Question 1

The largest source of income for the federal government is

Accepted Answer

A)   individual income taxes.
B)   corporate taxes.
C)   tariffs.
D)   "sin" taxes on alcohol and cigarettes.E) None of the above
F) All of the above

Question 2

An advantage of a consumption tax is that it does not distort the incentive to save.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that Kara values a hot fudge sundae at $6 and Stacia values one at $5. The pretax price of a hot fudge sundae is $3. The government imposes a $1 tax on hot fudge sundaes, which raises the price to $4. What is the deadweight loss from the tax?

Accepted Answer

Prior to the tax, consumer surplus was $...

Question 4

As tax laws become more complex,

Accepted Answer

A)   the administrative burden of taxes will increase.
B)   compliance costs are likely to decrease.
C)   the government will collect more in tax revenue.
D)   the amount of tax revenue lost to tax evasion will decrease.E) C) and D)
F) B) and D)

Question 5

Suppose Hillary values a large order of French fries at $4. Bill values a large order of French fries at $7. The pre- tax price of a large order of French fries is $2. The government imposes a "fat tax" of $3 on each large order of French fries, and the price rises to $5. The deadweight loss from the tax is

Accepted Answer

A)   $4, and the deadweight loss comes from both Hillary and Bill.
B)   $4, and the deadweight loss comes only from Hillary because she does not buy a large French fries after the tax.
C)   $2, and the deadweight loss comes from both Hillary and Bill.
D)   $2, and the deadweight loss comes only from Hillary because she does not buy a large French fries after the tax.E) A) and D)
F) B) and C)

Question 6

Table 12-11
 
-Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is

Accepted Answer

A)   18.7%.
B)   19.3%.
C)   20.1%.
D)   34.0%.E) A) and B)
F) C) and D)

Question 7

Table 12-23
The dollar amounts in the last three columns are the taxes owed under the three different tax systems.
 
-Refer to Table 12-23. Which of the three tax systems is proportional?

Accepted Answer

A)   Tax System A
B)   Tax System B
C)   Tax System C
D)   None of the systems are proportional.E) B) and D)
F) None of the above

Question 8

Corporate profits are

Accepted Answer

A)   included in payroll taxes.
B)   exempt from taxes.
C)   taxed twice, once as profit and once as dividends.
D)   taxed to pay for Medicare.E) C) and D)
F) A) and C)

Question 9

Leonard, Sheldon, Raj, and Penny each like science fiction moves. The price of a special boxed set of Star Trek DVDs is $50. Leonard values the set of movies at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes DVDs at $10 each, the price rises to $60. A consequence of the tax is that consumer surplus shrinks by

Accepted Answer

A)   $50 and tax revenues increase by $30, so there is a deadweight loss of $20.
B)   $35 and tax revenues increase by $30, so there is a deadweight loss of $5.
C)   $20 and tax revenues increase by $20, so there is no deadweight loss.
D)   $15 and tax revenues increase by $20, so there is no deadweight loss.E) All of the above
F) C) and D)

Question 10

Table 12-11
 
-Refer to Table 12-11. If Bud has taxable income of $78,000, his marginal tax rate is

Accepted Answer

A)   19.3%.
B)   24.0%.
C)   26.8%.
D)   34.0%.E) A) and D)
F) A) and C)

Question 11

Which of the following statements is correct?

Accepted Answer

A)   Equity is more important than efficiency as a goal of the tax system.
B)   Efficiency is more important than equity as a goal of the tax system.
C)   Both equity and efficiency are important goals of the tax system.
D)   Neither equity nor efficiency is an important goal of the tax system.E) B) and D)
F) A) and B)

Question 12

Part of the deadweight loss from taxing labor earnings is that people

Accepted Answer

A)   will work more.
B)   will be reluctant to hire accountants to file their tax returns.
C)   with low tax liabilities will universally be worse off than under some other tax policy.
D)   will work less.E) B) and C)
F) A) and C)

Question 13

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

Accepted Answer

A)   20 percent
B)   15 percent
C)   12 percent
D)   10 percentE) A) and B)
F) B) and C)

Question 14

Table 12-8
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown.
 
-Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the lowest average marginal tax rate?

Accepted Answer

A)   Tax Schedule A
B)   Tax Schedule B
C)   Tax Schedule C
D)   Tax Schedule DE) A) and C)
F) B) and C)

Question 15

A lump sum tax can never have horizontal equity.

Accepted Answer

A) True 
 B)False

Question 16

If the rich pay more in taxes than the poor, the tax system must be progressive.

Accepted Answer

A) True 
 B)False

Question 17

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Accepted Answer

A)   is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy.
B)   entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another.
C)   violates the benefits principle of taxation.
D)   may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts.E) A) and D)
F) B) and C)

Question 18

An efficient tax system is one that (i)  maximizes tax revenues.
(ii)  minimizes deadweight losses from taxes.
(iii)  minimizes administrative burdens from taxes.
(iv)  promotes equity across taxpayers.

Accepted Answer

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

Question 19

Who observed that "in this world nothing is certain but death and taxes"?

Accepted Answer

A)   Mark Twain
B)   P.T. Barnum
C)   Ben Franklin
D)   Richard NixonE) B) and C)
F) A) and D)

Question 20

Which of the following statements is not correct?

Accepted Answer

A)   All states have state income taxes, but the percentages vary widely.
B)   Sales taxes and property taxes are important revenue sources for state and local governments.
C)   Medicare spending has increased because the percentage of the population that is elderly and the cost of healthcare have both increased.
D)   A budget deficit occurs when government spending exceeds government receipts.E) A) and B)
F) A) and C)

Exam 12: The Design of the Tax System

As tax laws become more complex,

Correct Answer
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Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Correct Answer
verified

An efficient tax system is one that (i) maximizes tax revenues. (ii) minimizes deadweight losses from taxes. (iii) minimizes administrative burdens from taxes. (iv) promotes equity across taxpayers.

Correct Answer
verified

Corporate profits are

Correct Answer
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If the rich pay more in taxes than the poor, the tax system must be progressive.

Correct Answer
verified

Part of the deadweight loss from taxing labor earnings is that people

Correct Answer
verified

Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

Correct Answer
verified

A lump sum tax can never have horizontal equity.

Correct Answer
verified

Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his marginal tax rate is

Correct Answer
verified

Who observed that "in this world nothing is certain but death and taxes"?

Correct Answer
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Table 12-8 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the lowest average marginal tax rate?

Correct Answer
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An advantage of a consumption tax is that it does not distort the incentive to save.

Correct Answer
verified

The largest source of income for the federal government is

Correct Answer
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Table 12-23 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-23. Which of the three tax systems is proportional?

Correct Answer
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Suppose that Kara values a hot fudge sundae at $6 and Stacia values one at $5. The pretax price of a hot fudge sundae is $3. The government imposes a $1 tax on hot fudge sundaes, which raises the price to $4. What is the deadweight loss from the tax?

Correct Answer
verified
Prior to the tax, consumer surplus was $...
View Answer

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
verified

Correct Answer
verified

Exam 12: The Design of the Tax System

As tax laws become more complex,

Correct AnswerverifiedShow Answer

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Correct AnswerverifiedShow Answer

An efficient tax system is one that (i) maximizes tax revenues. (ii) minimizes deadweight losses from taxes. (iii) minimizes administrative burdens from taxes. (iv) promotes equity across taxpayers.

Correct AnswerverifiedShow Answer

Corporate profits are

Correct AnswerverifiedShow Answer

If the rich pay more in taxes than the poor, the tax system must be progressive.

Correct AnswerverifiedShow Answer

Part of the deadweight loss from taxing labor earnings is that people

Correct AnswerverifiedShow Answer

Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

Correct AnswerverifiedShow Answer

A lump sum tax can never have horizontal equity.

Correct AnswerverifiedShow Answer

Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his marginal tax rate is

Correct AnswerverifiedShow Answer

Who observed that "in this world nothing is certain but death and taxes"?

Correct AnswerverifiedShow Answer

Table 12-8 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the lowest average marginal tax rate?

Correct AnswerverifiedShow Answer

An advantage of a consumption tax is that it does not distort the incentive to save.

Correct AnswerverifiedShow Answer

The largest source of income for the federal government is

Correct AnswerverifiedShow Answer

Table 12-23 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-23. Which of the three tax systems is proportional?

Correct AnswerverifiedShow Answer

Suppose that Kara values a hot fudge sundae at $6 and Stacia values one at $5. The pretax price of a hot fudge sundae is $3. The government imposes a $1 tax on hot fudge sundaes, which raises the price to $4. What is the deadweight loss from the tax?

Correct AnswerverifiedPrior to the tax, consumer surplus was $...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Prior to the tax, consumer surplus was $...
View Answer

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