Question 1

Homeowners receive tax benefits that are not available to renters.

Accepted Answer

A) True 
 B)False

Question 2

Vertical equity refers to the notion that individuals at all levels should be taxed equally.

Accepted Answer

A) True 
 B)False

Question 3

The concept of vertical equity is that

Accepted Answer

A)  income should be taxed instead of property. 
B)  property should be taxed instead of income. 
C)  there should be little movement up or down the social scale. 
D)  persons who are unequal should be treated unequally. 
A)  income should be taxed instead of property. 
B)  property should be taxed instead of income. 
C)  there should be little movement up or down the social scale. 
D)  persons who are unequal should be treated unequally.

Question 4

Philip purchased one million dollars' worth of New York City bonds.His interest earnings were $100,000.His total federal tax on this income will be

Accepted Answer

A)  $40,000, since his marginal tax rate was 40 percent. 
B)  $40,000, since only 40 percent of capital gains is taxed. 
C)  zero. 
D)  very small, since he had a clever accountant who knew how to use loopholes. 
A)  $40,000, since his marginal tax rate was 40 percent. 
B)  $40,000, since only 40 percent of capital gains is taxed. 
C)  zero. 
D)  very small, since he had a clever accountant who knew how to use loopholes.

Question 5

Taxes are either

Accepted Answer

A)  regressive, proportional, or degressive. 
B)  regressive, proportional, or progressive. 
C)  degressive, proportional, or progressive. 
D)  regressive, progressive, or degressive. 
A)  regressive, proportional, or degressive. 
B)  regressive, proportional, or progressive. 
C)  degressive, proportional, or progressive. 
D)  regressive, progressive, or degressive.

Question 6

Why do many economists rate the income tax high in efficiency and equity terms?

Accepted Answer

The income tax could potentially reduce

Question 7

The share of national income going to state and local taxes

Accepted Answer

A)  has risen steadily in the past 40 years to about 22 percent. 
B)  has dropped steadily in the past 40 years to about 6 or 7 percent. 
C)  grew substantially until the early 1970s and has leveled off at about 10 to 11 percent. 
D)  fell steadily until the early 1970s and has risen steadily since then. 
A)  has risen steadily in the past 40 years to about 22 percent. 
B)  has dropped steadily in the past 40 years to about 6 or 7 percent. 
C)  grew substantially until the early 1970s and has leveled off at about 10 to 11 percent. 
D)  fell steadily until the early 1970s and has risen steadily since then.

Question 8

Vertical equity refers to the notion that equally situated individuals should be taxed equally.

Accepted Answer

A) True 
 B)False

Question 9

The ability-to-pay principle is most closely tied to the concept of

Accepted Answer

A)  horizontal equity in taxation. 
B)  fiscal federalism. 
C)  vertical equity in taxation. 
D)  the benefits principle of tax equity. 
A)  horizontal equity in taxation. 
B)  fiscal federalism. 
C)  vertical equity in taxation. 
D)  the benefits principle of tax equity.

Question 10

The share of GDP taken by taxes has increased dramatically since the 1960s.

Accepted Answer

A) True 
 B)False

Question 11

Tax loopholes are equally available to all taxpayers.

Accepted Answer

A) True 
 B)False

Question 12

Examples of indirect taxes are

Accepted Answer

A)  income taxes levied by some states. 
B)  sales taxes and property taxes. 
C)  poll taxes. 
D)  corporate profits taxes. 
A)  income taxes levied by some states. 
B)  sales taxes and property taxes. 
C)  poll taxes. 
D)  corporate profits taxes.

Question 13

If a tax is regressive, 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 as income falls. 
A)  remains the same as income rises. 
B)  rises as income rises. 
C)  falls as income rises. 
D)  falls as income falls.

Question 14

Loopholes reduce the efficiency of the tax system.

Accepted Answer

A) True 
 B)False

Question 15

Since the end of World War II, corporate income taxes have accounted for

Accepted Answer

A)  an increasing share of federal revenue. 
B)  a steady share of federal revenue. 
C)  a declining share of federal revenue. 
D)  a rising share of revenue until 1980, and then a falling share. 
A)  an increasing share of federal revenue. 
B)  a steady share of federal revenue. 
C)  a declining share of federal revenue. 
D)  a rising share of revenue until 1980, and then a falling share.

Question 16

Fiscal federalism refers to

Accepted Answer

A)  passing money from one level of government to another. 
B)  leaving indirect taxes to the states. 
C)  keeping property taxes low. 
D)  making all levels of government operate on a "pay as you go" basis. 
A)  passing money from one level of government to another. 
B)  leaving indirect taxes to the states. 
C)  keeping property taxes low. 
D)  making all levels of government operate on a "pay as you go" basis.

Question 17

Indirect taxes are levied on specific economic activities.

Accepted Answer

A) True 
 B)False

Question 18

Figure 18-3
  
-In which panel of Figure 18-3 would an excise tax be borne entirely by the consumer?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 19

Explain why some argue that income tax loopholes primarily benefit the rich.

Accepted Answer

Since the personal income tax is progres

Question 20

Which of the following would be the most likely candidate for direct application of the benefits principle of taxation?

Accepted Answer

A)  education 
B)  fire protection 
C)  police protection 
D)  use of roads 
A)  education 
B)  fire protection 
C)  police protection 
D)  use of roads

Exam 18: Taxation and Resource Allocation

Homeowners receive tax benefits that are not available to renters.

Vertical equity refers to the notion that individuals at all levels should be taxed equally.

The concept of vertical equity is that

Philip purchased one million dollars' worth of New York City bonds.His interest earnings were $100,000.His total federal tax on this income will be

Taxes are either

Why do many economists rate the income tax high in efficiency and equity terms?

The share of national income going to state and local taxes

Vertical equity refers to the notion that equally situated individuals should be taxed equally.

The ability-to-pay principle is most closely tied to the concept of

The share of GDP taken by taxes has increased dramatically since the 1960s.

Tax loopholes are equally available to all taxpayers.

Examples of indirect taxes are

If a tax is regressive, the average tax rate

Loopholes reduce the efficiency of the tax system.

Since the end of World War II, corporate income taxes have accounted for

Fiscal federalism refers to

Indirect taxes are levied on specific economic activities.

Figure 18-3 -In which panel of Figure 18-3 would an excise tax be borne entirely by the consumer?

Explain why some argue that income tax loopholes primarily benefit the rich.

Which of the following would be the most likely candidate for direct application of the benefits principle of taxation?

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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