Question 1

The economic incidence of the tax refers to who:

Accepted Answer

A)  is legally obligated to pay the tax to the government.
B)  actually loses more surplus as a result of the tax.
C)  benefits the most from of any sort of tax.
D)  gains surplus as a result of the government redistributing tax revenue.E) A) and B)
F) All of the above

Question 2

One cost associated with the imposition of taxes is the:

Accepted Answer

A)  redistribution of surplus.
B)  resulting underconsumption.
C)  administrative burden.
D)  change in relative values.E) A) and B)
F) C) and D)

Question 3

Deadweight loss is minimized when a tax is levied on a good for which:

Accepted Answer

A)  a price change is unlikely to cause people to change their behavior.
B)  a price change is very likely to cause people to change their behavior.
C)  a large income elasticity of demand exists.
D)  a small income elasticity of demand exists.E) None of the above
F) All of the above

Question 4

At lower tax rates the _______ effect will outweigh the _______ effect.

Accepted Answer

A)  quantity; price
B)  quantity; income
C)  price; quantity
D)  income; priceE) A) and B)
F) None of the above

Question 5

A tax on the wages paid to an employee is called a(n) :

Accepted Answer

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

Question 6

The _______ effect tells us that when the government raises taxes, it receives more revenue per unit sold.

Accepted Answer

A)  quantity
B)  income
C)  price
D)  substitutionE) All of the above
F) C) and D)

Question 7

The federal debt is _______ and the federal deficit is _______.

Accepted Answer

A)  the cumulative total of what the federal government owes; the amount the federal government overspent in a given year
B)  the amount the federal government overspent in a year; the cumulative total of what the federal government owes
C)  the total of what is projected to be spent in a given year; the total of what is projected to be earned in revenues in a given year
D)  None of these are true.E) A) and D)
F) A) and C)

Question 8

Part of the surplus lost to market participants when a tax is imposed is:

Accepted Answer

A)  transferred to others who are affected by the tax.
B)  transferred to the government in revenues.
C)  redistributed from sellers to buyers.
D)  redistributed from buyers to sellers.E) B) and C)
F) C) and D)

Question 9

When a government spends more than it earns in revenue, we say that it has a:

Accepted Answer

A)  budget surplus.
B)  budget deficit.
C)  budget crisis.
D)  federal debt.E) All of the above
F) A) and D)

Question 10

A tax on the value of a good or service being purchased is called a(n) :

Accepted Answer

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

Question 11

A tax on the income earned by buying investments and selling them at a higher price is called a(n) :

Accepted Answer

A)  sales tax.
B)  corporate income tax.
C)  capital gains tax.
D)  excise tax.E) All of the above
F) C) and D)

Question 12

Taxes are generally classified into three categories:

Accepted Answer

A)  progressive, regressive, and lump-sum.
B)  progressive, regressive, and proportional.
C)  proportional, flat tax, and gradual.
D)  gradual, proportional, and progressive.E) A) and C)
F) A) and B)

Question 13

One reason governments impose taxes is to:

Accepted Answer

A)  raise government revenues.
B)  increase consumer spending.
C)  spur economic growth.
D)  encourage more production.E) C) and D)
F) All of the above

Question 14

A lump-sum tax:

Accepted Answer

A)  charges the same amount to each taxpayer, regardless of economic behavior or circumstances.
B)  refers to annual, rather than quarterly, tax payments throughout the year.
C)  is tied to spending habits, not income levels.
D)  charges the same percentage to each taxpayer, regardless of economic behavior or circumstances.E) C) and D)
F) A) and B)

Question 15

Suppose there is currently a $4 per pack tax on cigarettes that generates $40,000 in revenue per month. If the tax increases to $6 per pack, the revenue the tax generates will increase to $55,000. 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) B) and D)
F) All of the above

Question 16

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

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

Accepted Answer

A)  10 percent
B)  15 percent
C)  12.5 percent
D)  11.7 percentE) All of the above
F) C) and D)

Question 17

Most research suggests that the elasticity of labor supply with respect to taxes is:

Accepted Answer

A)  very low for most people.
B)  very high for most people.
C)  highly variable across people.
D)  unpredictable in most settings.E) A) and C)
F) None of the above

Question 18

Consider the Laffer curve for a hypothetical good as displayed in the graph shown.  Suppose the current tax rate is 45 percent. This implies that: the price effect currently outweighs the quantity effect.the government could increase revenue by lowering the tax rate.the current tax rate is efficient.

Accepted Answer

A)  I only
B)  II only
C)  II and III only
D)  I and II onlyE) A) and B)
F) A) and D)

Question 19

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2.  Which areas of the graph represent the amount of revenue that is generated by the tax?

Accepted Answer

A)  B + C + F + G
B)  F + G + H + I + L + M + N + O
C)  B + C + F + G + L + M
D)  B + C + D + E + F + G + H + I + J + K + L + M + N + O + PE) A) and B)
F) A) and C)

Question 20

Suppose the government currently imposes a $4 per pack tax on cigarettes, and 500 people purchase a total of 1,500 packs of cigarettes each month. What is the total monthly tax revenue?

Accepted Answer

A)  $2,000
B)  $6,000
C)  Less than $2,000
D)  This cannot be determined without more information.E) A) and D)
F) A) and C)

Exam 20: Taxation and the Public Budget

Suppose there is currently a $4 per pack tax on cigarettes that generates $40,000 in revenue per month. If the tax increases to $6 per pack, the revenue the tax generates will increase to $55,000. This tells us that, in this range of tax rates, the _______ effect outweighs the _______ effect.

Correct AnswerverifiedShow Answer

Part of the surplus lost to market participants when a tax is imposed is:

Correct AnswerverifiedShow Answer

One reason governments impose taxes is to:

Correct AnswerverifiedShow Answer

At lower tax rates the _______ effect will outweigh the _______ effect.

Correct AnswerverifiedShow Answer

The federal debt is _______ and the federal deficit is _______.

Correct AnswerverifiedShow Answer

Most research suggests that the elasticity of labor supply with respect to taxes is:

Correct AnswerverifiedShow Answer

Deadweight loss is minimized when a tax is levied on a good for which:

Correct AnswerverifiedShow Answer

A tax on the income earned by buying investments and selling them at a higher price is called a(n) :

Correct AnswerverifiedShow Answer

When a government spends more than it earns in revenue, we say that it has a:

Correct AnswerverifiedShow Answer

The economic incidence of the tax refers to who:

Correct AnswerverifiedShow Answer

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2. Which areas of the graph represent the amount of revenue that is generated by the tax?

Correct AnswerverifiedShow Answer

A lump-sum tax:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The _______ effect tells us that when the government raises taxes, it receives more revenue per unit sold.

Correct AnswerverifiedShow Answer

One cost associated with the imposition of taxes is the:

Correct AnswerverifiedShow Answer

A tax on the wages paid to an employee is called a(n) :

Correct AnswerverifiedShow Answer

Taxes are generally classified into three categories:

Correct AnswerverifiedShow Answer

A tax on the value of a good or service being purchased is called a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the government currently imposes a $4 per pack tax on cigarettes, and 500 people purchase a total of 1,500 packs of cigarettes each month. What is the total monthly tax revenue?

Correct AnswerverifiedShow Answer

Suppose there is currently a $4 per pack tax on cigarettes that generates $40,000 in revenue per month. If the tax increases to $6 per pack, the revenue the tax generates will increase to $55,000. This tells us that, in this range of tax rates, the _ effect outweighs the _ effect.

Correct Answer
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At lower tax rates the _ effect will outweigh the _ effect.

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The federal debt is _ and the federal deficit is _.

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