Question 1

The sales tax is a regressive tax because the:

Accepted Answer

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.E) B) and C)
F) C) and D)

Question 2

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

Accepted Answer

A)   40 percent.
B)   25 percent.
C)   15 percent.
D)   10 percent.When income rises $1000,taxes rise $400 .E) None of the above
F) A) and C)

Question 3

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

Accepted Answer

A)   raise price by less than $1.
B)   raise price by more than $1.
C)   raise price by $1.
D)   lower price by $1.E) A) and B)
F) A) and C)

Question 4

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

Accepted Answer

A)   Both A and B
B)   D only
C)   C only
D)   B onlyE) A) and D)
F) None of the above

Question 5

The efficiency loss of a tax is the idea that:

Accepted Answer

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.E) B) and C)
F) B) and D)

Question 6

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

Accepted Answer

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.E) A) and B)
F) C) and D)

Question 7

Sales taxes on consumer goods are regressive because poor people consume a larger proportion of their incomes than do rich people.

Accepted Answer

A) True 
 B)False

Question 8

Taxes on commodities or on purchases are known as:

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

Government borrowing:

Accepted Answer

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.E) B) and C)
F) None of the above

Question 11

Given supply,the more inelastic the demand for a product,the larger the portion of an excise tax that is shifted to consumers.

Accepted Answer

A) True 
 B)False

Question 12

The major expenditure of local governments is for education.

Accepted Answer

A) True 
 B)False

Question 13

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?

Accepted Answer

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

Question 14

(Applying the Analysis) A value-added tax (VAT) :

Accepted Answer

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.E) C) and D)
F) B) and D)

Question 15

Refer to the above data.If government provides a per-unit subsidy of $2 to suppliers of this product,equilibrium price and quantity would be:

Accepted Answer

A)   $9 and 3,000.
B)   $7.50 and 2,250.
C)   $8.50 and 2,750.
D)   $7 and 3,000.E) B) and D)
F) B) and C)

Question 16

The U.S.tax-transfer system (as distinct from the tax system alone) is:

Accepted Answer

A)   progressive.
B)   proportional.
C)   bimodal.
D)   regressive.E) A) and D)
F) B) and C)

Question 17

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:

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 18

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?

Accepted Answer

A)   About 7 percent
B)   About 30 percent
C)   About 16 percent
D)   About 23 percentYou 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.E) None of the above
F) A) and D)

Question 19

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

Accepted Answer

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

Question 20

If you pay a $2000 tax on $10,000 of taxable income and a $4000 tax on a taxable income of $16,000,the tax is progressive.

Accepted Answer

A) True 
 B)False

Exam 12: Public Finance: Expenditures and Taxes

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

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Refer to the above data.If government provides a per-unit subsidy of $2 to suppliers of this product,equilibrium price and quantity would be:

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The sales tax is a regressive tax because the:

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The major expenditure of local governments is for education.

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

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Taxes on commodities or on purchases are known as:

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

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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:

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Given supply,the more inelastic the demand for a product,the larger the portion of an excise tax that is shifted to consumers.

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

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

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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?

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The U.S.tax-transfer system (as distinct from the tax system alone) is:

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

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If you pay a $2000 tax on $10,000 of taxable income and a $4000 tax on a taxable income of $16,000,the tax is progressive.

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(Applying the Analysis) A value-added tax (VAT) :

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Sales taxes on consumer goods are regressive because poor people consume a larger proportion of their incomes than do rich people.

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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?

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The efficiency loss of a tax is the idea that:

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Government borrowing:

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