Question 1

Loopholes increase the efficiency of the tax system by making taxpayers better off.

Accepted Answer

A) True 
 B)False  False

Question 2

What are tax loopholes and what are their effects?

Accepted Answer

A tax loophole is a special provision in the tax code that reduces taxation below normal rates (perhaps to zero) if certain conditions are met.They can exist for several reasons: One is a perceived need for horizontal or vertical equity.A second is that a person, firm, or industry has engaged in effective rent seeking and has obtained a tax advantage.The effects of loopholes are to encourage particular patterns of behavior and/or to discourage other patterns of behavior.Many loopholes benefit the wealthy; this tends to erode the progressivity of a progressive income tax.

Question 3

A regressive tax is one in which the average tax rate falls as income rises.

Accepted Answer

A) True 
 B)False  True

Question 4

Payroll tax is a proportional tax.

Accepted Answer

A) True 
 B)False

Question 5

When we say most Americans are in the 15-percent tax bracket, we mean federal taxes are about 15 percent of the income of most Americans.

Accepted Answer

A) True 
 B)False

Question 6

The share of GDP taken by taxes is considerably higher in the United States than in other countries.

Accepted Answer

A) True 
 B)False

Question 7

The incidence of a payroll tax

Accepted Answer

A) depends upon whether it is levied on the employer or employee. 
B) is the same whether it is levied on the employer or the employee. 
C) is more heavily on the employee as demand for labor becomes more elastic. 
D) is more heavily on the employer as demand for labor becomes less elastic. 
A) depends upon whether it is levied on the employer or employee. 
B) is the same whether it is levied on the employer or the employee. 
C) is more heavily on the employee as demand for labor becomes more elastic. 
D) is more heavily on the employer as demand for labor becomes less elastic.

Question 8

The way in which most persons pay their personal income tax is in the form of

Accepted Answer

A) quarterly payments throughout the year. 
B) annual payment by April 15. 
C) monthly payments as part of mortgage payments. 
D) payroll withholding during the year. 
A) quarterly payments throughout the year. 
B) annual payment by April 15. 
C) monthly payments as part of mortgage payments. 
D) payroll withholding during the year.

Question 9

Who bears the burden of an excise tax if demand is perfectly inelastic; if supply is perfectly inelastic?
 Use graphs in your explanation.

Accepted Answer

If demand is perfectly inelastic and an

Question 10

Under a proportional tax, the fraction of income paid in taxes

Accepted Answer

A) rises as income rises. 
B) is unchanged as income changes. 
C) falls as income rises. 
D) is proportional to the change in income. 
A) rises as income rises. 
B) is unchanged as income changes. 
C) falls as income rises. 
D) is proportional to the change in income.

Question 11

Tax loopholes are equally available to all taxpayers.

Accepted Answer

A) True 
 B)False

Question 12

Taxes on sales of liquor, tobacco, and tires are examples of

Accepted Answer

A) direct taxes. 
B) excise taxes. 
C) progressive taxation. 
D) loopholes. 
A) direct taxes. 
B) excise taxes. 
C) progressive taxation. 
D) loopholes.

Question 13

Figure 18-2
  
-Figure 18-2 shows the widget market before and after an excise tax is imposed.What percentage of the tax per widget is borne by consumers, considering the true economic incidence of the tax?

Accepted Answer

A) 0 percent 
B) 20 percent 
C) 50 percent 
D) 80 percent 
A) 0 percent 
B) 20 percent 
C) 50 percent 
D) 80 percent

Question 14

Rhode Island has enacted a substantial increase in the tax on employers that finances the workman's compensation system.For some employers, the tax is about $25 per $100 paid in wages.Employers claim they cannot afford to pay the tax.Under which of the following conditions will the actual burden of the tax fall on employers?

Accepted Answer

A) The employers' demand for labor is perfectly elastic. 
B) The supply of labor is perfectly inelastic. 
C) The employers' demand for labor is perfectly inelastic. 
D) The demand for the good they produce must be perfectly inelastic. 
A) The employers' demand for labor is perfectly elastic. 
B) The supply of labor is perfectly inelastic. 
C) The employers' demand for labor is perfectly inelastic. 
D) The demand for the good they produce must be perfectly inelastic.

Question 15

What is the controversy surrounding property taxes as a source for school funding?

Accepted Answer

The controversy behind school funding ap

Question 16

Excise taxes are a form of sales tax.

Accepted Answer

A) True 
 B)False

Question 17

The term "fiscal federalism" refers to

Accepted Answer

A) deficit financing of government programs. 
B) the power of Congress to tax and to determine how tax revenues are spent. 
C) transferring money between levels of government (for example, from a state government to a local government). 
D) the system under which governments ask citizens to vote on major revenue-raising measures (for example, on issues of municipal bonds). 
A) deficit financing of government programs. 
B) the power of Congress to tax and to determine how tax revenues are spent. 
C) transferring money between levels of government (for example, from a state government to a local government). 
D) the system under which governments ask citizens to vote on major revenue-raising measures (for example, on issues of municipal bonds).

Question 18

Are property taxes progressive or regressive?

Accepted Answer

The nature of property taxes is controve

Question 19

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

Question 20

In the spring of 1993, President Clinton proposed an energy tax.At one point in the congressional review of the proposal there was discussion of various exemptions for farmers, truckers, etc.One plan was to dye fuel different colors to better track the appropriate tax on the user of the fuel.Economists would label these exemptions

Accepted Answer

A) loopholes. 
B) economically efficient. 
C) obviously fair. 
D) all of the above. 
A) loopholes. 
B) economically efficient. 
C) obviously fair. 
D) all of the above.

Exam 17: Taxation and Resource Allocation

Loopholes increase the efficiency of the tax system by making taxpayers better off.

What are tax loopholes and what are their effects?

A regressive tax is one in which the average tax rate falls as income rises.

Payroll tax is a proportional tax.

When we say most Americans are in the 15-percent tax bracket, we mean federal taxes are about 15 percent of the income of most Americans.

The share of GDP taken by taxes is considerably higher in the United States than in other countries.

The incidence of a payroll tax

The way in which most persons pay their personal income tax is in the form of

Who bears the burden of an excise tax if demand is perfectly inelastic; if supply is perfectly inelastic? Use graphs in your explanation.

Under a proportional tax, the fraction of income paid in taxes

Tax loopholes are equally available to all taxpayers.

Taxes on sales of liquor, tobacco, and tires are examples of

Figure 18-2 -Figure 18-2 shows the widget market before and after an excise tax is imposed.What percentage of the tax per widget is borne by consumers, considering the true economic incidence of the tax?

What is the controversy surrounding property taxes as a source for school funding?

Excise taxes are a form of sales tax.

The term "fiscal federalism" refers to

Are property taxes progressive or regressive?

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: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

He 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

Filters