Question 1

It does not matter whether a worker or an employer physically pays a payroll tax; the net effect on wages is the same.

Accepted Answer

A) True 
 B)False  True

Question 2

If an individual earns an additional $300 and has to pay an additional $93 in income tax,his or her average tax rate is

Accepted Answer

A) 3.1 percent. 
B) There is not enough information provided to answer this question. 
C) 31 percent. 
D) 93 percent. 
E) 9.3 percent. 
A) 3.1 percent. 
B) There is not enough information provided to answer this question. 
C) 31 percent. 
D) 93 percent. 
E) 9.3 percent. B

Question 3

The argument that individuals should pay taxes according to how much they can afford is called the

Accepted Answer

A) benefits principle. 
B) equity principle. 
C) ability-to-pay principle. 
D) proportional principle. 
E) egalitarian principle. 
A) benefits principle. 
B) equity principle. 
C) ability-to-pay principle. 
D) proportional principle. 
E) egalitarian principle. C

Question 4

All transfer payments are means-tested.

Accepted Answer

A) True 
 B)False

Question 5

If a welfare payment is reduced for every additional dollar a person earns,then the welfare program creates an incentive for that person to work.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following has not been proposed as a reform of present-day welfare?

Accepted Answer

A) Stop welfare payments to an individual after two years. 
B) Lower the maximum payment when an individual has no other income. 
C) Phase out welfare payments more slowly as income increases. 
D) Give everyone a welfare check. 
E) Make people work in public jobs as long as they receive welfare. 
A) Stop welfare payments to an individual after two years. 
B) Lower the maximum payment when an individual has no other income. 
C) Phase out welfare payments more slowly as income increases. 
D) Give everyone a welfare check. 
E) Make people work in public jobs as long as they receive welfare.

Question 7

In the case of complete income equality,the Lorenz curve

Accepted Answer

A) slopes downward. 
B) is a vertical line. 
C) is a horizontal line. 
D) is a 45-degree line from the origin. 
E) does not exist. 
A) slopes downward. 
B) is a vertical line. 
C) is a horizontal line. 
D) is a 45-degree line from the origin. 
E) does not exist.

Question 8

Because of work disincentives,government transfer and tax policies have increased the inequality of income in the United States.

Accepted Answer

A) True 
 B)False

Question 9

With income below $10,000,the earned income tax credit makes the effective tax rate equal to

Accepted Answer

A) 40 percent. 
B) 36 percent. 
C) -40 percent. 
D) -36 percent. 
E) 15 percent. 
A) 40 percent. 
B) 36 percent. 
C) -40 percent. 
D) -36 percent. 
E) 15 percent.

Question 10

Exhibit 14-1  
-Refer to Exhibit 14-1.If an individual is earning $38,500 in taxable income,that individual will be able to keep how much of one more dollar earned?

Accepted Answer

A) $.60 
B) $.65 
C) $.55 
D) $.85 
E) $.70 
A) $.60 
B) $.65 
C) $.55 
D) $.85 
E) $.70

Question 11

Taxes cause deadweight losses because they

Accepted Answer

A) raise market prices. 
B) lower firm profits. 
C) distort economic incentives. 
D) increase revenue for the government. 
E) benefit firms at the expense of consumers. 
A) raise market prices. 
B) lower firm profits. 
C) distort economic incentives. 
D) increase revenue for the government. 
E) benefit firms at the expense of consumers.

Question 12

According to the Laffer curve,it is possible for the government to

Accepted Answer

A) raise tax revenues by reducing the tax rate. 
B) raise tax revenues without changing the tax rate. 
C) raise tax revenues by not imposing any tax. 
D) lose only tax revenues by imposing a tax. 
E) do nothing to raise tax revenues. 
A) raise tax revenues by reducing the tax rate. 
B) raise tax revenues without changing the tax rate. 
C) raise tax revenues by not imposing any tax. 
D) lose only tax revenues by imposing a tax. 
E) do nothing to raise tax revenues.

Question 13

The ability-to-pay principle is the idea that only those who have very high incomes should pay any taxes at all.

Accepted Answer

A) True 
 B)False

Question 14

In the United States,income and employment data are collected regularly through the

Accepted Answer

A) Current Population Survey. 
B) census. 
C) income tax. 
D) Income and Employment Survey. 
E) records of banks. 
A) Current Population Survey. 
B) census. 
C) income tax. 
D) Income and Employment Survey. 
E) records of banks.

Question 15

An excise tax is the same as a sales tax that consumers pay on the amount they spend in retail stores.

Accepted Answer

A) True 
 B)False

Question 16

Consider the following income tax schedule for a married couple who are combining their incomes and filing jointly:   (A)What is the tax owed by the couple if each partner earns $20,000?
(B)Compare the tax that the couple would pay if they were not married (filing as single)with the amount of tax they pay as a married couple (filing jointly).
(C)What is the tax owed by a couple in which one spouse earns $40,000 and the other spouse earns no income?

Accepted Answer

(A) The tax owed is $7,000 for a couple

Question 17

With a proportional tax,the average tax rate and marginal tax rate are equal.

Accepted Answer

A) True 
 B)False

Question 18

According to the ability-to-pay principle,

Accepted Answer

A) those with lower incomes should pay just as great a percentage of their income in taxes as those with higher incomes. 
B) foreigners who trade with the United States should pay taxes. 
C) those with higher incomes should pay more in total taxes. 
D) those with higher incomes should pay higher tax rates. 
E) those with higher incomes should pay the same amount of taxes as those with lower incomes. 
A) those with lower incomes should pay just as great a percentage of their income in taxes as those with higher incomes. 
B) foreigners who trade with the United States should pay taxes. 
C) those with higher incomes should pay more in total taxes. 
D) those with higher incomes should pay higher tax rates. 
E) those with higher incomes should pay the same amount of taxes as those with lower incomes.

Question 19

The Gini coefficient can take on any value from

Accepted Answer

A) negative infinity to zero. 
B) negative infinity to positive infinity. 
C) -1 to 1. 
D) zero to 1. 
E) zero to positive infinity. 
A) negative infinity to zero. 
B) negative infinity to positive infinity. 
C) -1 to 1. 
D) zero to 1. 
E) zero to positive infinity.

Question 20

If the average tax rate falls as income rises,the tax is called a

Accepted Answer

A) sales tax. 
B) progressive tax. 
C) flat tax. 
D) proportional tax. 
E) regressive tax. 
A) sales tax. 
B) progressive tax. 
C) flat tax. 
D) proportional tax. 
E) regressive tax.

Exam 14: Taxes, transfers, and Income Distribution

It does not matter whether a worker or an employer physically pays a payroll tax; the net effect on wages is the same.

If an individual earns an additional $300 and has to pay an additional $93 in income tax,his or her average tax rate is

The argument that individuals should pay taxes according to how much they can afford is called the

All transfer payments are means-tested.

If a welfare payment is reduced for every additional dollar a person earns,then the welfare program creates an incentive for that person to work.

Which of the following has not been proposed as a reform of present-day welfare?

In the case of complete income equality,the Lorenz curve

Because of work disincentives,government transfer and tax policies have increased the inequality of income in the United States.

With income below $10,000,the earned income tax credit makes the effective tax rate equal to

Exhibit 14-1 -Refer to Exhibit 14-1.If an individual is earning $38,500 in taxable income,that individual will be able to keep how much of one more dollar earned?

Taxes cause deadweight losses because they

According to the Laffer curve,it is possible for the government to

The ability-to-pay principle is the idea that only those who have very high incomes should pay any taxes at all.

In the United States,income and employment data are collected regularly through the

An excise tax is the same as a sales tax that consumers pay on the amount they spend in retail stores.

With a proportional tax,the average tax rate and marginal tax rate are equal.

According to the ability-to-pay principle,

The Gini coefficient can take on any value from

If the average tax rate falls as income rises,the tax is called a

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Public Goods, externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

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