Question 1

The major objective of the 1986 tax reform was to: (i)enhance efficiency by lowering marginal tax rates; (ii)enhance equity by closing "loopholes."

Accepted Answer

A) i and ii 
B) i but not ii 
C) ii but not i 
D) neither i nor ii 
A) i and ii 
B) i but not ii 
C) ii but not i 
D) neither i nor ii

Question 2

The second largest source of revenue for the federal government is the

Accepted Answer

A) import tax. 
B) payroll tax. 
C) export tax. 
D) federal property tax. 
A) import tax. 
B) payroll tax. 
C) export tax. 
D) federal property tax.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

How is state and local government funded and how does such funding differ from federal government funding?

Accepted Answer

State and local governments rely heavily

Question 5

Homeowners receive tax benefits that are not available to renters.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Under a regressive 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 8

If Linda' annual income is $160,000 and she pays $35,000 in taxes and Paul's annual income is $100,000 and he pays $25,000 in taxes,the tax system is

Accepted Answer

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

Question 9

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 10

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 11

"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 12

What are tax loopholes and what are their effects?

Accepted Answer

A tax loophole is a special provision in

Question 13

The payroll tax receipts

Accepted Answer

A) are used to reduce the national debt. 
B) are invested in private business for future payments. 
C) pay off current recipients of Social Security payments. 
D) go directly into a trust fund for investment in private businesses. 
A) are used to reduce the national debt. 
B) are invested in private business for future payments. 
C) pay off current recipients of Social Security payments. 
D) go directly into a trust fund for investment in private businesses.

Question 14

If two families are equally situated except that one rents and the other owns their home,the existing tax system will lead to

Accepted Answer

A) vertical inequity. 
B) equal treatment of both. 
C) horizontal inequity. 
D) equal burden sharing. 
A) vertical inequity. 
B) equal treatment of both. 
C) horizontal inequity. 
D) equal burden sharing.

Question 15

An excise tax on gasoline is regressive if

Accepted Answer

A) rich people buy more gasoline than poor people. 
B) the demand for gasoline is elastic. 
C) the tax causes people to buy less gasoline. 
D) poor people spend a larger portion of their incomes on gasoline than rich people. 
A) rich people buy more gasoline than poor people. 
B) the demand for gasoline is elastic. 
C) the tax causes people to buy less gasoline. 
D) poor people spend a larger portion of their incomes on gasoline than rich people.

Question 16

Which of the following is an example of an indirect tax?

Accepted Answer

A) value-added tax 
B) income tax 
C) inheritance tax 
D) head tax 
A) value-added tax 
B) income tax 
C) inheritance tax 
D) head tax

Question 17

The notion that equally situated individuals should be taxed equally is referred to as

Accepted Answer

A) horizontal equity. 
B) vertical equity. 
C) the benefits principle. 
D) the Gini principle. 
A) horizontal equity. 
B) vertical equity. 
C) the benefits principle. 
D) the Gini principle.

Question 18

Briefly and concisely define the following terms:
a.fiscal federalism
b.horizontal equity
c.vertical equity
d.benefits principle of taxation

Accepted Answer

a.Fiscal federalism is a system of inter

Question 19

The largest single source of revenue for the federal government is the

Accepted Answer

A) corporate income tax. 
B) federal excise tax. 
C) personal income tax. 
D) Social Security tax. 
A) corporate income tax. 
B) federal excise tax. 
C) personal income tax. 
D) Social Security tax.

Question 20

The share of GDP going to federal taxes

Accepted Answer

A) has been about 16 to 21 percent for the past 40 years. 
B) has been about 35 percent for the past 40 years. 
C) was about 40 percent until the early 1980s and has dropped greatly since then. 
D) has risen steadily in the past 40 years to about 35 percent. 
A) has been about 16 to 21 percent for the past 40 years. 
B) has been about 35 percent for the past 40 years. 
C) was about 40 percent until the early 1980s and has dropped greatly since then. 
D) has risen steadily in the past 40 years to about 35 percent.

Exam 18: Taxation and Resource Allocation

The major objective of the 1986 tax reform was to: (i)enhance efficiency by lowering marginal tax rates; (ii)enhance equity by closing "loopholes."

The second largest source of revenue for the federal government is the

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

How is state and local government funded and how does such funding differ from federal government funding?

Homeowners receive tax benefits that are not available to renters.

The concept of vertical equity is that

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

If Linda' annual income is $160,000 and she pays $35,000 in taxes and Paul's annual income is $100,000 and he pays $25,000 in taxes,the tax system is

The burden of a tax is

Horizontal equity is the concept that

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

What are tax loopholes and what are their effects?

The payroll tax receipts

If two families are equally situated except that one rents and the other owns their home,the existing tax system will lead to

An excise tax on gasoline is regressive if

Which of the following is an example of an indirect tax?

The notion that equally situated individuals should be taxed equally is referred to as

Briefly and concisely define the following terms: a.fiscal federalism b.horizontal equity c.vertical equity d.benefits principle of taxation

The largest single source of revenue for the federal government is the

The share of GDP going to federal taxes

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 Markets 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

International Trade and Comparative Advantage

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