Question 1

When interest income from savings is taxed, people will save

Accepted Answer

A)   more to make up for what is lost in taxes.
B)   the same amount as they would have without the tax.
C)   less than they would without the tax.
D)   None of the above is correct since the government would not tax interest on savings.E) None of the above
F) A) and B)

Question 2

Most Americans agree that our tax system should (i)  be fair.
(ii)  be efficient.
(iii)  impose as small a cost on society as possible.
(iv)  use a value-added tax (VAT)  instead of an income tax.

Accepted Answer

A)   (ii)  only
B)   (ii)  and (iii)  only
C)   (i) , (ii) , and (iii)  only
D)   (i) , (ii) , (iii) , and (iv) E) B) and C)
F) A) and D)

Question 3

The marginal tax rates on the richest Americans when Ronald Reagan was elected and when he left office were

Accepted Answer

A)   28 percent and 50 percent, respectively.
B)   70 percent and 40 percent, respectively.
C)   40 percent and 70 percent, respectively.
D)   50 percent and 28 percent, respectively.E) A) and B)
F) None of the above

Question 4

Scenario 12-1
Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15.
-Refer to Scenario 12-1. How much total consumer surplus do Ken and Mark get when each purchases one cigar?

Accepted Answer

A)   $1
B)   $2
C)   $5
D)   $7E) A) and B)
F) All of the above

Question 5

The "other" category of federal spending consists of many less expensive functions of government, including all of the following except

Accepted Answer

A)   housing credit programs.
B)   farm support programs.
C)   funding for the National Institutes of Health.
D)   the federal court system.E) C) and D)
F) All of the above

Question 6

A person's tax obligation divided by her income is called her

Accepted Answer

A)   marginal social tax rate.
B)   marginal private tax rate.
C)   marginal tax rate.
D)   average tax rate.E) A) and B)
F) A) and C)

Question 7

Use Table A to complete Table B.
TABLE A
   TABLE B

Accepted Answer

The answer of Use Table A to complete Table B.
TABLE...

Question 8

Which of the following statements is correct?

Accepted Answer

A)   The U.S. federal government collected a higher percentage of income in taxes in the early 1900s than in the early 2000s.
B)   The U.S. federal government collects a higher percentage of income in taxes than many European countries, including France and Germany.
C)   The U.S. federal government collects a lower percentage of income in taxes than many developing countries, including Mexico and India.
D)   The U.S. federal government collects a similar percentage of income in taxes as Brazil and Japan.E) A) and D)
F) A) and B)

Question 9

When the marginal tax rate equals the average tax rate, the tax is

Accepted Answer

A)   proportional.
B)   progressive.
C)   regressive.
D)   egalitarian.E) C) and D)
F) None of the above

Question 10

The largest category of federal spending is national defense.

Accepted Answer

A) True 
 B)False

Question 11

Deadweight losses arise because a tax causes some individuals to change their behavior.

Accepted Answer

A) True 
 B)False

Question 12

Scenario 12-4
A taxpayer faces the following tax rates on her income: 20 percent of the first $40,000 of her income; 30 percent of all her income above $40,000.
-Refer to Scenario 12-4. The taxpayer faces

Accepted Answer

A)   an average tax rate of 22.5 percent when her income is $30,000.
B)   an average tax rate of 22.0 percent when her income is $50,000.
C)   a marginal tax rate of 10 percent when her income rises from $40,000 to $40,001.
D)   a marginal tax rate of 50 percent when her income rises from $60,000 to $60,001.E) A) and C)
F) B) and C)

Question 13

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

Accepted Answer

A) True 
 B)False

Question 14

Table 12-15
 
-Refer to Table 12-15. The tax system is

Accepted Answer

A)   proportional.
B)   regressive.
C)   progressive.
D)   lump sum.E) None of the above
F) A) and D)

Question 15

The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

Accepted Answer

A)   the ability-to-pay principle.
B)   the benefits principle.
C)   efficiency arguments.
D)   regressive tax arguments.E) B) and C)
F) A) and C)

Question 16

Tax evasion is illegal, but tax avoidance is legal.

Accepted Answer

A) True 
 B)False

Question 17

The government's health plan for the elderly is called

Accepted Answer

A)   Medicaid.
B)   Medicare.
C)   Social Security.
D)   food stamps.E) B) and C)
F) A) and C)

Question 18

Calculate the marginal tax rate and the average tax rate of a lump-sum tax of $5,000.

Accepted Answer

The marginal tax rate would be $0 becaus...

Question 19

If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

Accepted Answer

A)   the benefits principle.
B)   the ability-to-pay principle.
C)   vertical equity.
D)   horizontal equity.E) C) and D)
F) None of the above

Question 20

State and local governments generate revenue from all of the following sources except

Accepted Answer

A)   sales taxes.
B)   the federal government.
C)   corporate income taxes.
D)   customs duties.E) None of the above
F) A) and C)

Exam 12: The Design of the Tax System

The largest category of federal spending is national defense.

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A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

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Most Americans agree that our tax system should (i) be fair. (ii) be efficient. (iii) impose as small a cost on society as possible. (iv) use a value-added tax (VAT) instead of an income tax.

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Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. -Refer to Scenario 12-1. How much total consumer surplus do Ken and Mark get when each purchases one cigar?

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The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

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Tax evasion is illegal, but tax avoidance is legal.

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Scenario 12-4 A taxpayer faces the following tax rates on her income: 20 percent of the first $40,000 of her income; 30 percent of all her income above $40,000. -Refer to Scenario 12-4. The taxpayer faces

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When interest income from savings is taxed, people will save

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Which of the following statements is correct?

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The government's health plan for the elderly is called

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The marginal tax rates on the richest Americans when Ronald Reagan was elected and when he left office were

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Use Table A to complete Table B. TABLE A TABLE B

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If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

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Table 12-15 -Refer to Table 12-15. The tax system is

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Calculate the marginal tax rate and the average tax rate of a lump-sum tax of $5,000.

Correct AnswerverifiedThe marginal tax rate would be $0 becaus...View AnswerShow Answer

A person's tax obligation divided by her income is called her

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State and local governments generate revenue from all of the following sources except

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The "other" category of federal spending consists of many less expensive functions of government, including all of the following except

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When the marginal tax rate equals the average tax rate, the tax is

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Deadweight losses arise because a tax causes some individuals to change their behavior.

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The marginal tax rate would be $0 becaus...
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