Question 1

Briefly describe why taxes create deadweight loss.

Accepted Answer

When the government imposes a ...

Question 2

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) None of the above

Question 3

Which of the following contributes to the projected rise in government spending on Social Security and Medicare as a percentage of GDP?

Accepted Answer

A)  increasing life expectancies
B)  increasing healthcare costs
C)  increasing fertility rates
D)  Both a and b are correct.E) A) and D)
F) B) and C)

Question 4

Table 12-8
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. 
-Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the highest average tax rate?

Accepted Answer

A)  Tax Schedule A
B)  Tax Schedule B
C)  Tax Schedule C
D)  Tax Schedule DE) A) and B)
F) C) and D) A

Question 5

Individual income taxes generate roughly 25% of the tax revenue for the federal government.

Accepted Answer

A) True 
 B)False

Question 6

An optimal tax is one that minimizes the

Accepted Answer

A)  external benefit.
B)  total deadweight loss from the tax.
C)  income taxes.
D)  horizontal equity.E) A) and C)
F) All of the above

Question 7

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 D)
F) B) and C)

Question 8

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) A) 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 taxable income of $49,000?

Accepted Answer

A)  0%
B)  10%
C)  25%
D)  35%E) A) and B)
F) A) and C)

Question 10

The most common explanation for Social Security payments accounting for a larger share of federal government expenditures is

Accepted Answer

A)  increases in life expectancy.
B)  people becoming eligible for Social Security benefits at an earlier age.
C)  increases in birth rates among teenagers and the poor.
D)  falling payroll tax receipts.E) A) and B)
F) C) and D)

Question 11

If a poor family has three children in public school and a rich family has two children in private school, the benefits principle would suggest that

Accepted Answer

A)  the poor family should pay more in taxes to pay for public education than the rich family.
B)  the rich family should pay more in taxes to pay for public education than the poor family.
C)  the benefits of private school exceed those of public school.
D)  public schools should be financed by property taxes.E) A) and B)
F) B) and C) A

Question 12

Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?

Accepted Answer

A)  20 percent
B)  30 percent
C)  50 percent
D)  70 percentE) A) and D)
F) C) and D)

Question 13

State and local governments

Accepted Answer

A)  are funded entirely by their own tax base.
B)  receive the majority of their tax revenues from corporate income taxes.
C)  are generally not responsible for collecting sales taxes.
D)  receive some of their funds from the federal government.E) B) and C)
F) B) and D)

Question 14

In 2011, the U.S. federal government collected approximately what percentage of the taxes in the economy?

Accepted Answer

A)  10%
B)  40%
C)  50%
D)  67%E) A) and C)
F) A) and D)

Question 15

The largest source of income for the federal government is

Accepted Answer

A)  individual income taxes.
B)  corporate taxes.
C)  tariffs.
D)  "sin" taxes on alcohol and cigarettes.E) A) and B)
F) None of the above

Question 16

Table 12-14 
-Refer to Table 12-14. The tax system is

Accepted Answer

A)  progressive.
B)  regressive.
C)  proportional.
D)  lump sum.E) B) and D)
F) A) and B) A

Question 17

Table 12-15 
-Refer to Table 12-15. The tax system is

Accepted Answer

A)  proportional.
B)  regressive.
C)  progressive.
D)  lump sum.E) C) and D)
F) B) and C)

Question 18

Table 12-11 
-Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is

Accepted Answer

A)  18.7%.
B)  19.3%.
C)  20.1%.
D)  34.0%.E) None of the above
F) B) and D)

Question 19

Most analysts expect the largest federal spending category to continue to grow in importance for many years into the future. What category of spending is this?

Accepted Answer

A)  national defense
B)  education
C)  income security
D)  farm support programsE) A) and B)
F) A) and C)

Question 20

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 proportional?

Accepted Answer

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

Exam 12: The Design of the Tax System

Briefly describe why taxes create deadweight loss.

Correct AnswerverifiedWhen the government imposes a ...View AnswerShow Answer

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

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Which of the following contributes to the projected rise in government spending on Social Security and Medicare as a percentage of GDP?

Correct AnswerverifiedShow Answer

Table 12-8 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the highest average tax rate?

Correct AnswerverifiedA

Individual income taxes generate roughly 25% of the tax revenue for the federal government.

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An optimal tax is one that minimizes the

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A mortgage interest deduction would be considered

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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?

Correct AnswerverifiedShow Answer

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 taxable income of $49,000?

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The most common explanation for Social Security payments accounting for a larger share of federal government expenditures is

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If a poor family has three children in public school and a rich family has two children in private school, the benefits principle would suggest that

Correct AnswerverifiedA

Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?

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State and local governments

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In 2011, the U.S. federal government collected approximately what percentage of the taxes in the economy?

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The largest source of income for the federal government is

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Table 12-14 -Refer to Table 12-14. The tax system is

Correct AnswerverifiedA

Table 12-15 -Refer to Table 12-15. The tax system is

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Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is

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Most analysts expect the largest federal spending category to continue to grow in importance for many years into the future. What category of spending is this?

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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 proportional?

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