Deck 20: Public Finance: Expenditures and Taxes

Question 1

In 2014, "Tax-Freedom Day" (the day average workers have earned enough to pay their tax bills) was

A)April 15.
B)April 17.
C)April 21.
D)July 4.

Answer 1

April 21.

Question 2

The tax rates embodied in the federal personal income tax are such that

A)a rising absolute amount, but a declining proportion, of income is paid in taxes.
B)the marginal and average tax rates are equal, making the tax progressive.
C)the average tax rate rises more rapidly than does the marginal tax rate as income rises.
D)the marginal tax rate is higher than the average tax rate, causing the average tax rate to rise as income rises.

Answer 2

the marginal tax rate is higher than the average tax rate, causing the average tax rate to rise as income rises.

Question 3

Government borrowing

A)is the primary means of financing public expenditures.
B)provides a stimulus to government spending with no opportunity cost.
C)may crowd out private sector investment.
D)is prohibited by the U.S.constitution.

Answer 3

may crowd out private sector investment.

Question 4

The maximum federal marginal tax rate on taxable personal income is, as of 2016,

A)50 percent.
B)39.6 percent.
C)35 percent.
D)28 percent.

Question 5

The average tax rate is

A)equal to the change in taxes/change in taxable income.
B)equal to total taxes/total taxable income.
C)the sum of the marginal tax rate and the rate of transfer payments.
D)the tax on incremental income less the tax on total income.

Question 6

Proprietary income refers to

A)revenue flowing to the government from taxes.
B)money borrowed by the government to finance its operations.
C)revenue generated by government-run businesses.
D)transfer payments from the government to the owners of property resources.

Question 7

The addition of government to the circular-flow model illustrates that government

A)purchases resources in the resource market.
B)provides services to businesses and households.
C)purchases goods in the product market.
D)does all of the things stated in the other possible answers.

Question 8

Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000.In year 2, you pay an average tax rate of 25 percent on a taxable income of $30,000.Assuming no change in tax rates, the marginal tax rate on your additional $10,000 of income is

A)5 percent.
B)12 percent.
C)35 percent.
D)42 percent.

Question 9

Which of the following is not an important source of revenue for the federal government?

A)corporate income taxes
B)property taxes
C)payroll taxes
D)personal income taxes

Question 10

The three most important sources of federal tax revenue in order of descending importance are

A)sales, payroll, and personal income taxes.
B)personal income, corporate income, and sales taxes.
C)personal income, corporate income, and payroll taxes.
D)personal income, payroll, and corporate income taxes.Difficulty: 01 Easy

Question 11

The largest category of federal spending is for

A)health care.
B)science, space, and technology.
C)pensions and income security.
D)national defense.

Question 12

The average tax rate is

A)equal to the marginal tax rate if the tax is progressive.
B)the total tax rate minus the marginal tax rate.
C)the ratio of total taxes paid to total taxable income.
D)the tax rate that applies to incremental dollars of income.

Question 13

Government purchases and transfer payments

A)differ because the latter absorb resources while the former do not.
B)differ because the former absorb resources while the latter do not.
C)are alike because both are more inflationary than private spending.
D)are alike because both absorb resources.

Question 14

The marginal tax rate is

A)the difference between the total tax rate and the average tax rate.
B)the percentage of total income paid as taxes.
C)equal to the change in taxes/change in taxable income.
D)equal to the total taxes/total taxable income.

Question 15

Transfer payments are about percent of U.S.domestic output (as of 2015).

A)35
B)8
C)15
D)22

Question 16

The total amount of U.S.tax revenue needed to finance the public sector

A)has been a declining percentage of the domestic output in this century.
B)equals about 40 percent of domestic output.
C)equals about 15 percent of domestic output.
D)is larger today, as a percentage of total output, than in 1960.

Question 17

Approximately what percentage of the federal government's tax revenues are generated from personal income taxes (in 2015)?

A)75 percent
B)28 percent
C)33 percent
D)47 percent

Question 18

Which of the following is an exhaustive governmental outlay?

A)a federal $5,000 subsidy check to an Illinois farmer
B)a Temporary Assistance to Needy Families payment made by the state of New York
C)a NASA payment to Boeing Corporation for space hardware
D)a federal old age insurance payment to a retired coal miner

Question 19

An income tax is progressive if the

A)absolute amount paid as taxes varies directly with income.
B)percentage of income paid as taxes is the same regardless of the size of income.
C)percentage of income paid as taxes increases as income increases.
D)tax rate varies inversely with income.

Question 20

Total governmental purchases-federal, state, and local combined-accounted for about what percentage of domestic output in 2015?

A)35 percent
B)18 percent
C)10 percent
D)5 percent

Question 21

Approximately what percentage of local government expenditures goes to finance education?

A)36
B)46
C)53
D)69

Question 22

In 2013, U.S.governments (local, state, and federal) employed approximately how many million workers?

A)16.0
B)19.4
C)21.9
D)23.5

Question 23

With respect to local finance,

A)death and gift taxes are the major source of revenue and most expenditures are for hospitals and health services.
B)the corporate income tax is the major source of revenue and natural resource development is the major type of expenditure.
C)property taxes are the basic source of revenue and education is the major type of expenditure.
D)sales and excise taxes are the major source of revenue and highway construction and maintenance is the major type of expenditure.

Question 24

The rationale for ability-to-pay taxation and the contention that those with large incomes should pay more taxes both absolutely and relatively is that

A)high-income receivers are generally in a better position to shift taxes than are low-income receivers.
B)the transfer system is regressive and it is therefore essential to have an offsetting progressive tax structure.
C)rational consumers spend their first dollars of income on the most urgently desired goods and successive dollars on less essential goods.
D)taxes should be paid for financing public goods in direct proportion to the satisfaction an individual derives from those goods.

Question 25

The marginal tax rate is

A)less than the average tax rate when a tax is progressive.
B)calculated by dividing total taxes paid by one's total taxable income.
C)the percentage of one's total income that is paid in taxes.
D)the percentage of an increment of income that is paid in taxes.

Question 26

The ability-to-pay principle of taxation

A)has been declared unconstitutional because it deprives individuals of property without due process of law.
B)suggests that people should pay taxes in proportion to the benefits they derive from public goods and services.
C)suggests that taxes should vary directly with people's income and wealth.
D)suggests that taxes should vary inversely with people's income and wealth.

Question 27

Approximately what percentage of the U.S.labor force works for U.S.governments at the federal, state, and local levels (as of 2013)?

A)8
B)11
C)14
D)22

Question 28

Which of the following best reflects the ability-to-pay philosophy of taxation?

A)a tax on residential property
B)a progressive income tax
C)an excise tax on gasoline
D)an excise tax on coffee

Question 29

Using income as the tax base, which of the following best illustrates a regressive tax?

A)the federal inheritance tax
B)a 7 percent general sales tax
C)the corporate income tax
D)the personal income tax

Question 30

Taxes on commodities or on purchases are known as

A)corporate income taxes.
B)sales and excise taxes.
C)personal income taxes.
D)payroll taxes.

Question 31

With respect to state finance, for most states

A)estate taxes are the major source of revenue and most expenditures are for health services.
B)the corporate income tax is the major source of revenue and natural resource development is the major type of expenditure.
C)property taxes are the basic source of revenue and education is the major type of expenditure.
D)sales and excise taxes are the major source of revenue and education is the major type of expenditure.

Question 32

The basic tax rate on taxable corporate income is

A)15 percent.
B)22 percent.
C)35 percent.
D)52 percent.

Question 33

A tax that takes a larger proportion of income from low-income groups than from high-income groups is a

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

Question 34

One difference between sales and excise taxes is that

A)sales taxes are only applied at the state level, while excise taxes are only applied at the federal level.
B)excise taxes apply to a wide range of products, while sales taxes apply only to a select list of products.
C)sales taxes are calculated as a percentage of the price paid, while excise taxes are levied on a per-unit basis.
D)excise taxes are calculated as a percentage of the price paid, while sales taxes are levied on a per-unit basis.

Question 35

The federal gasoline tax is assessed on a per-gallon basis, and the proceeds are used for highway maintenance and improvements.This tax is consistent with the

A)ability-to-pay principle of taxation.
B)benefits-received principle of taxation.
C)single-tax theory of taxation.
D)pay-as-you-go theory of taxation.

Question 36

At the state and local levels of the U.S.government, a majority of government employees work in which of the following areas?

A)postal service
B)education
C)hospitals and other health care
D)police and corrections

Question 37

Currently (2016) the marginal tax rates of the federal personal income tax

A)are less than corresponding average tax rates.
B)rise from 5 to 35 percent.
C)fall from 20 to 10 percent.
D)rise from 10 to 39.6 percent.

Question 38

Assume that in year 1 your average tax rate is 20 percent on a taxable income of $20,000.If the marginal tax rate on the next $10,000 of taxable income is 30 percent, what will be the average tax rate if your taxable income rises to $30,000?

A)7 percent
B)30 percent
C)about 16 percent
D)about 23 percent

Question 39

The federal income tax is consistent with the principle of taxation, whereas an excise tax on sporting event tickets is consistent with the principle of taxation.

A)benefits-received; ability-to-pay
B)benefits-received; pay-as-you-go
C)ability-to-pay; benefits-received
D)ability-to-pay; pay-as-you-go

Question 40

The benefits-received principle of taxation is most evident in

A)inheritance taxes.
B)excise taxes on gasoline.
C)the personal income tax.
D)the corporate income tax.

Question 41

The greater the elasticity of supply of and demand for a good, the

A)smaller will be the efficiency loss of an excise tax on the good.
B)more likely the good will be a public good rather than a private good.
C)larger will be the efficiency loss of an excise tax on the good.
D)larger will be the proportion of an excise tax on the good that will be shifted forward to consumers.

Question 42

The efficiency loss of a tax is

A)the net value of sacrificed output caused by the tax.
B)that portion of the tax paid by producers minus the portion paid by consumers.
C)that portion of the tax paid by consumers minus the portion paid by producers.
D)the total tax revenue minus the output loss caused by the tax.

Question 43

Assume that you pay $10,000 of tax on a taxable income of $50,000.If your taxable income were $150,000, your tax payment would be $25,000.This suggests the tax is

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

Question 44

Which of the following is correct about the U.S.tax system?

A)The primary federal tax system is regressive, while the primary state and local tax systems are progressive.
B)Both the primary federal tax system and the primary state and local tax systems are regressive.
C)The primary federal tax system is progressive, while the primary state and local tax systems are regressive.
D)Both the primary federal tax system and the primary state and local tax systems are progressive.

Question 45

The more inelastic are demand and supply, the

A)larger is the efficiency loss of an excise tax.
B)smaller is the efficiency loss of an excise tax.
C)higher is the proportion of an excise tax paid by consumers.
D)smaller is the proportion of an excise tax paid by producers.

Question 46

In 2013, the top 1 percent of all taxpayers in the United States paid what percentage of the federal income tax?

A)23.4 percent
B)37.8 percent
C)39.6 percent
D)58.5 percent

Question 47

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1).If the incidence of the tax is such that consumers pay $1.80 of the tax and the producers pay $.20, we can conclude that the

A)supply of X is highly inelastic.
B)supply of X is highly elastic.
C)demand for X is highly inelastic.
D)demand for X is highly elastic.

Question 48

The efficiency loss of a tax is the idea that

A)in addition to taking income from the citizenry, taxes also increase the rate of inflation.
B)taxes cause a decline in output for which marginal benefit exceeds marginal cost.
C)taxes diminish incentives to work.
D)government spends dollars less efficiently than do households and businesses.

Question 49

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1).If the incidence of the tax is such that the consumers of X pay $1.85 of the tax and the producers pay $0.15, we can conclude that the

A)supply of X is highly inelastic.
B)supply of X is highly elastic.
C)demand for X is highly inelastic.
D)demand for X is highly elastic.

Question 50

The incidence of a tax pertains to

A)the degree to which it alters the distribution of income.
B)how easy it is to evade the tax.
C)who actually bears the burden of a tax.
D)the progressiveness or regressiveness of tax rates.

Question 51

If the supply of a product is perfectly elastic and demand is downsloping, an excise tax of $2 per unit will increase price by

A)more than $2.
B)less than $2.
C)$2 and increase equilibrium output.
D)$2 and reduce equilibrium output.

Question 52

Assume you pay a tax of $4,000 on a taxable income of $24,000.If your taxable income were $30,000, your tax payment would be $5,000.This suggests that the tax is

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

Question 53

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1).If the incidence of the tax is such that the producers of X pay $1.90 of the tax and the consumers pay $.10, we can conclude that the

A)supply of X is highly inelastic.
B)supply of X is highly elastic.
C)demand for X is highly inelastic.
D)demand for X is highly elastic.

Question 54

In 2011, the 20 percent of families with the lowest incomes paid an effective average federal tax rate (on all federal taxes) of about , whereas the 20 percent of families with the highest incomes paid an effective average tax rate of about .

A)5.5 percent; 50 percent
B)10.3 percent; 30.9 percent
C)8.4 percent; 27.5 percent
D)1.9 percent; 23.4 percent

Question 55

Overall, the U.S.tax system (combined federal, state, and local) is

A)highly progressive.
B)slightly progressive.
C)slightly regressive.
D)highly regressive.

Question 56

Assume the supply curve for product X is perfectly elastic and that government imposes a $2-per-unit excise tax.We can conclude that the resulting

A)increase in output will be greater the less elastic the demand curve.
B)decrease in output will be greater the less elastic the demand curve.
C)decrease in output will be greater the more elastic the demand curve.
D)increase in output will be greater the more elastic the demand curve.

Question 57

If the demand for a product is perfectly inelastic, the incidence of an excise tax will be

A)entirely on the buyer.
B)mostly on the buyer.
C)entirely on the seller.
D)mostly on the seller.

Question 58

If each taxpayer paid the same lump-sum amount regardless of income level, the tax system would be

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

Question 59

Assume the Environmental Protection Agency imposes an excise tax on polluting firms.In which of the following situations would we expect the additional costs to be borne most heavily by consumers?

A)Demand is highly elastic and supply is highly inelastic.
B)Demand and supply are both highly elastic.
C)Demand and supply are both highly inelastic.
D)Demand is highly inelastic and supply is highly elastic.

Question 60

If the demand for a product is perfectly inelastic and the supply curve is upsloping, a $1 excise tax per unit of output will

A)raise the price by less than $1.
B)raise the price by more than $1.
C)raise the price by $1.
D)lower the price by $1.

Question 61

"Tax Freedom Day" in the United States typically occurs in mid-July.

Question 62

(Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in units of 100.After an excise tax is imposed on the product, the supply equation is P = 3 + 0.4Q.Government's revenue from this tax is

A)$750.
B)$1,500.
C)$875.
D)$800.

Question 63

(Last Word) Which of the following statements about taxes and government spending is correct?

A)Despite the overall progressive tax system, government expenditures disproportionately favor the rich and result in a system that is slightly regressive.
B)The progressive tax system is almost perfectly offset by regressive expenditures, making the overall system proportional.
C)The regressive tax system is offset by expenditures directed toward lower-income households, making the overall system proportional.
D)The overall system of taxes and spending is progressive, as over $1 trillion per year gets transferred from upper-income households to lower- and middle-income households.

Question 64

(Last Word) In 2012, approximately what percentage of household income was transferred from the top two quintiles to the lowest three quintiles?

A)zero
B)10
C)15
D)22

Question 65

(Consider This) Payout rates for state lotteries

A)are considerably lower than payout rates from casinos.
B)are considerably higher than payout rates from casinos.
C)are roughly equal to the payout rates from casinos.
D)cannot be compared with casino payout rates because states do not typically disclose their payout rates.

Question 66

(Consider This) A value-added tax (VAT)

A)is another name for a retail sales tax but is otherwise the same.
B)is like a sales tax but is only imposed on the difference between a firm's sales and its purchases from other firms.
C)is like an income tax but is only imposed on the difference between a person's income and his or her consumption.
D)only applies to imported goods.

Question 67

Sales and excise taxes are levied on retailers, but retailers add these taxes to the prices of their products.This illustrates the

A)equal sacrifice theory of taxation.
B)shifting of taxes to consumers.
C)ability-to-pay principle of taxation.
D)benefits-received principle of taxation.

Question 68

(Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in units of 100.After an excise tax is imposed on the product, the supply equation is P = 3 + 0.4Q.The efficiency loss of this tax is

A)$125.00.
B)$62.50.
C)$87.50.
D)$1.00.

Question 69

(Consider This) Proponents of a value-added tax (VAT) claim that a VAT

A)is progressive, leading to a more equitable distribution of income.
B)equalizes the tax burden between buyers and sellers of goods.
C)is proportional, so all income groups pay a fair share.
D)penalizes consumption and encourages savings and investment.

Question 70

Which of the following taxes is least likely to be shifted?

A)a state excise tax on the sellers of football tickets
B)a personal income tax
C)a general sales tax on retailers who sell foodstuffs and clothing
D)a federal excise tax on the producers of whiskey

Question 71

The largest source of local government's revenue is the sales tax.

Question 72

(Consider This) Which of the following claims is not made by defenders of lotteries?

A)Lotteries are a relatively painless way to fund important government services.
B)Lotteries help reduce organized crime by providing an alternative to illegal gambling.
C)Lotteries are preferable to taxes because they are voluntary.
D)Lotteries are progressive in nature, with higher income families playing more frequently.

Question 73

(Last Word) For each dollar paid in taxes, approximately how much do households in the top quintile receive back in the form of government expenditures?

A)12 cents
B)41 cents
C)29 cents
D)71 cents

Question 74

(Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in units of 100.After an excise tax is imposed on the product, the supply equation is P = 3 + 0.4Q.The equilibrium quantity before the excise tax is imposed is

A)800 units.
B)1,000 units.
C)1,200 units.
D)1,400 units.

Question 75

(Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in units of 100.After an excise tax is imposed on the product, the supply equation is P = 3 + 0.4Q.The equilibrium quantity after the excise tax is imposed is

A)750 units.
B)850 units.
C)875 units.
D)950 units.

Question 76

(Consider This) Which of the following claims is not made by opponents of a value-added tax (VAT)?

A)Savings and investment is discouraged because future consumption is penalized.
B)The VAT is regressive, potentially leading to additional progressive taxes to offset the regressive VAT.
C)Sellers bear a disproportionately large burden of the tax.
D)The VAT is a hidden tax, and thus easier to raise to support the expansion of government.

Question 77

Which of the following taxes is most likely to be shifted?

A)a general sales tax
B)a flat-rate state income tax
C)a progressive federal income tax
D)a property tax on an owner-occupied residence

Question 78

Government assumes some responsibility for providing a minimum standard of living for all citizens to compensate for the increase in income inequality caused by government tax revenues and expenditures.

Question 79

(Advanced analysis) The equations for the demand and supply curves for a particular product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in units of 100.After an excise tax is imposed on the product, the supply equation is P = 3 + 0.4Q.The excise tax on each unit of the product

A)is $1.
B)is $2.
C)is $3.
D)cannot be determined with the information given.

Question 80

The property tax may be regressive even though wealthy people own much more taxable property than do poor people.This possibility arises because

A)marginal and average tax rates on property tend to converge.
B)wealthy people can evade property taxes, while poor people cannot.
C)property taxes on rental property and business property are shifted.
D)statutory property tax rates decline as the value of property rises.