Question 1

The second largest source of income for the federal budget is:

Accepted Answer

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

Question 2

Philip purchased one million dollars' worth of New York City bonds.His interest earnings were $100,000.His total federal tax on this income will be

Accepted Answer

A)  $40,000, since his marginal tax rate was 40 percent.
B)  $40,000, since only 40 percent of capital gains is taxed.
C)  zero.
D)  very small, since he had a clever accountant who knew how to use loopholes.E) A) and B)
F) C) and D)

Question 3

Which of the following would be the most likely candidate for direct application of the benefits principle of taxation?

Accepted Answer

A)  education
B)  fire protection
C)  police protection
D)  use of roadsE) B) and C)
F) None of the above

Question 4

If two families are identical with respect to size, income, general expenses, etc., and are taxed equally, we say that there is

Accepted Answer

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

Question 5

The benefits principle states that those who

Accepted Answer

A)  pay the taxes should reap the benefits.
B)  reap the benefits from government should pay the taxes.
C)  are best able to pay should pay for what they receive.
D)  pay taxes get the benefits they deserve.E) None of the above
F) B) and C)

Question 6

The average tax rate is

Accepted Answer

A)  the ratio of additional taxes to an additional dollar of income.
B)  the ratio of taxes to income.
C)  the ratio of taxes to GDP.
D)  the ratio of income to direct taxes.E) A) and C)
F) A) and D)

Question 7

A tax that does not change consumers' behavior creates no

Accepted Answer

A)  economic burden.
B)  excess burden.
C)  tax revenue.
D)  tax incidence.E) A) and C)
F) None of the above

Question 8

A congress member concerned about ensuring vertical equity in taxation would be most likely to argue for obtaining government revenue through a

Accepted Answer

A)  progressive tax on personal income.
B)  regressive tax on corporate income.
C)  sales tax.
D)  head tax.E) B) and D)
F) All of the above

Question 9

Under a proportional tax, the fraction of income paid in taxes

Accepted Answer

A)  rises as income rises.
B)  is unchanged as income changes.
C)  falls as income rises.
D)  is proportional to the change in income.E) B) and C)
F) A) and D)

Question 10

The main difference between direct and indirect taxes is that

Accepted Answer

A)  indirect taxes are automatically deducted from workers' paychecks and direct taxes are not.
B)  direct taxes are paid to state and local governments and indirect taxes are paid to the federal government.
C)  direct taxes are taxes levied on people and indirect taxes are taxes levied on activities undertaken by people.
D)  direct taxes are usually proportional and indirect taxes are usually progressive.E) A) and B)
F) All of the above

Question 11

The concept of vertical equity is that

Accepted Answer

A)  income should be taxed instead of property.
B)  property should be taxed instead of income.
C)  there should be little movement up or down the social scale.
D)  persons who are unequal should be treated unequally.E) A) and B)
F) None of the above

Question 12

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

Accepted Answer

A) True 
 B)False

Question 13

A tax loophole is

Accepted Answer

A)  an illegal method by which individuals or corporations avoid paying the taxes they legally owe.
B)  a provision in the tax code that allows individuals or corporations to reduce their tax burdens legally by meeting certain conditions.
C)  a tax surcharge on incomes within certain ranges.
D)  a provision in the tax code that allows individuals or corporations to shift the economic incidence of a particular tax on to someone else.E) A) and B)
F) All of the above

Question 14

Excise taxes are a form of sales tax.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  a property tax on an owner-occupied residence
B)  a progressive income tax
C)  a flat-rate state income tax
D)  a general sales taxE) B) and C)
F) All of the above

Question 16

"People who make more money should pay higher taxes" is an example of

Accepted Answer

A)  the benefits principle.
B)  horizontal equity.
C)  vertical efficiency.
D)  the ability-to-pay principle.E) A) and D)
F) B) and D)

Question 17

An excise tax on gasoline is regressive if

Accepted Answer

A)  rich people buy more gasoline than poor people.
B)  the demand for gasoline is elastic.
C)  the tax causes people to buy less gasoline.
D)  poor people spend a larger portion of their incomes on gasoline than rich people.E) A) and D)
F) A) and B)

Question 18

Figure 18-1 
-If the supply of a good is perfectly inelastic, then suppliers will bear the full burden of an excise tax

Accepted Answer

A)  no matter how elastic the demand for the good is.
B)  only if demand is perfectly elastic.
C)  only if demand is perfectly inelastic.
D)  only if the government forbids them to raise the price of the good.E) A) and C)
F) None of the above

Question 19

The corporate tax applies to firms' total revenues.

Accepted Answer

A) True 
 B)False

Exam 17: Taxation and Resource Allocation

A congress member concerned about ensuring vertical equity in taxation would be most likely to argue for obtaining government revenue through a

Correct Answer
verified

A tax that does not change consumers' behavior creates no

Correct Answer
verified

The concept of vertical equity is that

Correct Answer
verified

Excise taxes are a form of sales tax.

Correct Answer
verified

Figure 18-1 -If the supply of a good is perfectly inelastic, then suppliers will bear the full burden of an excise tax

Correct Answer
verified

Philip purchased one million dollars' worth of New York City bonds.His interest earnings were $100,000.His total federal tax on this income will be

Correct Answer
verified

The main difference between direct and indirect taxes is that

Correct Answer
verified

If two families are identical with respect to size, income, general expenses, etc., and are taxed equally, we say that there is

Correct Answer
verified

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

Correct Answer
verified

The benefits principle states that those who

Correct Answer
verified

The corporate tax applies to firms' total revenues.

Correct Answer
verified

"People who make more money should pay higher taxes" is an example of

Correct Answer
verified

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

Correct Answer
verified

A tax loophole is

Correct Answer
verified

An excise tax on gasoline is regressive if

Correct Answer
verified

The average tax rate is

Correct Answer
verified

Which of the following would be the most likely candidate for direct application of the benefits principle of taxation?

Correct Answer
verified

The second largest source of income for the federal budget is:

Correct Answer
verified

Under a proportional tax, the fraction of income paid in taxes

Correct Answer
verified

Exam 17: Taxation and Resource Allocation

A congress member concerned about ensuring vertical equity in taxation would be most likely to argue for obtaining government revenue through a

Correct AnswerverifiedShow Answer

A tax that does not change consumers' behavior creates no

Correct AnswerverifiedShow Answer

The concept of vertical equity is that

Correct AnswerverifiedShow Answer

Excise taxes are a form of sales tax.

Correct AnswerverifiedShow Answer

Figure 18-1 -If the supply of a good is perfectly inelastic, then suppliers will bear the full burden of an excise tax

Correct AnswerverifiedShow Answer

Philip purchased one million dollars' worth of New York City bonds.His interest earnings were $100,000.His total federal tax on this income will be

Correct AnswerverifiedShow Answer

The main difference between direct and indirect taxes is that

Correct AnswerverifiedShow Answer

If two families are identical with respect to size, income, general expenses, etc., and are taxed equally, we say that there is

Correct AnswerverifiedShow Answer

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

Correct AnswerverifiedShow Answer

The benefits principle states that those who

Correct AnswerverifiedShow Answer

The corporate tax applies to firms' total revenues.

Correct AnswerverifiedShow Answer

"People who make more money should pay higher taxes" is an example of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A tax loophole is

Correct AnswerverifiedShow Answer

An excise tax on gasoline is regressive if

Correct AnswerverifiedShow Answer

The average tax rate is

Correct AnswerverifiedShow Answer

Which of the following would be the most likely candidate for direct application of the benefits principle of taxation?

Correct AnswerverifiedShow Answer

The second largest source of income for the federal budget is:

Correct AnswerverifiedShow Answer

Under a proportional tax, the fraction of income paid in taxes

Correct AnswerverifiedShow Answer

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