}{c}\\underline{	ext { Tax } }\ \$ 10 \20 \30 \40\end{array}\begin{array}{c}	ext { Base } \\underline{	ext { (Income)  }}\\$ 100 \200 \300 \400 \end{array}\begin{array}{c}\\underline{	ext { Tax }} \ \$ 5 \15 \30 \50\end{array}\begin{array}{c}	ext { Base } \\underline{	ext { (Income)  }}\\$ 100 \200 \300 \400 \end{array}\begin{array}{c}\\underline{	ext { Tax }} \\$ 30 \60 \90 \120\end{array}\begin{array}{c}	ext { Base } \\underline{	ext { (Income)  }}\\$ 100 \200 \300 \400  \end{array}\begin{array}{c}\\underline{	ext { Tax} } \\$ 10 \30 \60 \100 \end{array}\begin{array}{c}	ext { Base } \\underline{	ext { (Income)  }}\\$ 100 \200 \300 \400   \end{array}\end{array} Tax​$30506070​ Base  (Income)  ​$100200300400​ Tax ​$10203040​ Base  (Income)  ​$100200300400​ Tax ​$5153050​ Base  (Income)  ​$100200300400​ Tax ​$306090120​ Base  (Income)  ​$100200300400​ Tax​$103060100​ Base  (Income)  ​$100200300400​​ 
 Which of the schedules represent(s) a regressive tax?

Accepted Answer

A)   V only.
B)   III and V.
C)   IV only.
D)   I only. E) A) and B)
F) A) and D)

Question 17

Government lotteries are:

Accepted Answer

A)   used by a large number of states to supplement their tax revenues.
B)   illegal in the United States but are a common source of revenue in other countries.
C)   used by local governments,but not by state governments.
D)   a form of progressive taxation.E) A) and B)
F) C) and D)

Question 18

Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000.In year 2,you pay an average tax rate of 25 percent on a taxable income of $30,000.Assuming no change in tax rates,the marginal tax rate on your additional $10,000 of income is:

Accepted Answer

A)   5 percent.
B)   12 percent.
C)   35 percent.
D)   42 percent.E) A) and B)
F) B) and C)

Question 19

The average tax rate is:

Accepted Answer

A)   change in taxes/change in taxable income.
B)   total taxes/total taxable income.
C)   the sum of the marginal tax rate and the rate of transfer payments.
D)   the tax on incremental income less the tax on total income.E) A) and B)
F) B) and C)

Question 20

Sales and excise taxes are levied on retailers,but retailers add these taxes to the prices of their products.This illustrates the:

Accepted Answer

A)   equal sacrifice theory of taxation.
B)   shifting of taxes to consumers.
C)   ability-to-pay principle of taxation.
D)   benefits-received principle of taxation.E) None of the above
F) C) and D)

Exam 19: Public Finance: Expenditures and Taxes

(Consider This) Which of the following claims is not made by defenders of lotteries?

Correct Answer
verified

Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000.In year 2,you pay an average tax rate of 25 percent on a taxable income of $30,000.Assuming no change in tax rates,the marginal tax rate on your additional $10,000 of income is:

Correct Answer
verified

The addition of government to the circular-flow model illustrates that government:

Correct Answer
verified

The basic source of state government's revenue is the property tax.

Correct Answer
verified

Economists agree that corporations always shift the corporate income tax to consumers by raising product prices.

Correct Answer
verified

The U.S.tax-transfer system (as distinct from the tax system alone) is:

Correct Answer
verified

The basic tax rate on taxable corporate income is:

Correct Answer
verified

The opportunity cost of borrowing funds to finance government deficits is:

Correct Answer
verified

The greater the elasticity of demand and supply,the greater is the efficiency loss of a tax.

Correct Answer
verified

Government lotteries are:

Correct Answer
verified

About two-thirds of all federal spending is for national defense.

Correct Answer
verified

Overall,the U.S.tax system (combined federal,state,and local) is:

Correct Answer
verified

Sales and excise taxes are levied on retailers,but retailers add these taxes to the prices of their products.This illustrates the:

Correct Answer
verified

Assume the Environmental Protection Agency imposes an excise tax on polluting firms.In which of the following situations would we expect the additional costs to be borne most heavily by consumers?

Correct Answer
verified

The marginal tax rate is:

Correct Answer
verified

The average tax rate is:

Correct Answer
verified

Correct Answer
verified

Government purchases and transfer payments:

Correct Answer
verified

The efficiency loss of a tax is:

Correct Answer
verified

The benefits-received principle of taxation is most evident in:

Correct Answer
verified

Exam 19: Public Finance: Expenditures and Taxes

(Consider This) Which of the following claims is not made by defenders of lotteries?

Correct AnswerverifiedShow Answer

Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000.In year 2,you pay an average tax rate of 25 percent on a taxable income of $30,000.Assuming no change in tax rates,the marginal tax rate on your additional $10,000 of income is:

Correct AnswerverifiedShow Answer

The addition of government to the circular-flow model illustrates that government:

Correct AnswerverifiedShow Answer

The basic source of state government's revenue is the property tax.

Correct AnswerverifiedShow Answer

Economists agree that corporations always shift the corporate income tax to consumers by raising product prices.

Correct AnswerverifiedShow Answer

The U.S.tax-transfer system (as distinct from the tax system alone) is:

Correct AnswerverifiedShow Answer

The basic tax rate on taxable corporate income is:

Correct AnswerverifiedShow Answer

The opportunity cost of borrowing funds to finance government deficits is:

Correct AnswerverifiedShow Answer

The greater the elasticity of demand and supply,the greater is the efficiency loss of a tax.

Correct AnswerverifiedShow Answer

Government lotteries are:

Correct AnswerverifiedShow Answer

About two-thirds of all federal spending is for national defense.

Correct AnswerverifiedShow Answer

Overall,the U.S.tax system (combined federal,state,and local) is:

Correct AnswerverifiedShow Answer

Sales and excise taxes are levied on retailers,but retailers add these taxes to the prices of their products.This illustrates the:

Correct AnswerverifiedShow Answer

Assume the Environmental Protection Agency imposes an excise tax on polluting firms.In which of the following situations would we expect the additional costs to be borne most heavily by consumers?

Correct AnswerverifiedShow Answer

The marginal tax rate is:

Correct AnswerverifiedShow Answer

The average tax rate is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Government purchases and transfer payments:

Correct AnswerverifiedShow Answer

The efficiency loss of a tax is:

Correct AnswerverifiedShow Answer

The benefits-received principle of taxation is most evident in:

Correct AnswerverifiedShow Answer

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