Question 1

Explain the purpose of payroll taxes.Is it a proportional form of tax?

Accepted Answer

The payroll tax is a tax levied on the e

Question 2

In which of the following examples is excess burden not present?

Accepted Answer

A) Harriet decides to give up her Saturday hours at her law office after income tax rates rise. 
B) Rudolf still smokes three packs a day even after the excise tax on cigarettes rose 10 cents a pack. 
C) Wilma reduced the automatic payroll deduction to her savings account after the tax on interest was imposed. 
D) Harper decided to take a vacation in Bermuda rather than invest in stocks after the tax rate on capital gains was increased. 
A) Harriet decides to give up her Saturday hours at her law office after income tax rates rise. 
B) Rudolf still smokes three packs a day even after the excise tax on cigarettes rose 10 cents a pack. 
C) Wilma reduced the automatic payroll deduction to her savings account after the tax on interest was imposed. 
D) Harper decided to take a vacation in Bermuda rather than invest in stocks after the tax rate on capital gains was increased.

Question 3

Economists generally think that the ____ tax is among the best ways to raise revenue.

Accepted Answer

A) property 
B) personal income 
C) sales 
D) value-added 
A) property 
B) personal income 
C) sales 
D) value-added

Question 4

Many Americans believe that taxes have been gobbling up an ever-increasing share of the U.S.economy.Is this observation correct? Explain.

Accepted Answer

Available data suggests that the share o

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Taxation lowers social welfare when the taxed good

Accepted Answer

A) has marginal social costs above marginal private costs. 
B) marginal social costs equals marginal private cost. 
C) is overproduced under a free-market system. 
D) imposes negative externalities . 
A) has marginal social costs above marginal private costs. 
B) marginal social costs equals marginal private cost. 
C) is overproduced under a free-market system. 
D) imposes negative externalities .

Question 7

Direct taxes are levied directly on people or corporations.

Accepted Answer

A) True 
 B)False

Question 8

The incidence of a tax explains what group pays the burden of a tax.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

What is the flypaper theory of tax incidence? This theory is typically wrong.Why?

Accepted Answer

This is an axiom that maintains that the

Question 12

The benefits principle states that the users of a service should pay for that service.

Accepted Answer

A) True 
 B)False

Question 13

If the demand curve for a product is vertical, then

Accepted Answer

A) consumers will refuse to bear any share of tax burden. 
B) producers will bear the larger share of the tax burden. 
C) consumers will bear the entire tax burden. 
D) producers and consumers will equally share the tax burden. 
A) consumers will refuse to bear any share of tax burden. 
B) producers will bear the larger share of the tax burden. 
C) consumers will bear the entire tax burden. 
D) producers and consumers will equally share the tax burden.

Question 14

A tax that creates an excess burden may nevertheless improve efficiency if

Accepted Answer

A) consumption of the good has been generating beneficial externalities. 
B) consumption of the good has been generating no externalities. 
C) consumption of the good has been generating detrimental externalities. 
D) the good has been supplied by a monopolist. 
A) consumption of the good has been generating beneficial externalities. 
B) consumption of the good has been generating no externalities. 
C) consumption of the good has been generating detrimental externalities. 
D) the good has been supplied by a monopolist.

Question 15

If Ron earns $50,000 in salary and pays income taxes of $15,000, and Harry earns $50,000 from investment dividends taxed at 20 percent, this would be

Accepted Answer

A) vertical inequity. 
B) horizontal inequity. 
C) vertical equity. 
D) horizontal equity. 
A) vertical inequity. 
B) horizontal inequity. 
C) vertical equity. 
D) horizontal equity.

Question 16

Existing loopholes erode the progressivity of the U.S.tax system.

Accepted Answer

A) True 
 B)False

Question 17

Harun earned $50,000 in salary and paid $10,000 in federal taxes.If he receives $2,000 in interest payments from municipal bonds,

Accepted Answer

A) his marginal tax rate will be about 19.2 percent. 
B) his average tax rate will fall. 
C) his marginal tax rate will remain constant. 
D) his marginal tax rate will be 20 percent. 
A) his marginal tax rate will be about 19.2 percent. 
B) his average tax rate will fall. 
C) his marginal tax rate will remain constant. 
D) his marginal tax rate will be 20 percent.

Question 18

Loopholes reduce the efficiency of the tax system.

Accepted Answer

A) True 
 B)False

Question 19

Many environmentalists have advocated a substantial increase in the gasoline tax to cut down the federal deficit and to reduce pollution due to auto emissions.Such a tax increase would be devastating to people who commute significant distances to work.In fact, it would provide an incentive to relocate closer to work or change jobs.Economists refer to such effects of taxes as the

Accepted Answer

A) burden of a tax. 
B) regressive incidence of a tax. 
C) incidence of a tax. 
D) excess burden of a tax. 
A) burden of a tax. 
B) regressive incidence of a tax. 
C) incidence of a tax. 
D) excess burden of a tax.

Question 20

For about the past 45 years, federal taxes have remained relatively constant as a percentage of GDP.

Accepted Answer

A) True 
 B)False

Exam 17: Taxation and Resource Allocation

Explain the purpose of payroll taxes.Is it a proportional form of tax?

In which of the following examples is excess burden not present?

Economists generally think that the ____ tax is among the best ways to raise revenue.

Many Americans believe that taxes have been gobbling up an ever-increasing share of the U.S.economy.Is this observation correct? Explain.

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

Taxation lowers social welfare when the taxed good

Direct taxes are levied directly on people or corporations.

The incidence of a tax explains what group pays the burden of a tax.

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

If a tax is progressive, the average tax rate

What is the flypaper theory of tax incidence? This theory is typically wrong.Why?

The benefits principle states that the users of a service should pay for that service.

If the demand curve for a product is vertical, then

A tax that creates an excess burden may nevertheless improve efficiency if

If Ron earns $50,000 in salary and pays income taxes of $15,000, and Harry earns $50,000 from investment dividends taxed at 20 percent, this would be

Existing loopholes erode the progressivity of the U.S.tax system.

Harun earned $50,000 in salary and paid $10,000 in federal taxes.If he receives $2,000 in interest payments from municipal bonds,

Loopholes reduce the efficiency of the tax system.

For about the past 45 years, federal taxes have remained relatively constant as a percentage of GDP.

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

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