Deck 12: Public Finance: Expenditures and Taxes

Question 1

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 1

C

Question 2

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (8)might represent:

A) personal income taxes.
B) automobile purchases by the State of Maine.
C) the services of firefighters.
D) subsidies to farmers.

Answer 2

B

Question 3

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (3)might represent:

A) government salaries paid to school teachers.
B) property tax payments.
C) a state university's purchase of computers.
D) social security payments to retirees.

Answer 3

A

Question 4

Transfer payments are about ____ of U.S.domestic output (as of 2010).

A) 8 percent
B) 15 percent
C) 25 percent
D) 35 percent

Question 5

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 these.

Question 6

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (7)might represent:

A) a transfer payment to disabled persons.
B) wage payments to public school teachers.
C) subsidies to corporations to stimulate exports.
D) the U.S.Bureau of Engraving and Printing's expenditures for paper.

Question 7

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 8

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (2)might represent:

A) the provision of national defense by government.
B) a government subsidy to farmers.
C) corporate income tax payments.
D) welfare payments to low-income families.

Question 9

Revenues flowing to the government from government-run or government-sponsored businesses,such as public utilities and state lotteries,are known as:

A) proprietary income.
B) transfer payments.
C) tax revenue.
D) subsidies.

Question 10

The opportunity cost of borrowing funds to finance government deficits is:

A) greatest when the economy is doing well.
B) greatest when the economy is in a recession.
C) the same regardless of the state of the economy.
D) zero because government bonds are essentially risk free.

Question 11

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 12

The burden of taxes in the United States is:

A) lower than in all other countries of the world.
B) higher than in all other countries of the world.
C) on the low end when compared to other industrialized countries of the world.
D) on the high end when compared to other industrialized countries of the world.

Question 13

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 14

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (6)might represent:

A) the payment of payroll taxes by households.
B) corporate income tax payments.
C) the purchase of basketballs by the Ogallala school district.
D) the purchase of armored personnel vehicles by government.

Question 15

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (1)might represent:

A) corporate income tax payments.
B) government provision of highways for truck transportation.
C) business property tax payments.
D) transfer payments to low-income families.

Question 16

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 17

As a proportion of domestic output,taxes in the United States:

A) are lower than in most other industrially advanced countries.
B) are higher than in most other industrially advanced countries.
C) are approximately the same as in most other industrially advanced countries.
D) doubled in the 1990s.

Question 18

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (5)might represent:

A) personal income tax revenues.
B) the provision of public schools by local governments.
C) the purchase of laptop computers by the State of Iowa.
D) transfer payments to unemployed workers.

Question 19

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

A) 5 percent
B) 10 percent
C) 20 percent
D) 40 percent

Question 20

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (4)might represent:

A) the services of NASA astrophysicists.
B) the purchase of Stealth bombers.
C) personal income taxes.
D) investment spending by private corporations.

Question 21

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.

Question 22

The average tax rate is:

A) Change in taxes/Change in taxable income.
B) 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 23

The maximum federal marginal tax rate on taxable personal income is currently (2010):

A) 50 percent.
B) 35 percent.
C) 45 percent.
D) 28 percent.

Question 24

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.
Total taxes paid went up from $3500 and income went up $10,000.Therefore,the marginal tax rate was $3500/$10,000,or 35 percent.

Question 25

The following data represent a personal income tax schedule. Refer to the above table.If your taxable income is $8000,your average tax rate is:

A) 25 percent and the marginal rate on additional income is also 25 percent.
B) 25 percent and the marginal rate on additional income is 40 percent.
C) 25 percent and the marginal rate on additional income cannot be determined from the information given.
D) 20 percent and the marginal rate on additional income is 30 percent.
At $8000 of taxable income your average tax rate is 25 percent (i.e. ,$2000 tax paid/$8000 income).

Question 26

A progressive tax is such that:

A) tax rates are higher the greater one's income.
B) the same tax rate applies to all income receivers,so that the rich pay absolutely more taxes than the poor.
C) entrepreneurial income is exempt from taxation.
D) the revenues it yields are spent on transfer payments.

Question 27

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 28

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.
D) the marginal tax rate is higher than the average tax rate,causing the average tax rate to rise.

Question 29

The largest source of tax revenue for the U.S.federal government is:

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

Question 30

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) About 7 percent
B) About 30 percent
C) About 16 percent
D) About 23 percent
You will pay $4000 on the first $20,000,then $3000 on the next $10,000 of income.Thus,your total taxes will be $7000 on $30,000 income for an average tax rate of 0.233,or 23.3 percent.

Question 31

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 32

In 2010,the marginal tax rates of the federal personal income tax:

A) are less than corresponding average tax rates.
B) rise from 5 to 50 percent.
C) fall from 20 to 10 percent.
D) rise from 10 to 35 percent.

Question 33

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 34

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) Change in taxes/Change in taxable income.
D) Total taxes/Total taxable income.

Question 35

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 36

Approximately what percentage of the federal government's tax revenues were generated from personal income taxes in 2010?

A) 85 percent
B) 18 percent
C) 37 percent
D) 42 percent

Question 37

If you must pay $5000 in taxes on a $25,000 taxable income and $7000 on a $30,000 taxable income,then the marginal tax rate on the additional $5000 of income is:

A) 40 percent and the average tax rate is about 23 percent at the $30,000 income level.
B) 50 percent and the average tax rate is about 40 percent at the $30,000 income level.
C) 40 percent and the average tax rate is about 25 percent at the $25,000 income level.
D) 30 percent,but average tax rates cannot be determined from the information given.
The marginal tax rate is the change in taxes divided by the change in income.In this case,the change in taxes was $2000 ,so the marginal tax rate was $2000/$5000 = 0.40.Average tax is $7000/$30,000 = 0.233.

Question 38

In determining one's personal income tax,taxable income is:

A) total income less deductions and exemptions.
B) all income.
C) all income other than wages and salaries.
D) wage and salary income only.

Question 39

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 40

The following data represent a personal income tax schedule. Refer to the above table.This tax is such that the after-tax distribution of income will be:

A) more equal than the before-tax distribution.
B) less equal than the before-tax distribution.
C) distributed in precisely the same way as the before-tax distribution.
D) less than the before-tax distribution by the same percentage at each income level.

Question 41

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 42

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 43

In 2008,U.S.governments (local,state,and federal)employed approximately how many million workers?

A) 9.2
B) 13.0
C) 19.4
D) 22.5

Question 44

Indy currently earns $50,000 in taxable income and pays $8000 in taxes.Suppose that Indy faces a marginal tax rate of 25 percent and his boss offers him a raise of $2000 per year.Indy should:

A) accept the raise because his after-tax income will rise by $1500.
B) accept the raise because his after-tax income will rise by $2000.
C) reject the raise because his after-tax income will fall by $4500.
D) reject the raise because his after-tax income will fall by $6000.
If the raise is $2000 per year and the marginal tax rate is 25 percent,taxes will rise by $500 and after-tax income will rise by $2000 - $500 = $1500.

Question 45

The tax represented above is:

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

Question 46

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

A) 36 percent
B) 44 percent
C) 53 percent
D) 69 percent

Question 47

Federal employment in the United States is dominated by what two functions?

A) National defense and Postal Service
B) Health care and police
C) Postal Service and education
D) Health care and national defense

Question 48

Taxable income is:

A) total income less deductions and exemptions.
B) the same as gross income.
C) the only income to which marginal tax rates apply.
D) the sum of all wage and property income.

Question 49

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 50

The benefits-received principle of taxation is most evident in:

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

Question 51

The basic tax rate on taxable corporate income is:

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

Question 52

Government lotteries are:

A) used by a large number of states to supplement their tax revenues.
B) illegal in the United States but are a common source of revenue in other countries.
C) used by local governments but not by state governments.
D) a form of progressive taxation.

Question 53

Approximately what percentage of state spending goes to finance education?

A) 36 percent
B) 44 percent
C) 47 percent
D) 53 percent

Question 54

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) corporate income taxes are 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 55

Refer to the above data.If your taxable income is $4000,your average tax rate will be:

A) 20 percent.
B) 15 percent.
C) 10 percent.
D) 5 percent.
At $4000 of taxable income your average tax rate is 15 percent (i.e. ,$600 tax paid/$4000 income).

Question 56

Refer to the above data.If your taxable income increases from $4000 to $5000,you will encounter a marginal tax rate of:

A) 40 percent.
B) 25 percent.
C) 15 percent.
D) 10 percent.
When income rises $1000,taxes rise $400 .

Question 57

At the state and local levels of government in the United States,the majority of government employees work in which area?

A) Postal Service
B) Education
C) Hospitals and other health care
D) Police and corrections

Question 58

The main difference between sales and excise taxes is that:

A) sales taxes apply to a wide range of products,while excise taxes apply only to a select group of products.
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 consumption taxes,while excise taxes are not.
D) excise taxes are consumption taxes,while sales taxes are not.

Question 59

Approximately what percentage of the U.S.labor force works for the government at either the federal,state,or local level?

A) 7 percent
B) 10 percent
C) 13 percent
D) 19 percent

Question 60

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 the tax burden should vary directly with people's income and wealth.
D) suggests that the tax burden should vary inversely with people's income and wealth.

Question 61

Entry fees at national parks and monuments are an example of:

A) the ability-to-pay principle of taxation.
B) the benefits-received principle of taxation.
C) government bureaucracy and inefficiency.
D) the principle of limited and bundled choice.

Question 62

Refer to the above graph.Which of the lines in the above diagram represent(s)a progressive tax?

A) Both A and B
B) D only
C) C only
D) B only

Question 63

Answer the next question on the basis of the following five schedules,all of which represent income tax schedules for an economy.All figures are in billions of dollars. Which of the above schedules represent(s)a progressive tax?

A) V only
B) III and V
C) II and III
D) III only

Question 64

Refer to the above graph.Which of the lines in the above diagram represent(s)a regressive tax?

A) Both A and B
B) D only
C) C only
D) B only

Question 65

Answer the next question on the basis of the following five schedules,all of which represent income tax schedules for an economy.All figures are in billions of dollars. Which of the above schedules represent(s)a regressive tax?

A) V only
B) III and V
C) IV only
D) I only

Question 66

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 67

Assume you pay a tax of $4000 on a taxable income of $24,000.If your taxable income were $30,000,your tax payment would be $5000.This tax structure is:

A) progressive.
B) proportional.
C) regressive.
D) discriminatory.
The tax rate at $24,000 income is $4000/$24,000 = 0.167 and the tax rate at $30,000 income is $5000/$30,000 = 0.167,so the tax rate is proportional.

Question 68

Refer to the above graph.Which of the lines in the above diagram represent(s)a proportional tax?

A) Both A and B
B) D only
C) C only
D) B only

Question 69

Answer the next question on the basis of the following five schedules,all of which represent income tax schedules for an economy.All figures are in billions of dollars. Which of the above schedules represent(s)a proportional tax?

A) II and IV
B) III and V
C) IV only
D) I only

Question 70

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

A) Taxes on residential property
B) Progressive income taxes
C) Excise taxes on gasoline
D) Excise taxes on coffee

Question 71

Which of the following statements is most consistent with the benefits-received principle of taxation?

A) A childless couple should not be required to pay taxes for the support of public schools.
B) Prosperous corporations should pay substantial taxes even if they use few government goods and services.
C) The best tax is the income tax.
D) People with high incomes should pay more taxes than people with low incomes.

Question 72

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 73

Which of the following is correct?

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

Question 74

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 tax structure is:

A) progressive.
B) proportional.
C) regressive.
D) discriminatory.
The tax rate at $50,000 income is $10,000/$50,000 = 0.2 and the tax rate at $150,000 income is $25,000/$150,000 = 0.167,so the tax rate is regressive.

Question 75

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 76

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 ("Paygo")theory of taxation.

Question 77

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 78

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 79

The sales tax is a regressive tax because the:

A) percentage of income paid as taxes falls as income rises.
B) administrative costs associated with the collection of the tax are relatively high.
C) percentage of income paid as taxes is constant as income rises.
D) tax tends to reduce the total volume of consumption expenditures.

Question 80

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.