Question 1

Government attempts to create a more equitable income distribution by increasing marginal tax rates may do all of the following except

Accepted Answer

A)   Reduce output.
B)   Increase unemployment.
C)   Reduce government tax receipts.
D)   Increase work effort.E) A) and B)
F) A) and C)

Question 2

Flat tax critics

Accepted Answer

A)   Believe it would make it easier for state and local governments to raise their own revenues.
B)   Believe it would create additional vertical and horizontal inequities.
C)   Point out that it would increase the government's ability to alter the mix of output.
D)   Point out that it would increase home values significantly.E) A) and C)
F) C) and D)

Question 3

Figure 33.2 illustrates Lorenz curves for four different economies. For which economy would lower-income families receive the largest share of total income?

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.E) All of the above
F) A) and C)

Question 4

If the area between the diagonal line of absolute equality and the Lorenz curve is greater for China than for the United States, we can conclude that the

Accepted Answer

A)   Distribution of income in China is closer to being equal than in the United States.
B)   Distribution of income in China is as equal as in the United States.
C)   Distribution of income in China is less equal than in the United States.
D)   Relative distributions of income in the two countries are the same.E) A) and D)
F) A) and C)

Question 5

According to the Census Bureau, in 2010 nearly _____________ Americans were counted as poor.

Accepted Answer

A)   1 million
B)   9 million
C)   20 million
D)   45 millionE) A) and B)
F) B) and C)

Question 6

Suppose a taxpayer has an income of $100,000 and a taxable income of $80,000, and pays taxes of $10,000. If the taxpayer talks of being taxed at a 10 percent rate, she is referring to the

Accepted Answer

A)   Average tax rate.
B)   Marginal tax rate.
C)   Nominal tax rate.
D)   Effective tax rate.E) All of the above
F) B) and D)

Question 7

Horizontal equity can be determined by comparing the

Accepted Answer

A)   Effective tax rate of the taxpayer with the highest nominal income to the effective tax rates of taxpayers with lower nominal incomes.
B)   Marginal tax rate of the taxpayer with the highest nominal income to the marginal tax rates of taxpayers with lower nominal incomes.
C)   Marginal tax rates for two taxpayers with the same nominal incomes.
D)   Effective tax rates for two taxpayers with the same nominal incomes.E) B) and D)
F) A) and B)

Question 8

The nominal tax rate is

Accepted Answer

A)   Lower than the effective tax rate.
B)   Taxes paid divided by total economic income.
C)   Taxes paid divided by taxable income.
D)   Equal to the marginal tax rate.E) B) and D)
F) A) and D)

Question 9

The taxation principle that says people with higher incomes should pay more in taxes than those with lower incomes is called

Accepted Answer

A)   A flat tax system.
B)   A regressive tax system.
C)   Vertical equity.
D)   Horizontal equity.E) A) and B)
F) A) and C)

Question 10

In general, lower marginal tax rates provide incentives to

Accepted Answer

A)   Work less.
B)   Produce more output.
C)   Invest less.
D)   Find more tax loopholes.E) B) and C)
F) B) and D)

Question 11

In making comparisons of personal income among countries, care must be exercised because in poor countries much of what is produced does not pass through markets and thus does not get counted in the nation's income.

Accepted Answer

A) True 
 B)False

Question 12

If a tax system has no deductions, exemptions, or other loopholes, then the effective tax rate will be

Accepted Answer

A)   Greater than the nominal tax rate.
B)   Equal to the nominal tax rate.
C)   Less than the nominal tax rate.
D)   Equal to the vertical tax rate.E) C) and D)
F) B) and D)

Question 13

Exemptions and deductions included in the tax laws

Accepted Answer

A)   Are designed to encourage specific economic activities.
B)   Reduce vertical inequities.
C)   Make the tax structure more progressive.
D)   Reduce horizontal inequities.E) B) and C)
F) A) and C)

Question 14

Wealth is measured as

Accepted Answer

A)   A flow only.
B)   A stock only.
C)   Both a flow and a stock.
D)   Neither a flow nor a stock.E) A) and B)
F) A) and C)

Question 15

Suppose a taxpayer has an income of $90,000 and a taxable income of $75,000, and pays $7,500 in taxes. If the taxpayer says he is taxed at a 10 percent tax rate, he is referring to the

Accepted Answer

A)   Vertical tax rate.
B)   Marginal tax rate.
C)   Effective tax rate.
D)   Nominal tax rate.E) A) and B)
F) A) and C)

Question 16

Explain the following statement by Arthur Okun: "Insistence on carving the pie into equal slices would shrink the size of the pie. This fact poses the trade-off between economic equality and economic efficiency."

Accepted Answer

An effort to equalize income s...

Question 17

In Omega the lowest 40 percent of families receive approximately what percentage of income? (See Figure 33.1)

Accepted Answer

A)   20 percent.
B)   40 percent.
C)   10 percent.
D)   17 percent.E) C) and D)
F) B) and C)

Question 18

Which of the following is an example of an indirect income transfer?

Accepted Answer

A)   Public schools.
B)   Social Security payments.
C)   Unemployment benefits.
D)   Welfare benefits.E) B) and C)
F) None of the above

Question 19

Government failure

Accepted Answer

A)   Occurs whenever the government intervenes in the market.
B)   Does not occur; only market failure occurs.
C)   Results when government intervention fails to improve market outcomes.
D)   Occurs whenever there is market failure.E) None of the above
F) A) and B)

Question 20

If the percentage of income paid in taxes increases as income rises, then the tax system is

Accepted Answer

A)   Regressive.
B)   Progressive.
C)   Marginal.
D)   Nominal.E) C) and D)
F) B) and C)

Exam 19: International Trade

Horizontal equity can be determined by comparing the

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If the percentage of income paid in taxes increases as income rises, then the tax system is

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In making comparisons of personal income among countries, care must be exercised because in poor countries much of what is produced does not pass through markets and thus does not get counted in the nation's income.

Correct AnswerverifiedShow Answer

According to the Census Bureau, in 2010 nearly _____________ Americans were counted as poor.

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Which of the following is an example of an indirect income transfer?

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The nominal tax rate is

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If the area between the diagonal line of absolute equality and the Lorenz curve is greater for China than for the United States, we can conclude that the

Correct AnswerverifiedShow Answer

Suppose a taxpayer has an income of $100,000 and a taxable income of $80,000, and pays taxes of $10,000. If the taxpayer talks of being taxed at a 10 percent rate, she is referring to the

Correct AnswerverifiedShow Answer

Exemptions and deductions included in the tax laws

Correct AnswerverifiedShow Answer

Suppose a taxpayer has an income of $90,000 and a taxable income of $75,000, and pays $7,500 in taxes. If the taxpayer says he is taxed at a 10 percent tax rate, he is referring to the

Correct AnswerverifiedShow Answer

Explain the following statement by Arthur Okun: "Insistence on carving the pie into equal slices would shrink the size of the pie. This fact poses the trade-off between economic equality and economic efficiency."

Correct AnswerverifiedAn effort to equalize income s...View AnswerShow Answer

The taxation principle that says people with higher incomes should pay more in taxes than those with lower incomes is called

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Wealth is measured as

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Figure 33.2 illustrates Lorenz curves for four different economies. For which economy would lower-income families receive the largest share of total income?

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In general, lower marginal tax rates provide incentives to

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If a tax system has no deductions, exemptions, or other loopholes, then the effective tax rate will be

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Government failure

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Government attempts to create a more equitable income distribution by increasing marginal tax rates may do all of the following except

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In Omega the lowest 40 percent of families receive approximately what percentage of income? (See Figure 33.1)

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Flat tax critics

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An effort to equalize income s...
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