Question 1

(Applying the Analysis) Which of the following claims is not made by opponents of a value-added tax (VAT) ?

Accepted Answer

A)   Savings and investment are discouraged because future consumption is penalized.
B)   The VAT is regressive,potentially leading to additional progressive taxes to offset the regressive VAT.
C)   Sellers bear a disproportionately large burden of the tax.
D)   The VAT is a hidden tax,and thus easier to raise to support the expansion of government.E) A) and B)
F) B) and C)

Question 2

The following data represent a personal income tax schedule.  Refer to the above table.This tax is such that the after-tax distribution of income will be:

Accepted Answer

A)   more equal than the before-tax distribution.
B)   less equal than the before-tax distribution.
C)   distributed in precisely the same way as the before-tax distribution.
D)   less than the before-tax distribution by the same percentage at each income level.E) C) and D)
F) B) and C)

Question 3

The largest source of tax revenue for the U.S.federal government is:

Accepted Answer

A)   personal income taxes.
B)   property taxes.
C)   corporate income taxes.
D)   sales and excise taxes.E) A) and B)
F) A) and C)

Question 4

Answer the next question on the basis of the following five schedules,all of which represent income tax schedules for an economy.All figures are in billions of dollars.  Which of the above schedules represent(s) a proportional tax?

Accepted Answer

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

Question 5

Although state and local taxes are highly progressive,federal taxation is predominantly regressive.

Accepted Answer

A) True 
 B)False

Question 6

Government lotteries are:

Accepted Answer

A)   used by a large number of states to supplement their tax revenues.
B)   illegal in the United States but are a common source of revenue in other countries.
C)   used by local governments but not by state governments.
D)   a form of progressive taxation.E) All of the above
F) A) and B)

Question 7

Entry fees at national parks and monuments are an example of:

Accepted Answer

A)   the ability-to-pay principle of taxation.
B)   the benefits-received principle of taxation.
C)   government bureaucracy and inefficiency.
D)   the principle of limited and bundled choice.E) A) and D)
F) C) and D)

Question 8

Government purchases and transfer payments:

Accepted Answer

A)   differ because the latter absorb resources while the former do not.
B)   differ because the former absorb resources while the latter do not.
C)   are alike because both are more inflationary than private spending.
D)   are alike because both absorb resources.E) All of the above
F) B) and D)

Question 9

Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000.In year 2,you pay an average tax rate of 25 percent on a taxable income of $30,000.Assuming no change in tax rates,the marginal tax rate on your additional $10,000 of income is:

Accepted Answer

A)   5 percent.
B)   12 percent.
C)   35 percent.
D)   42 percent.Total taxes paid went up from $3500 and income went up $10,000.Therefore,the marginal tax rate was $3500/$10,000,or 35 percent.E) A) and D)
F) B) and D)

Question 10

A progressive tax is such that:

Accepted Answer

A)   tax rates are higher the greater one's income.
B)   the same tax rate applies to all income receivers,so that the rich pay absolutely more taxes than the poor.
C)   entrepreneurial income is exempt from taxation.
D)   the revenues it yields are spent on transfer payments.E) B) and C)
F) B) and D)

Question 11

Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (6) might represent:

Accepted Answer

A)   the payment of payroll taxes by households.
B)   corporate income tax payments.
C)   the purchase of basketballs by the Ogallala school district.
D)   the purchase of armored personnel vehicles by government.E) C) and D)
F) A) and C)

Question 12

The following data represent a personal income tax schedule.  Refer to the above table.If your taxable income is $8000,your average tax rate is:

Accepted Answer

A)   25 percent and the marginal rate on additional income is also 25 percent.
B)   25 percent and the marginal rate on additional income is 40 percent.
C)   25 percent and the marginal rate on additional income cannot be determined from the information given.
D)   20 percent and the marginal rate on additional income is 30 percent.At $8000 of taxable income your average tax rate is 25 percent (i.e. ,$2000 tax paid/$8000 income) .E) A) and D)
F) None of the above

Question 13

In determining one's personal income tax,taxable income is:

Accepted Answer

A)   total income less deductions and exemptions.
B)   all income.
C)   all income other than wages and salaries.
D)   wage and salary income only.E) A) and D)
F) All of the above

Question 14

Which of the following best reflects the ability-to-pay philosophy of taxation?

Accepted Answer

A)   Taxes on residential property
B)   Progressive income taxes
C)   Excise taxes on gasoline
D)   Excise taxes on coffeeE) A) and B)
F) B) and D)

Question 15

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1) .If the incidence of the tax is such that the consumers of X pay $1.85 of the tax and the producers pay $0.15,we can conclude that the:

Accepted Answer

A)   supply of X is highly inelastic.
B)   supply of X is highly elastic.
C)   demand for X is highly inelastic.
D)   demand for X is highly elastic.E) B) and D)
F) A) and B)

Question 16

The total amount of U.S.tax revenue needed to finance the public sector:

Accepted Answer

A)   has been a declining percentage of the domestic output in this century.
B)   equals about 40 percent of domestic output.
C)   equals about 15 percent of domestic output.
D)   is larger today,as a percentage of total output,than in 1960.E) All of the above
F) A) and B)

Question 17

In which of the above market situations will the largest portion of an excise tax of a specified amount per unit of output be borne by buyers?

Accepted Answer

A)   4
B)   3
C)   2
D)   1E) All of the above
F) A) and B)

Question 18

The largest category of federal spending is for:

Accepted Answer

A)   health care.
B)   science,space,and technology.
C)   pensions and income security.
D)   national defense.E) A) and B)
F) B) and D)

Question 19

Approximately what percentage of state spending goes to finance education?

Accepted Answer

A)   36 percent
B)   44 percent
C)   47 percent
D)   53 percentE) None of the above
F) A) and C)

Question 20

If the supply of a product is perfectly elastic and demand is downsloping,an excise tax of $2 per unit will increase price by:

Accepted Answer

A)   more than $2.
B)   less than $2.
C)   $2 and increase equilibrium output.
D)   $2 and reduce equilibrium output.E) C) and D)
F) B) and D)

Exam 12: Public Finance: Expenditures and Taxes

Answer the next question on the basis of the following five schedules,all of which represent income tax schedules for an economy.All figures are in billions of dollars. Which of the above schedules represent(s) a proportional tax?

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Government purchases and transfer payments:

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Which of the following best reflects the ability-to-pay philosophy of taxation?

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The largest category of federal spending is for:

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A progressive tax is such that:

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The total amount of U.S.tax revenue needed to finance the public sector:

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Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1) .If the incidence of the tax is such that the consumers of X pay $1.85 of the tax and the producers pay $0.15,we can conclude that the:

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In determining one's personal income tax,taxable income is:

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Refer to the above diagram,in which solid arrows reflect real flows and broken arrows are monetary flows.Flow (6) might represent:

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The largest source of tax revenue for the U.S.federal government is:

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Approximately what percentage of state spending goes to finance education?

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Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000.In year 2,you pay an average tax rate of 25 percent on a taxable income of $30,000.Assuming no change in tax rates,the marginal tax rate on your additional $10,000 of income is:

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Entry fees at national parks and monuments are an example of:

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In which of the above market situations will the largest portion of an excise tax of a specified amount per unit of output be borne by buyers?

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If the supply of a product is perfectly elastic and demand is downsloping,an excise tax of $2 per unit will increase price by:

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Government lotteries are:

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The following data represent a personal income tax schedule. Refer to the above table.This tax is such that the after-tax distribution of income will be:

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Although state and local taxes are highly progressive,federal taxation is predominantly regressive.

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(Applying the Analysis) Which of the following claims is not made by opponents of a value-added tax (VAT) ?

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The following data represent a personal income tax schedule. Refer to the above table.If your taxable income is $8000,your average tax rate is:

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