Question 1

Which of the following situations is a clear application of the benefits principle of taxation?

Accepted Answer

A) Wealthier people are taxed more heavily. 
B) Heavier vehicles are charged higher tolls on turnpikes. 
C) State government providing a free education to any child in the state. 
D) Sales of measles vaccine exempt from sales tax. 
A) Wealthier people are taxed more heavily. 
B) Heavier vehicles are charged higher tolls on turnpikes. 
C) State government providing a free education to any child in the state. 
D) Sales of measles vaccine exempt from sales tax.

Question 2

The total burden of a tax equals tax receipts plus excess burden.

Accepted Answer

A) True 
 B)False

Question 3

Taxation alters the behavior patterns of individuals.

Accepted Answer

A) True 
 B)False

Question 4

The burden of a tax is

Accepted Answer

A) the amount of revenue that the government raises from the tax. 
B) what it would cost in alternative tax revenue to provide the same level of service. 
C) greater as the total revenue from the tax decreases. 
D) the amount the taxpayer would have to be given to be just as well off in the presence of the tax as in its absence. 
A) the amount of revenue that the government raises from the tax. 
B) what it would cost in alternative tax revenue to provide the same level of service. 
C) greater as the total revenue from the tax decreases. 
D) the amount the taxpayer would have to be given to be just as well off in the presence of the tax as in its absence.

Question 5

The payroll tax is the federal government's biggest source of revenue.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

Accepted Answer

A) True 
 B)False

Question 9

A $10 fee to obtain a driver's license is a

Accepted Answer

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

Question 10

Horizontal equity is a difficult concept to implement because

Accepted Answer

A) it is difficult to determine how unequally unequals should be treated. 
B) it is difficult to measure ability to pay. 
C) it is difficult to determine which people are equally situated. 
D) people object to the use of absolute tax liability instead of percentage of income. 
A) it is difficult to determine how unequally unequals should be treated. 
B) it is difficult to measure ability to pay. 
C) it is difficult to determine which people are equally situated. 
D) people object to the use of absolute tax liability instead of percentage of income.

Question 11

If two families are identical with respect to size, income, general expenses, etc., and are taxed equally, we say that there is

Accepted Answer

A) horizontal equity. 
B) vertical equity. 
C) observance of the ability-to-pay principle. 
D) intergenerational equity. 
A) horizontal equity. 
B) vertical equity. 
C) observance of the ability-to-pay principle. 
D) intergenerational equity.

Question 12

The federal income tax began in the United States with the

Accepted Answer

A) Morrill Act of 1862. 
B) addition of the Bill of Rights to the Constitution in 1791. 
C) passage of the 16th Amendment to the Constitution in 1913. 
D) New Deal legislation of the 1930s. 
A) Morrill Act of 1862. 
B) addition of the Bill of Rights to the Constitution in 1791. 
C) passage of the 16th Amendment to the Constitution in 1913. 
D) New Deal legislation of the 1930s.

Question 13

Employers can shift payroll taxes by substituting capital for labor.

Accepted Answer

A) True 
 B)False

Question 14

Which is not true of current U.S.payroll taxes?

Accepted Answer

A) They are used to fund Social Security. 
B) They account for about 35 percent of federal revenues. 
C) They are proportional taxes because there is only one listed tax rate. 
D) They are levied on wages and salaries but not investment income. 
A) They are used to fund Social Security. 
B) They account for about 35 percent of federal revenues. 
C) They are proportional taxes because there is only one listed tax rate. 
D) They are levied on wages and salaries but not investment income.

Question 15

Sometimes, the taxes with the smallest excess burden are

Accepted Answer

A) progressive. 
B) regressive. 
C) proportional. 
D) digressive. 
A) progressive. 
B) regressive. 
C) proportional. 
D) digressive.

Question 16

Above a certain income, the marginal social security tax drops to zero.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not true?

Accepted Answer

A) George H.W.Bush won reelection after agreeing to a small tax increase as part of a political compromise. 
B) George W.Bush won election after claiming tax cuts would pay for themselves. 
C) Ronald Reagan claimed tax cuts would spur economic gains that would increase tax revenues before the tax cuts led to significantly lower revenues. 
D) After Bill Clinton raised taxes on upper income individuals to reduce federal budget deficits his party lost heavily in the following congressional elections. 
A) George H.W.Bush won reelection after agreeing to a small tax increase as part of a political compromise. 
B) George W.Bush won election after claiming tax cuts would pay for themselves. 
C) Ronald Reagan claimed tax cuts would spur economic gains that would increase tax revenues before the tax cuts led to significantly lower revenues. 
D) After Bill Clinton raised taxes on upper income individuals to reduce federal budget deficits his party lost heavily in the following congressional elections.

Question 18

The sales tax is generally considered to be a regressive tax.

Accepted Answer

A) True 
 B)False

Question 19

What are tax loopholes and what are their effects?

Accepted Answer

A tax loophole is a special provision in

Question 20

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.

Exam 17: Taxation and Resource Allocation

Which of the following situations is a clear application of the benefits principle of taxation?

The total burden of a tax equals tax receipts plus excess burden.

Taxation alters the behavior patterns of individuals.

The burden of a tax is

The payroll tax is the federal government's biggest source of revenue.

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

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

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

A $10 fee to obtain a driver's license is a

Horizontal equity is a difficult concept to implement because

If two families are identical with respect to size, income, general expenses, etc., and are taxed equally, we say that there is

The federal income tax began in the United States with the

Employers can shift payroll taxes by substituting capital for labor.

Which is not true of current U.S.payroll taxes?

Sometimes, the taxes with the smallest excess burden are

Above a certain income, the marginal social security tax drops to zero.

Which of the following is not true?

The sales tax is generally considered to be a regressive tax.

What are tax loopholes and what are their effects?

The concept of vertical equity is that

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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