Question 1

Homeowners

Accepted Answer

A)  are subject to double taxation. 
B)  benefit from several loopholes. 
C)  have no particular advantages in the tax system. 
D)  must pay tax on the "income" of living in a house. 
A)  are subject to double taxation. 
B)  benefit from several loopholes. 
C)  have no particular advantages in the tax system. 
D)  must pay tax on the "income" of living in a house.

Question 2

Which of the following taxes is least likely to be shifted?

Accepted Answer

A)  a federal excise tax on grapefruit 
B)  a sales tax on some foodstuffs 
C)  a personal income tax 
D)  a state tax on football tickets 
A)  a federal excise tax on grapefruit 
B)  a sales tax on some foodstuffs 
C)  a personal income tax 
D)  a state tax on football tickets

Question 3

Officially, the payroll tax is referred to as

Accepted Answer

A)  the trust fund tax. 
B)  Social Security tax. 
C)  contributions for social insurance. 
D)  investment in Social Security. 
A)  the trust fund tax. 
B)  Social Security tax. 
C)  contributions for social insurance. 
D)  investment in Social Security.

Question 4

A congress member concerned about ensuring vertical equity in taxation would be most likely to argue for obtaining government revenue through a

Accepted Answer

A)  progressive tax on personal income. 
B)  regressive tax on corporate income. 
C)  sales tax. 
D)  head tax. 
A)  progressive tax on personal income. 
B)  regressive tax on corporate income. 
C)  sales tax. 
D)  head tax.

Question 5

When demand for a product is very inelastic, the burden of a tax falls mainly on

Accepted Answer

A)  producers. 
B)  consumers. 
C)  tax collectors. 
D)  people who drop out of the market. 
A)  producers. 
B)  consumers. 
C)  tax collectors. 
D)  people who drop out of the market.

Question 6

A tax loophole is

Accepted Answer

A)  an illegal method by which individuals or corporations avoid paying the taxes they legally owe. 
B)  a provision in the tax code that allows individuals or corporations to reduce their tax burdens legally by meeting certain conditions. 
C)  a tax surcharge on incomes within certain ranges. 
D)  a provision in the tax code that allows individuals or corporations to shift the economic incidence of a particular tax on to someone else. 
A)  an illegal method by which individuals or corporations avoid paying the taxes they legally owe. 
B)  a provision in the tax code that allows individuals or corporations to reduce their tax burdens legally by meeting certain conditions. 
C)  a tax surcharge on incomes within certain ranges. 
D)  a provision in the tax code that allows individuals or corporations to shift the economic incidence of a particular tax on to someone else.

Question 7

The Social Security system in the United States today is

Accepted Answer

A)  actuarially sound. 
B)  composed of a private pension fund into which workers have paid and who will withdraw their invested funds upon retirement. 
C)  currently in no danger of running out of money in the long run. 
D)  no longer a "pay as you go" system. 
A)  actuarially sound. 
B)  composed of a private pension fund into which workers have paid and who will withdraw their invested funds upon retirement. 
C)  currently in no danger of running out of money in the long run. 
D)  no longer a "pay as you go" system.

Question 8

Tax loopholes

Accepted Answer

A)  reduce the progressivity of the federal income tax. 
B)  encourage particular patterns of behavior. 
C)  include exemption of interest earned on municipal bonds. 
D)  All of the above are correct. 
A)  reduce the progressivity of the federal income tax. 
B)  encourage particular patterns of behavior. 
C)  include exemption of interest earned on municipal bonds. 
D)  All of the above are correct.

Question 9

A factor that would reduce the ability of the Social Security system to maintain current benefit levels with constant tax rates is

Accepted Answer

A)  rapid real wage growth. 
B)  reduced population growth. 
C)  adoption of a "pay as you go" system. 
D)  a slowdown in inflation. 
A)  rapid real wage growth. 
B)  reduced population growth. 
C)  adoption of a "pay as you go" system. 
D)  a slowdown in inflation.

Question 10

Federal personal income tax rates were

Accepted Answer

A)  generally increased in the early 1990s and lowered in the 2000s. 
B)  generally increased in the 1980s and lowered in the early 1990s. 
C)  generally decreased in the 1990s and held constant in the 2000s. 
D)  held constant through the 1990s and 2000s. 
A)  generally increased in the early 1990s and lowered in the 2000s. 
B)  generally increased in the 1980s and lowered in the early 1990s. 
C)  generally decreased in the 1990s and held constant in the 2000s. 
D)  held constant through the 1990s and 2000s.

Question 11

Excise taxes are a form of sales tax.

Accepted Answer

A) True 
 B)False

Question 12

State and local governments typically spend most of their budgets on providing

Accepted Answer

A)  education. 
B)  public goods. 
C)  public welfare programs. 
D)  police protection and administrative services. 
A)  education. 
B)  public goods. 
C)  public welfare programs. 
D)  police protection and administrative services.

Question 13

When the average tax rate rises as income rises, this is known as progressive taxation.

Accepted Answer

A) True 
 B)False

Question 14

The main difference between direct and indirect taxes is that

Accepted Answer

A)  indirect taxes are automatically deducted from workers' paychecks and direct taxes are not. 
B)  direct taxes are paid to state and local governments and indirect taxes are paid to the federal government. 
C)  direct taxes are taxes levied on people and indirect taxes are taxes levied on activities undertaken by people. 
D)  direct taxes are usually proportional and indirect taxes are usually progressive. 
A)  indirect taxes are automatically deducted from workers' paychecks and direct taxes are not. 
B)  direct taxes are paid to state and local governments and indirect taxes are paid to the federal government. 
C)  direct taxes are taxes levied on people and indirect taxes are taxes levied on activities undertaken by people. 
D)  direct taxes are usually proportional and indirect taxes are usually progressive.

Question 15

"Those most able should pay the highest taxes" reflects the

Accepted Answer

A)  ability-to-pay principle. 
B)  concept of horizontal equity. 
C)  idea of fiscal federalism. 
D)  benefits principle. 
A)  ability-to-pay principle. 
B)  concept of horizontal equity. 
C)  idea of fiscal federalism. 
D)  benefits principle.

Question 16

Horizontal equity is the concept that

Accepted Answer

A)  equally situated individuals should be taxed equally. 
B)  persons with the same income should be taxed equally. 
C)  equal property value should be taxed equally. 
D)  persons living in the same neighborhood should be taxed equally. 
A)  equally situated individuals should be taxed equally. 
B)  persons with the same income should be taxed equally. 
C)  equal property value should be taxed equally. 
D)  persons living in the same neighborhood should be taxed equally.

Question 17

If a tax is progressive, the average tax rate

Accepted Answer

A)  remains the same as income rises. 
B)  rises as income rises. 
C)  falls as income rises. 
D)  falls with passage of time. 
A)  remains the same as income rises. 
B)  rises as income rises. 
C)  falls as income rises. 
D)  falls with passage of time.

Question 18

The payroll tax is a

Accepted Answer

A)  progressive tax. 
B)  neutral tax. 
C)  regressive tax. 
D)  proportional tax. 
A)  progressive tax. 
B)  neutral tax. 
C)  regressive tax. 
D)  proportional tax.

Question 19

The incidence of a payroll tax is borne by both employers and employees.

Accepted Answer

A) True 
 B)False

Question 20

Faced with a shortage of funds to pay claims, the workman's compensation systems in many states have been forced to raise the workman's compensation tax rate substantially.The tax is paid by employers.Employers have complained that they cannot afford the tax and threaten to go out of business.Assuming the supply of labor is very inelastic, one can argue that ultimately the burden of this tax actually will rest

Accepted Answer

A)  mostly on workers. 
B)  mostly on employers. 
C)  about 50/50 on workers and employers, like the Social Security tax. 
D)  all on employers by statute. 
A)  mostly on workers. 
B)  mostly on employers. 
C)  about 50/50 on workers and employers, like the Social Security tax. 
D)  all on employers by statute.

Exam 18: Taxation and Resource Allocation

Homeowners

Which of the following taxes is least likely to be shifted?

Officially, the payroll tax is referred to as

A congress member concerned about ensuring vertical equity in taxation would be most likely to argue for obtaining government revenue through a

When demand for a product is very inelastic, the burden of a tax falls mainly on

A tax loophole is

The Social Security system in the United States today is

Tax loopholes

A factor that would reduce the ability of the Social Security system to maintain current benefit levels with constant tax rates is

Federal personal income tax rates were

Excise taxes are a form of sales tax.

State and local governments typically spend most of their budgets on providing

When the average tax rate rises as income rises, this is known as progressive taxation.

The main difference between direct and indirect taxes is that

"Those most able should pay the highest taxes" reflects the

Horizontal equity is the concept that

If a tax is progressive, the average tax rate

The payroll tax is a

The incidence of a payroll tax is borne by both employers and employees.

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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