Question 1

When a tax is imposed, the surplus that is lost and not converted to tax revenue is:

Accepted Answer

A)  deadweight loss.
B)  value that disappears.
C)  not transferred to anyone else.
D)  All of these are true.E) B) and C)
F) A) and B)

Question 2

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2.  The distance in the graph from point A to point C represents all of the following except:

Accepted Answer

A)  the amount of the tax.
B)  the difference between the price paid by consumers and the price received by sellers.
C)  the "tax wedge".
D)  the total tax revenue generated for the government.E) C) and D)
F) None of the above

Question 3

The total amount of surplus lost due to taxation is:

Accepted Answer

A)  greater than the amount of revenue generated.
B)  less than the amount of revenue generated.
C)  transferred to the government in the form of tax revenues.
D)  used to fund public services.E) A) and B)
F) A) and C)

Question 4

A public expenditure that has to be approved each year is known as _______ spending.

Accepted Answer

A)  discretionary
B)  nondiscretionary
C)  entitlement
D)  earmarkedE) B) and C)
F) A) and B)

Question 5

A tax that is levied in such a way that low-income taxpayers pay a greater proportion of their income than high-income taxpayers is called a:

Accepted Answer

A)  proportional tax.
B)  progressive tax.
C)  regressive tax.
D)  flat tax.E) B) and C)
F) None of the above

Question 6

High-income countries tend to collect _______ as a percentage of GDP than low-income countries do.

Accepted Answer

A)  greater tax revenues
B)  lesser tax revenues
C)  comparable tax revenues
D)  There is no correlation between a country's wealth and the tax revenues it generates.E) A) and B)
F) None of the above

Question 7

When a tax is present in a market, the price paid by consumers:

Accepted Answer

A)  equals that received by suppliers, but it is higher than the market price in the absence of taxes.
B)  is greater than that received by suppliers.
C)  is less than that received by suppliers.
D)  equals that received by suppliers, but it is lower than the market price in the absence of taxes.E) B) and C)
F) A) and C)

Question 8

A tax on which of the following goods is specifically designed to reduce consumption of that good?

Accepted Answer

A)  Wages
B)  Capital gains
C)  Gasoline
D)  FlowersE) B) and C)
F) A) and D)

Question 9

The table shown displays the marginal tax rates that correspond to each taxable income bracket for an individual.

What amount in taxes would a person with $75,000 of taxable income owe?

Accepted Answer

A)  $18,750
B)  $14,250
C)  $25,750
D)  $10,750E) A) and B)
F) A) and C)

Question 10

Suppose Bob earns $20,000 per year and pays $2,000 in taxes, while Cindy earns $40,000 per year and pays $4,000 in taxes. In this scenario, Bob's tax rate is _______ and Cindy's tax rate is _______.

Accepted Answer

A)  5 percent; 10 percent
B)  2 percent; 4 percent
C)  10 percent; 10 percent
D)  20 percent; 10 percentE) A) and C)
F) B) and C)

Question 11

In general, the more complex the tax, the:

Accepted Answer

A)  more tax revenues it will generate.
B)  more efficient it will be.
C)  higher the administrative burden will be.
D)  more deadweight loss it will create.E) A) and B)
F) C) and D)

Question 12

The side of the market that will bear a greater share of the tax burden is the side that:

Accepted Answer

A)  responds more to a change in prices.
B)  responds less to a change in prices.
C)  changes quantity by a larger percentage when the price changes by a given percentage.
D)  bears the statutory burden of the tax.E) A) and D)
F) A) and C)

Question 13

Which of the following is not one of the general classifications of taxes?

Accepted Answer

A)  Regressive
B)  Progressive
C)  Proportional
D)  GradualE) None of the above
F) A) and D)

Question 14

One of the primary aims of taxation is to:

Accepted Answer

A)  increase government revenues.
B)  reduce the equilibrium quantity.
C)  alter the incentives of market participants.
D)  All of these are primary goals of taxation.E) None of the above
F) All of the above

Question 15

During a time of an economic downturn, it is likely that projected tax revenues will be _______ than anticipated and expenditures will be ______ than anticipated.

Accepted Answer

A)  higher; higher
B)  lower; lower
C)  lower; higher
D)  higher; lowerE) B) and C)
F) A) and D)

Question 16

When considering different tax levels, the revenue-maximizing point will be reached _______ when demand is _______ elastic.

Accepted Answer

A)  slowly; more
B)  quickly; more
C)  quickly; less
D)  quickly; unitE) A) and C)
F) All of the above

Question 17

A $0.50 tax on lemons currently generates $200 in revenue per day. If the tax increases to $2 per lemon, the revenue the tax generates will drop to $70. This tells us that in this range of tax rates, the _______ effect outweighs the _______ effect.

Accepted Answer

A)  quantity; price
B)  quantity; income
C)  price; quantity
D)  price; incomeE) All of the above
F) None of the above

Question 18

Policymakers have the ability to affect:

Accepted Answer

A)  the economic incidence of a tax burden on buyers and sellers.
B)  the relative economic incidence of the tax burden on the rich and the poor.
C)  whether buyers or sellers will bear the actual burden of the tax.
D)  how the tax is shared between buyers and sellers.E) All of the above
F) A) and D)

Question 19

The table shown displays the marginal tax rates that correspond to each taxable income bracket for an individual.

What is the marginal tax rate for a person with $15,000 of taxable income?

Accepted Answer

A)  10 percent
B)  15 percent
C)  25 percent
D)  27.5 percentE) B) and D)
F) A) and B)

Question 20

The majority of total tax revenues come from:

Accepted Answer

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

Exam 20: Taxation and the Public Budget

A $0.50 tax on lemons currently generates $200 in revenue per day. If the tax increases to $2 per lemon, the revenue the tax generates will drop to $70. This tells us that in this range of tax rates, the _______ effect outweighs the _______ effect.

Correct AnswerverifiedShow Answer

High-income countries tend to collect _______ as a percentage of GDP than low-income countries do.

Correct AnswerverifiedShow Answer

The table shown displays the marginal tax rates that correspond to each taxable income bracket for an individual. What is the marginal tax rate for a person with $15,000 of taxable income?

Correct AnswerverifiedShow Answer

The table shown displays the marginal tax rates that correspond to each taxable income bracket for an individual. What amount in taxes would a person with $75,000 of taxable income owe?

Correct AnswerverifiedShow Answer

A tax that is levied in such a way that low-income taxpayers pay a greater proportion of their income than high-income taxpayers is called a:

Correct AnswerverifiedShow Answer

When a tax is imposed, the surplus that is lost and not converted to tax revenue is:

Correct AnswerverifiedShow Answer

Policymakers have the ability to affect:

Correct AnswerverifiedShow Answer

A tax on which of the following goods is specifically designed to reduce consumption of that good?

Correct AnswerverifiedShow Answer

The majority of total tax revenues come from:

Correct AnswerverifiedShow Answer

One of the primary aims of taxation is to:

Correct AnswerverifiedShow Answer

Which of the following is not one of the general classifications of taxes?

Correct AnswerverifiedShow Answer

During a time of an economic downturn, it is likely that projected tax revenues will be _______ than anticipated and expenditures will be ______ than anticipated.

Correct AnswerverifiedShow Answer

The side of the market that will bear a greater share of the tax burden is the side that:

Correct AnswerverifiedShow Answer

When a tax is present in a market, the price paid by consumers:

Correct AnswerverifiedShow Answer

A public expenditure that has to be approved each year is known as _______ spending.

Correct AnswerverifiedShow Answer

In general, the more complex the tax, the:

Correct AnswerverifiedShow Answer

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2. The distance in the graph from point A to point C represents all of the following except:

Correct AnswerverifiedShow Answer

Suppose Bob earns $20,000 per year and pays $2,000 in taxes, while Cindy earns $40,000 per year and pays $4,000 in taxes. In this scenario, Bob's tax rate is _______ and Cindy's tax rate is _______.

Correct AnswerverifiedShow Answer

The total amount of surplus lost due to taxation is:

Correct AnswerverifiedShow Answer

When considering different tax levels, the revenue-maximizing point will be reached _______ when demand is _______ elastic.

Correct AnswerverifiedShow Answer

A $0.50 tax on lemons currently generates $200 in revenue per day. If the tax increases to $2 per lemon, the revenue the tax generates will drop to $70. This tells us that in this range of tax rates, the _ effect outweighs the _ effect.

Correct Answer
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During a time of an economic downturn, it is likely that projected tax revenues will be _ than anticipated and expenditures will be than anticipated.

Correct Answer
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Suppose Bob earns $20,000 per year and pays $2,000 in taxes, while Cindy earns $40,000 per year and pays $4,000 in taxes. In this scenario, Bob's tax rate is _ and Cindy's tax rate is _.

Correct Answer
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Correct Answer
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When considering different tax levels, the revenue-maximizing point will be reached _ when demand is _ elastic.

Correct Answer
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