Question 1

In designing a tax system, policymakers have two objectives that are often conflicting. They are

Accepted Answer

A)   maximizing revenue and minimizing costs to taxpayers.
B)   efficiency and minimizing costs to taxpayers.
C)   efficiency and equity.
D)   maximizing revenue and reducing the national debt.E) A) and D)
F) All of the above

Question 2

Pat calculates that for every extra dollar she earns, she owes the government 33 cents. Her total income now is $35,000, on which she pays taxes of $7,000. Determine her average tax rate and her marginal tax rate.

Accepted Answer

A)   Her average tax rate is 33 percent and her marginal tax rate is 20 percent.
B)   Her average tax rate is 20 percent and her marginal tax rate is 33 percent.
C)   Her average tax rate is 20 percent and her marginal tax rate is 20 percent.
D)   Her average tax rate is 33 percent and her marginal tax rate is 33 percent.E) None of the above
F) C) and D)

Question 3

In which of the following tax systems do taxes increase as income increases?

Accepted Answer

A)   both proportional and progressive
B)   proportional but not progressive
C)   progressive but not proportional
D)   neither proportional nor progressiveE) B) and D)
F) A) and D)

Question 4

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) B) and D)
F) A) and B)

Question 5

Which of the following tax systems could not be structured to satisfy conditions of vertical equity?

Accepted Answer

A)   a proportional tax
B)   a regressive tax
C)   a progressive tax
D)   a lump-sum taxE) All of the above
F) C) and D)

Question 6

An estate tax is an example of a(n)

Accepted Answer

A)   individual income tax.
B)   social insurance tax.
C)   corporate income tax.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 7

In 2011, approximately how much of federal government spending went to income security?

Accepted Answer

A)   10%
B)   25%
C)   33%
D)   50%E) B) and C)
F) A) and D)

Question 8

Economics alone cannot determine the best way to balance the goals of efficiency and equity.

Accepted Answer

A) True 
 B)False

Question 9

The notion that similar taxpayers should pay similar amounts of taxes is known as

Accepted Answer

A)   vertical equity.
B)   the benefits principle.
C)   horizontal equity.
D)   taxpayer efficiency.E) B) and D)
F) B) and C)

Question 10

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) B) and C)
F) All of the above

Question 11

In 1789, the average American paid approximately what percent of income in taxes?

Accepted Answer

A)   5%
B)   15%
C)   33%
D)   50%E) A) and B)
F) B) and D)

Question 12

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

Accepted Answer

A) True 
 B)False

Question 13

Medicare is the

Accepted Answer

A)   government's health plan for the elderly.
B)   government's health plan for the poor.
C)   another name for Social Security.
D)   Both a and c are correct.E) All of the above
F) None of the above

Question 14

Many economists believe that

Accepted Answer

A)   the corporate income tax satisfies the goal of horizontal equity.
B)   the corporate income tax does not distort the incentives of customers.
C)   the corporate income tax is more efficient than the personal income tax.
D)   workers and customers bear much of the burden of the corporate income tax.E) A) and B)
F) None of the above

Question 15

In choosing the form of a tax, there is often a tradeoff between

Accepted Answer

A)   allocative and productive efficiency.
B)   profits and revenues.
C)   efficiency and fairness.
D)   fairness and profits.E) A) and B)
F) B) and D)

Question 16

Suppose that in 2020 the average citizen's federal tax bill is $9,372, and total federal spending is $10,824 per person. In 2020, the federal government will have

Accepted Answer

A)   a budget surplus.
B)   a budget deficit.
C)   horizontal equity.
D)   vertical equity.E) B) and D)
F) A) and D)

Question 17

Incentives to work and save are reduced when

Accepted Answer

A)   income taxes are higher.
B)   consumption taxes replace income taxes.
C)   corrective taxes are implemented.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 18

Table 12-12 
-Refer to Table 12-12. If the government imposes a $3,000 lump-sum tax, the marginal tax rate for Charles would be

Accepted Answer

A)   0 percent.
B)   5 percent.
C)   6.7 percent.
D)   10 percent.E) None of the above
F) C) and D)

Question 19

Most Americans agree that our tax system should

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 D)
F) C) and D)

Question 20

The payroll tax differs from the individual income tax because the payroll tax is primarily earmarked to pay for

Accepted Answer

A)   employer-provided pensions.
B)   Social Security and Medicare.
C)   employer-provided health benefits.
D)   job loss and training programs.E) C) and D)
F) B) and D)

Exam 12: The Design of the Tax System

Most Americans agree that our tax system should

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The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

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In choosing the form of a tax, there is often a tradeoff between

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In designing a tax system, policymakers have two objectives that are often conflicting. They are

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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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Economics alone cannot determine the best way to balance the goals of efficiency and equity.

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Medicare is the

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Table 12-12 -Refer to Table 12-12. If the government imposes a $3,000 lump-sum tax, the marginal tax rate for Charles would be

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The payroll tax differs from the individual income tax because the payroll tax is primarily earmarked to pay for

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An estate tax is an example of a(n)

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In 1789, the average American paid approximately what percent of income in taxes?

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The notion that similar taxpayers should pay similar amounts of taxes is known as

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Incentives to work and save are reduced when

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In 2011, approximately how much of federal government spending went to income security?

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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?

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Which of the following tax systems could not be structured to satisfy conditions of vertical equity?

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Many economists believe that

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Pat calculates that for every extra dollar she earns, she owes the government 33 cents. Her total income now is $35,000, on which she pays taxes of $7,000. Determine her average tax rate and her marginal tax rate.

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Suppose that in 2020 the average citizen's federal tax bill is $9,372, and total federal spending is $10,824 per person. In 2020, the federal government will have

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In which of the following tax systems do taxes increase as income increases?

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