Question 1

Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

Accepted Answer

A) True 
 B)False

Question 2

The deadweight loss of a tax is

Accepted Answer

A)   the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government.
B)   the improved efficiency created as people reallocate resources according to the tax incentive rather than the true costs and benefits.
C)   the loss in tax revenues.
D)   Both a and b are correct.E) A) and D)
F) A) and C)

Question 3

What are the three categories of the costs of taxes to taxpayers?

Accepted Answer

the tax payment itse...

Question 4

Which of the following statements is correct?

Accepted Answer

A)   National defense and health are the two largest spending categories for the federal government.
B)   Welfare programs and highways are the two largest spending categories for state and local governments.
C)   Sales taxes and property taxes are the two most important revenue sources for state and local governments.
D)   Corporate income taxes are the largest source of revenue for the federal government.E) A) and B)
F) A) and C)

Question 5

Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.

Accepted Answer

A) True 
 B)False

Question 6

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 progressive?

Accepted Answer

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

Question 7

As the economy's income has grown, the government has

Accepted Answer

A)   grown at about the same pace.
B)   grown at a faster pace.
C)   grown at a slower pace.
D)   shrunk.E) B) and C)
F) C) and D)

Question 8

Table 12-5
 
-Refer to Table 12-5. What is the marginal tax rate for a person who makes $120,000?

Accepted Answer

A)   25%
B)   35%
C)   45%
D)   60%E) All of the above
F) C) and D)

Question 9

Table 12-6
The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income.
 
-Refer to Table 12-6. For this tax schedule, what is the marginal tax rate for an individual with $212,000 in taxable income?

Accepted Answer

A)   0%
B)   1%
C)   2%
D)   45%E) A) and B)
F) A) and C)

Question 10

Define horizontal equity and briefly describe some features of the U.S. federal income tax system that may interfere with achieving it.

Accepted Answer

Horizontal equity is the idea that taxpa...

Question 11

Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called

Accepted Answer

A)   sales taxes.
B)   excise taxes.
C)   social insurance taxes.
D)   consumption taxes.E) A) and C)
F) A) and D)

Question 12

A mortgage interest deduction would be considered

Accepted Answer

A)   tax evasion.
B)   a subsidy to the poor.
C)   a deduction that benefits all members of society equally.
D)   a tax loophole.E) B) and C)
F) C) and D)

Question 13

Suppose Tyler values a basketball at $20. Jacqui values a basketball at $25. The pre-tax price of a basketball $10. The government imposes a tax of $5 on each basketball, and the price rises to $15. The deadweight loss from the tax is

Accepted Answer

A)   $25.
B)   $15.
C)   $10.
D)   $0.E) B) and D)
F) B) and C)

Question 14

When a state levies a sales tax, the tax

Accepted Answer

A)   is paid only by the state's residents.
B)   occasionally excludes items that are deemed to be necessities.
C)   is commonly levied on labor services.
D)   applies to wholesale purchases but not retail purchases.E) None of the above
F) B) and C)

Question 15

Why do some policymakers support a consumption tax rather than an earnings tax?

Accepted Answer

A)   The average tax rate would be lower under a consumption tax.
B)   A consumption tax would encourage people to save earned income.
C)   A consumption tax would raise more revenues than an income tax.
D)   The marginal tax rate would be higher under an earnings tax.E) B) and D)
F) All of the above

Question 16

Suppose a country imposes a lump-sum income tax of $6,000 on each individual in the country. What is the average income tax rate for an individual who earns $60,000 during the year?

Accepted Answer

A)   0%
B)   10%
C)   More than 10%
D)   The average tax rate cannot be determined without knowing the entire tax schedule.E) B) and C)
F) A) and D)

Question 17

The deadweight loss of an income tax is determined by the

Accepted Answer

A)   amount of total tax revenue to the government.
B)   marginal tax rate.
C)   average tax rate.
D)   ability-to-pay principle.E) B) and D)
F) A) and B)

Question 18

Which of the following statements is correct?

Accepted Answer

A)   Vertical equity is the idea that taxpayers with similar abilities to pay taxes should pay the same amount.
B)   Horizontal equity is the idea that taxes should be levied on a person according to how well that person can shoulder the burden.
C)   A regressive tax would mean that high-income tax payers pay a larger fraction of their income in taxes than would low-income taxpayers.
D)   A proportional tax would mean that high-income and low-income taxpayers pay the same fraction of income in taxes.E) None of the above
F) All of the above

Question 19

Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns $40,000 during the year?

Accepted Answer

A)   0%
B)   10%
C)   More than 10%
D)   The marginal tax rate cannot be determined without knowing the entire tax schedule.E) C) and D)
F) None of the above

Question 20

A budget deficit occurs when government receipts fall short of government spending.

Accepted Answer

A) True 
 B)False

Exam 12: The Design of the Tax System

The deadweight loss of a tax is

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Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

Correct AnswerverifiedShow Answer

Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.

Correct AnswerverifiedShow Answer

A mortgage interest deduction would be considered

Correct AnswerverifiedShow Answer

Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns $40,000 during the year?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

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As the economy's income has grown, the government has

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Define horizontal equity and briefly describe some features of the U.S. federal income tax system that may interfere with achieving it.

Correct AnswerverifiedHorizontal equity is the idea that taxpa...View AnswerShow Answer

Suppose a country imposes a lump-sum income tax of $6,000 on each individual in the country. What is the average income tax rate for an individual who earns $60,000 during the year?

Correct AnswerverifiedShow Answer

Why do some policymakers support a consumption tax rather than an earnings tax?

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What are the three categories of the costs of taxes to taxpayers?

Correct Answerverifiedthe tax payment itse...View AnswerShow Answer

A budget deficit occurs when government receipts fall short of government spending.

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Table 12-6 The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. -Refer to Table 12-6. For this tax schedule, what is the marginal tax rate for an individual with $212,000 in taxable income?

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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 progressive?

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Suppose Tyler values a basketball at $20. Jacqui values a basketball at $25. The pre-tax price of a basketball $10. The government imposes a tax of $5 on each basketball, and the price rises to $15. The deadweight loss from the tax is

Correct AnswerverifiedShow Answer

The deadweight loss of an income tax is determined by the

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Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called

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Which of the following statements is correct?

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Table 12-5 -Refer to Table 12-5. What is the marginal tax rate for a person who makes $120,000?

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When a state levies a sales tax, the tax

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Horizontal equity is the idea that taxpa...
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the tax payment itse...
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