Chap016
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Chap016

Course Number: ECON 301, Spring 2013

College/University: DeVry Fremont

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Chapter 16 - Public Finance: Expenditures and Taxes Chapter 16 Public Finance: Expenditures and Taxes Multiple Choice Questions 1. Proprietary income refers to: A. revenue flowing to the government from taxes. B. money borrowed by the government to finance its operations. C. revenue generated by government-run businesses. D. transfer payments from the government to the owners of property resources. 2. Revenues...

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16 Chapter - Public Finance: Expenditures and Taxes Chapter 16 Public Finance: Expenditures and Taxes Multiple Choice Questions 1. Proprietary income refers to: A. revenue flowing to the government from taxes. B. money borrowed by the government to finance its operations. C. revenue generated by government-run businesses. D. transfer payments from the government to the owners of property resources. 2. Revenues flowing to the government from government-run or government-sponsored businesses, such as public utilities and state lotteries, are known as: A. proprietary income B. transfer payments C. tax revenue D. subsidies 3. The addition of government to the circular-flow model illustrates that government: A. purchases resources in the resource market. B. provides services to businesses and households. C. purchases goods in the product market. D. does all of these. 16-1 Chapter 16 - Public Finance: Expenditures and Taxes 4. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (1) might represent: A. corporate income tax payments. B. government provision of highways for truck transportation. C. business property tax payments. D. transfer payments to low-income families. 5. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (2) might represent: A. the provision of national defense by government. B. a government subsidy to farmers. C. corporate income tax payments. D. welfare payments to low-income families. 6. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (3) might represent: A. government salaries paid to school teachers. B. property tax payments. C. a state university's purchase of computers. D. social security payments to retirees. 7. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (4) might represent: A. the services of NASA astrophysicists. B. the purchase of Stealth bombers. C. personal income taxes. D. investment spending by private corporations. 8. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (5) might represent: A. personal income tax revenues. B. the provision of public schools by local governments. C. the purchase of laptop computers by the state of Iowa. D. transfer payments to unemployed workers. 16-2 Chapter 16 - Public Finance: Expenditures and Taxes 9. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (6) might represent: 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. 10. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (7) might represent: A. a transfer payment to disabled persons. B. wage payments to public school teachers. C. subsidies to corporations to stimulate exports. D. the U.S. Bureau of Engraving and Printing's expenditures for paper. 11. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (8) might represent: A. personal income taxes. B. automobile purchases by the state of Maine. C. the services of firefighters. D. subsidies to farmers. 12. In 2009, "Tax-Freedom Day" (the day average workers have earned enough to pay their tax bills) was: A. April 8. B. April 15. C. April 30. D. July 4. 13. Transfer payments are about ____ of U.S. domestic output (as of 2009). A. 35 percent B. 8 percent C. 15 percent D. 22 percent 16-3 Chapter 16 - Public Finance: Expenditures and Taxes 14. Total governmental purchasesFederal, state, and local combinedaccount for about what percentage of domestic output? A. 35 percent B. 20 percent C. 10 percent D. 5 percent 15. The total amount of U.S. tax revenue needed to finance the public sector: 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. 16. As a proportion of domestic output, taxes in the United States: A. are lower than in most other industrially advanced countries. B. are higher than in most other industrially advanced countries. C. are approximately the same as in most other industrially advanced countries. D. doubled in the 1990s. 17. Which of the following is an exhaustive governmental outlay? A. a Federal $5,000 subsidy check to an Illinois farmer B. a Temporary Assistance to Needy Families payment made by the state of New York C. a NASA payment to Boeing Corporation for space hardware D. a Federal old age insurance payment to a retired coal miner 18. Government purchases and transfer payments: 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. 16-4 Chapter 16 - Public Finance: Expenditures and Taxes 19. Government borrowing: A. is the primary means of financing public expenditures. B. provides a stimulus to government spending with no opportunity cost. C. may crowd out private sector investment. D. is prohibited by the U.S. constitution. 20. The opportunity cost of borrowing funds to finance government deficits is: A. greatest when the economy is doing well. B. greatest when the economy is in a recession. C. zero. D. the same regardless of the state of the economy. 21. The largest source of tax revenue for the U.S. Federal government is: A. personal income taxes. B. property taxes. C. corporate income taxes. D. sales and excise taxes. 22. Approximately what percentage of the Federal government's tax revenues are generated from personal income taxes (in 2009)? A. 85 percent B. 18 percent C. 37 percent D. 43 percent 23. The three most important sources of Federal tax revenue in order of descending importance are: A. sales, payroll, and personal income taxes. B. personal income, corporate income, and sales taxes. C. personal income, corporate income, and payroll taxes. D. personal income, payroll, and corporate income taxes. 16-5 Chapter 16 - Public Finance: Expenditures and Taxes 24. In determining one's personal income tax, taxable income is: A. total income less deductions and exemptions. B. all income. C. all income other than wages and salaries. D. wage and salary income only. 25. The largest category of Federal spending is for: A. health care. B. science, space, and technology. C. pensions and income security. D. national defense. 26. The tax rates embodied in the Federal personal income tax are such that: A. a rising absolute amount, but a declining proportion, of income is paid in taxes. B. the marginal and average tax rates are equal, making the tax progressive. C. the average tax rate rises more rapidly than does the marginal tax rate. D. the marginal tax rate is higher than the average tax rate, causing the average tax rate to rise. 27. The maximum Federal marginal tax rate on taxable personal income is currently (2010): A. 50 percent. B. 35 percent. C. 45 percent. D. 28 percent. 28. Which of the following is not an important source of revenue for the Federal government? A. corporate income taxes B. property taxes C. payroll taxes D. personal income taxes 16-6 Chapter 16 - Public Finance: Expenditures and Taxes 29. A progressive tax is such that: 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. 30. An income tax is progressive if the: A. absolute amount paid as taxes varies directly with income. B. percentage of income paid as taxes is the same regardless of the size of income. C. percentage of income paid as taxes increases as income increases. D. tax rate varies inversely with income. 31. The average tax rate is: A. equal to the marginal tax rate if the tax is progressive. B. the total tax rate minus the marginal tax rate. C. the ratio of total taxes paid to total taxable income. D. the tax rate that applies to incremental dollars of income. 32. If you would have to pay $5000 in taxes on a $25,000 taxable income and $7000 on a $30,000 taxable income, then the marginal tax rate on the additional $5000 of income is: A. 40 percent and the average tax rate is about 23 percent at the $30,000 income level. B. 50 percent and the average tax rate is 40 percent at the $30,000 income level. C. 40 percent and the average tax rate is 25 percent at the $25,000 income level. D. 30 percent but average tax rates cannot be determined from the information given. 33. The marginal tax rate is: A. the difference between the total tax rate and the average tax rate. B. the percentage of total income paid as taxes. C. change in taxes/change in taxable income. D. total taxes/total taxable income. 16-7 Chapter 16 - Public Finance: Expenditures and Taxes 34. The average tax rate is: A. change in taxes/change in taxable income. B. total taxes/total taxable income. C. the sum of the marginal tax rate and the rate of transfer payments. D. the tax on incremental income less the tax on total income. 35. 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: A. 5 percent. B. 12 percent. C. 35 percent. D. 42 percent. 36. The marginal tax rate is: A. less than the average tax rate when a tax is progressive. B. calculated by dividing total taxes paid by one's total taxable income. C. the percentage of one's total income that is paid in taxes. D. the percentage of an increment of income that is paid in taxes. 37. Currently (2010) the marginal tax rates of the Federal personal income tax: A. are less than corresponding average tax rates. B. rise from 5 to 50 percent. C. fall from 20 to 10 percent. D. rise from 10 to 38 percent. 38. Assume that in year 1 your average tax rate is 20 percent on a taxable income of $20,000. If the marginal tax rate on the next $10,000 of taxable income is 30 percent, what will be the average tax rate if your taxable income rises to $30,000? A. 7 percent B. 30 percent C. about 16 percent D. about 23 percent 16-8 Chapter 16 - Public Finance: Expenditures and Taxes The following data represent a personal income tax schedule. Answer the question on the basis of this information. 39. Refer to the above table. If your taxable income is $8,000, your average tax rate is: 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. 40. Refer to the above table. This tax is such that the after-tax distribution of income will be: 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. Answer the question on the basis of the following data: 16-9 Chapter 16 - Public Finance: Expenditures and Taxes 41. The tax represented above is: A. optimal. B. proportional. C. regressive. D. progressive. 42. Refer to the above data. If your taxable income is $4000, your average tax rate will be: A. 20 percent. B. 15 percent. C. 10 percent. D. 5 percent. 43. Refer to the above data. If your taxable income increases from $4000 to $5000, you will encounter a marginal tax rate of: A. 40 percent. B. 25 percent. C. 15 percent. D. 10 percent. 44. Taxable income is: A. total income less deductions and exemptions. B. the same as gross income. C. only income to which marginal tax rates apply. D. the sum of all wage and property income. 45. The basic tax rate on taxable corporate income is: A. 15 percent. B. 22 percent. C. 35 percent. D. 52 percent. 16-10 Chapter 16 - Public Finance: Expenditures and Taxes 46. Taxes on commodities or on purchases are known as: A. corporate income taxes B. sales and excise taxes C. personal income taxes D. payroll taxes 47. Indy currently earns $50,000 in taxable income and pays $8000 in taxes. Suppose that Indy faces a marginal tax rate of 25 percent and his boss offers him a raise of $2000 per year. Indy should: A. accept the raise because his after-tax income will rise by $1500. B. reject the raise because his after-tax income will fall by $3000. C. reject the raise because his after-tax income will fall by $4500. D. reject the raise because his after-tax income will fall by $6000. 48. With respect to state finance, for most states: A. estate taxes are the major source of revenue and most expenditures are for health services. B. the corporate income tax is the major source of revenue and natural resource development is the major type of expenditure. C. property taxes are the basic source of revenue and education is the major type of expenditure. D. sales and excise taxes are the major source of revenue and education is the major type of expenditure. 49. The main difference between sales and excise taxes is that: A. sales taxes apply to a wide range of products, while excise taxes apply only to a select group of products. B. excise taxes apply to a wide range of products, while sales taxes apply only to a select list of products. C. sales taxes are consumption taxes, while excise taxes are not. D. excise taxes are consumption taxes, while sales taxes are not. 16-11 Chapter 16 - Public Finance: Expenditures and Taxes 50. One difference between sales and excise taxes is that: A. sales taxes are only applied at the state level, while excise taxes are only applied at the federal level. B. excise taxes apply to a wide range of products, while sales taxes apply only to a select list of products. C. sales taxes are calculated as a percentage of the price paid, while excise taxes are levied on a per-unit basis. D. excise taxes are calculated as a percentage of the price paid, while sales taxes are levied on a per unit basis. 51. With respect to local finance: A. death and gift taxes are the major source of revenue and most expenditures are for hospitals and health services. B. the corporate income tax is the major source of revenue and natural resource development the major type of expenditure. C. property taxes are the basic source of revenue and education is the major type of expenditure. D. sales and excise taxes are the major source of revenue and highway construction and maintenance is the major type of expenditure. 52. Government lotteries are: 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. 53. Approximately what percentage of local government expenditures goes to finance education? A. 36 B. 44 C. 53 D. 69 16-12 Chapter 16 - Public Finance: Expenditures and Taxes 54. Approximately what percentage of state spending goes to finance education? A. 36 B. 44 C. 47 D. 53 55. In 2008, U.S. governments (local, state, and Federal) employed approximately how many million workers? A. 9.2 B. 13.0 C. 19.4 D. 22.5 56. Approximately what percentage of the U.S. labor force works for U.S. governments at the Federal, state, and local levels? A. 7 B. 10 C. 13 D. 19 57. At the state and local levels of the U.S. government, a majority of government employees work in which of the following areas? A. Postal Service B. Education C. Hospitals and other health care D. Police and corrections 58. Federal employment in the United States is dominated by what two functions? A. National defense and Postal Service B. Health care and police C. Postal Service and education D. Health care and national defense 16-13 Chapter 16 - Public Finance: Expenditures and Taxes 59. The ability-to-pay principle of taxation: A. has been declared unconstitutional because it deprives individuals of property without due process of law. B. suggests that people should pay taxes in proportion to the benefits they derive from public goods and services. C. suggests that taxes should vary directly with people's income and wealth. D. suggests that taxes should vary inversely with people's income and wealth. 60. The benefits-received principle of taxation is most evident in: A. inheritance taxes. B. excise taxes on gasoline. C. the personal income tax. D. the corporate income tax. 61. Which of the following best reflects the ability-to-pay philosophy of taxation? A. a tax on residential property B. a progressive income tax C. an excise tax on gasoline D. an excise tax on coffee 62. Entry fees at national parks and monuments are an example of: 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. 16-14 Chapter 16 - Public Finance: Expenditures and Taxes 63. The rationale for ability-to-pay taxation and the contention that those with large incomes should pay more taxes both absolutely and relatively is that: A. high-income receivers are generally in a better position to shift taxes than are low-income receivers. B. the transfer system is regressive and it is therefore essential to have an offsetting progressive tax structure. C. rational consumers spend their first dollars of income on the most urgently desired goods and successive dollars on less essential goods. D. taxes should be paid for financing public goods in direct proportion to the satisfaction an individual derives from those goods. 64. Which of the following statements is most consistent with the benefits-received principle of taxation? A. A childless couple should not be required to pay taxes for the support of public schools. B. Prosperous corporations should pay substantial taxes even if they use few government goods and services. C. The best tax is the income tax. D. People with high incomes should pay more taxes than people with low incomes. 65. The Federal gasoline tax is assessed on a per-gallon basis and the proceeds are used for highway maintenance and improvements. This tax is consistent with the: A. ability-to-pay principle of taxation. B. benefits-received principle of taxation. C. single-tax theory of taxation. D. pay-as-you go theory of taxation. 66. The Federal income tax is consistent with the __________ principle of taxation, whereas an excise tax on sporting event tickets is consistent with the ___________ principle of taxation. A. benefits-received; ability-to-pay B. benefits-received; pay-as-you go C. ability-to-pay; benefits received D. ability-to-pay; pay-as-you-go 16-15 Chapter 16 - Public Finance: Expenditures and Taxes 67. Using income as the tax base, which of the following best illustrates a regressive tax? A. the Federal inheritance tax B. a 7 percent general sales tax C. the corporate income tax D. the personal income tax Answer the 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. 68. Which of the above schedules represent(s) a progressive tax? A. V only B. III and V C. II and III D. III only 69. Which of the above schedules represent(s) a regressive tax? A. V only B. III and V C. IV only D. I only 70. Which of the above schedules represent(s) a proportional tax? A. II and IV B. III and V C. IV only D. I only 16-16 Chapter 16 - Public Finance: Expenditures and Taxes 71. The sales tax is a regressive tax because the: A. percentage of income paid as taxes falls as income rises. B. administrative costs associated with the collection of the tax are relatively high. C. percentage of income paid as taxes is constant as income rises. D. tax tends to reduce the total volume of consumption expenditures. 72. A tax that takes a larger proportion of income from low-income groups than from highincome groups is a: A. stabilizing tax. B. regressive tax. C. progressive tax. D. proportional tax. 73. If each taxpayer paid the same lump-sum amount regardless of income level, the tax system would be: A. disproportionate. B. progressive. C. proportional. D. regressive. 16-17 Chapter 16 - Public Finance: Expenditures and Taxes 74. Refer to the above graph. Which of the lines in the above diagram represent(s) a progressive tax? A. both A and B. B. D only. C. C only. D. B only. 75. Refer to the above graph. Which of the lines in the above diagram represent(s) a proportional tax? A. both A and B. B. D only. C. C only. D. B only. 76. Refer to the above graph. Which of the lines in the above diagram represent(s) a regressive tax? A. both A and B. B. D only. C. C only. D. B only. 77. Assume you pay a tax of $4,000 on a taxable income of $24,000. If your taxable income were $30,000, your tax payment would be $5,000. This suggests that the tax is: A. progressive. B. proportional. C. regressive. D. discriminatory. 78. Assume that you pay $10,000 of tax on a taxable income of $50,000. If your taxable income were $150,000, your tax payment would be $25,000. This suggests the tax is: A. progressive. B. proportional. C. regressive. D. discriminatory. 16-18 Chapter 16 - Public Finance: Expenditures and Taxes 79. Which of the following is correct? A. The Federal tax system is regressive, while the state and local tax system is progressive. B. Both the Federal tax system and the state and local tax system are regressive. C. The Federal tax system is progressive, while the state and local tax system is regressive. D. Both the Federal tax system and the state and local tax systems are progressive. 80. Overall, the U.S. tax system (combined Federal, state, and local) is: A. highly progressive. B. slightly progressive. C. slightly regressive. D. highly regressive. 81. In 2006, the top 1 percent of all taxpayers in the United States paid what percent of the Federal income tax? A. 21.2 percent. B. 33.7 percent. C. 39.1 percent. D. 60.7 percent. 82. The U.S. tax-transfer system (as distinct from the tax system alone) is: A. progressive. B. proportional. C. bimodal. D. regressive. 83. In 2006, the 20 percent of families with the lowest incomes paid an average Federal tax rate (on all Federal taxes) of about __, whereas the 20 percent of families with the highest incomes paid an average tax rate of about __. A. 5.5 percent; 50 percent B. 10.3 percent; 30.9 percent C. 8.4 percent; 27.5 percent D. 4.3 percent; 25.8 percent 16-19 Chapter 16 - Public Finance: Expenditures and Taxes 84. In 2006, the top 1 percent of all taxpayers in the United States faced an overall Federal tax rate of: A. 31.2 percent. B. 27.5 percent. C. 39.1 percent. D. 60.9 percent. 85. The incidence of a tax pertains to: A. the degree to which it alters the distribution of income. B. how easy it is to evade the tax. C. who actually bears the burden of a tax. D. the progressiveness or regressiveness of tax rates. Answer the question on the basis of the following demand and supply data for a competitive market: 86. Refer to the above data. If government levies a per unit excise tax of $1 on suppliers of this product, equilibrium price and quantity will be: A. $9 and 3,000. B. $7.50 and 2,250. C. $8.50 and 2,250. D. $7 and 3,000. 16-20 Chapter 16 - Public Finance: Expenditures and Taxes 87. Refer to the above data. If government provides a per unit subsidy of $2 to suppliers of this product, equilibrium price and quantity would be: A. $9 and 3,000. B. $7.50 and 2,250. C. $8.50 and 2,750. D. $7 and 3,000. 88. Assume the Environmental Protection Agency imposes an excise tax on polluting firms. In which of the following situations would we expect the additional costs to be borne most heavily by consumers? A. demand is highly elastic and supply is highly inelastic B. demand and supply are both highly elastic C. demand and supply are both highly inelastic D. demand is highly inelastic and supply is highly elastic 89. If the demand for a product is perfectly elastic and supply is upsloping, a $1 excise tax per unit on suppliers will: A. not raise price at all. B. lower price by $1. C. raise price by more than $1. D. raise price by $1. 90. If the supply of a product is perfectly elastic and demand is downsloping, an excise tax of $2 per unit will increase price by: A. more than $2. B. less than $2. C. $2 and increase equilibrium output. D. $2 and reduce equilibrium output. 16-21 Chapter 16 - Public Finance: Expenditures and Taxes 91. Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the consumers pay $.25, we can conclude that the: 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. 92. Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that consumers pay $1.80 of the tax and the producers pay $.20, we can conclude that the: 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. 93. 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 producers of X pay $1.90 of the tax and the consumers pay $.10, we can conclude that the: 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. 94. 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 consumers pay $.15, we can conclude that the: 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. 16-22 Chapter 16 - Public Finance: Expenditures and Taxes 95. 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 producers? A. 4 B. 3 C. 1 D. 2 96. 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? A. 4 B. 3 C. 1 D. 2 97. In which of the above market situations will the efficiency loss of an excise tax be the greatest? A. 4 B. 3 C. 1 D. 2 16-23 Chapter 16 - Public Finance: Expenditures and Taxes 98. Assume the demand for automobile tires is highly inelastic and that the supply is highly elastic. The burden of a $2 excise tax on each tire will be: A. borne by resource suppliers who provide the inputs for manufacturing tires. B. shared about equally by buyers and sellers of tires. C. borne primarily by buyers of tires. D. borne primarily by sellers of tires. 99. Assume the supply curve for product X is perfectly elastic and that government imposes a $2 per unit excise tax. We can conclude that the resulting: A. increase in output will be greater the less elastic the demand curve. B. decrease in output will be greater the less elastic the demand curve. C. decrease in output will be greater the more elastic the demand curve. D. increase in output will be greater the more elastic the demand curve. 100. If the demand for a product is perfectly inelastic and the supply curve is upsloping, a $1 excise tax per unit of output will: A. raise price by less than $1. B. raise price by more than $1. C. raise price by $1. D. lower price by $1. 16-24 Chapter 16 - Public Finance: Expenditures and Taxes 101. Refer to the above figure in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total tax collection from this excise tax will be area: A. ABCE + ECF. B. ABCE. C. ECF. D. 0BCG. 102. Refer to the above figure in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The efficiency loss of this tax will be area: A. ABCE. B. ABCE + ECF. C. 0AEG. D. ECF. 103. Refer to the above figure in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The burden of this tax is borne: A. equally by consumers and producers. B. most heavily by consumers. C. most heavily by producers. D. only by consumers. 104. The more inelastic is demand and supply the: A. larger is the efficiency loss of an excise tax. B. smaller is the efficiency loss of an excise tax. C. higher the proportion of an excise tax paid by consumers. D. smaller the proportion of an excise tax paid by producers. 105. If the demand for a product is perfectly inelastic, the incidence of an excise tax will be: A. entirely on the buyer. B. mostly on the buyer. C. entirely on the seller. D. mostly on the seller. 16-25 Chapter 16 - Public Finance: Expenditures and Taxes 106. The efficiency loss of a tax is the idea that: A. in addition to taking income from the citizenry, taxes also increase the rate of inflation. B. taxes cause a decline in output for which marginal benefit exceeds marginal cost. C. taxes diminish incentives to work. D. government spends dollars less efficiently than do households and businesses. 107. The greater the elasticity of supply of and demand for a good the: A. smaller will be the efficiency loss of an excise tax on the good. B. more likely the good will be a public good rather than a private good. C. larger will be the efficiency loss of an excise tax on the good. D. larger will be the proportion of an excise tax on the good that will be shifted forward to consumers. 108. The efficiency loss of a tax is: A. the net value of sacrificed output caused by the tax. B. that portion of the tax paid by producers minus the portion paid by consumers. C. that portion of the tax paid by consumers minus the portion paid by producers. D. the total tax revenue minus the output loss caused by the tax. 16-26 Chapter 16 - Public Finance: Expenditures and Taxes 109. Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total tax payment to government is shown by area(s): A. A only. B. A + B + C + E + F. C. A + B + C. D. E + F. 110. Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total amount of the tax paid by consumers is shown by area(s): A. A + B + F. B. A + B. C. A + B + C. D. E + F. 111. Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total amount of the tax paid by producers is shown by area(s): A. A + B + F. B. C only. C. A + B + C. D. E + F. 112. Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The efficiency loss of the tax is shown by area(s): A. A + B + C + E + F . B. A + B + C. C. A + B + F. D. E + F. 16-27 Chapter 16 - Public Finance: Expenditures and Taxes (Advanced analysis) Answer the question on the basis of the following information: The equations for the demand and supply curves for a particular product are P = 10 - .4Q and P = 2 + .4Q, where P is price and Q is quantity expressed in units of 100. After an excise tax is imposed on the product the supply equation is P = 3 + .4Q. 113. Refer to the above information. The excise tax on each unit of the product: A. is $1. B. is $2. C. is $3. D. cannot be determined with the information given. 114. Refer to the above information. The equilibrium quantity before the excise tax is imposed is: A. 800 units. B. 1,000 units. C. 1,200 units. D. 1,400 units. 115. Refer to the above information. The equilibrium quantity after the excise tax is imposed is: A. 750 units. B. 850 units. C. 875 units. D. 950 units. 116. Refer to the above information. Government's revenue from this tax is: A. $750. B. $1,500. C. $875. D. $800. 16-28 Chapter 16 - Public Finance: Expenditures and Taxes 117. Refer to the above information. The efficiency loss of this tax is: A. $125.00. B. $62.50. C. $87.50. D. $1.00. 118. Sales and excise taxes are levied on retailers, but retailers add these taxes to the prices of their products. This illustrates the: A. equal sacrifice theory of taxation. B. shifting of taxes to consumers. C. ability-to-pay principle of taxation. D. benefits-received principle of taxation. 119. The property tax may be regressive even though wealthy people own much more taxable property than do poor people. This possibility arises because: A. marginal and average tax rates on property tend to converge. B. wealthy people can evade property taxes while poor people cannot. C. property taxes on rental property and business property are shifted. D. statutory property tax rates decline as the value of property rises. 120. Which of the following taxes is most likely to be shifted? A. a general sales tax B. a flat-rate state income tax C. a progressive Federal income tax D. a property tax on an owner-occupied residence 121. Which of the following taxes is least likely to be shifted? A. a state excise tax on the sellers of football tickets B. a personal income tax C. a general sales tax on retailers who sell foodstuffs and clothing D. a Federal excise tax on the producers of whiskey 16-29 Chapter 16 - Public Finance: Expenditures and Taxes 122. (Consider This) Which of the following claims is not made by defenders of lotteries? A. Lotteries are a relatively painless way to fund important government services. B. Lotteries help reduce organized crime by providing an alternative to illegal gambling. C. Lotteries are preferable to taxes because they are voluntary. D. Lotteries are progressive in nature, with higher income families playing more frequently. 123. (Consider This) Payout rates for state lotteries: A. are considerably lower than payout rates from casinos. B. are considerably higher than payout rates from casinos. C. are roughly equal to the payout rates from casinos. D. cannot be compared with casino payout rates because states do not typically disclose their payout rates. 124. (Consider This) A value-added tax (VAT): A. is another name for a retail sales tax, but is otherwise the same. B. is like a sales tax, but is only imposed on the difference between a firm's sales and its purchases from other firms. C. is like an income tax, but is only imposed on the difference between a person's income and their consumption. D. only applies to imported goods. 125. (Consider This) Proponents of a value-added tax (VAT) claim that a VAT: A. is progressive, leading to a more equitable distribution of income. B. equalizes the tax burden between buyers and sellers of goods. C. is proportional, so all income groups pay a fair share. D. penalizes consumption and encourages savings and investment. 126. (Consider This) Which of the following claims is not made by opponents of a valueadded tax (VAT)? A. Savings and investment is 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. 16-30 Chapter 16 - Public Finance: Expenditures and Taxes 127. (Last Word) In 2004, approximately what percent of household income was transferred from the top two quintiles to the lowest three quintiles? A. zero B. 10 C. 15 D. 22 128. (Last Word) For each dollar paid in taxes, approximately how much do households in the top quintile receive back in the form of government expenditures? A. 12 cents B. 28 cents C. 41 cents D. 73 cents 129. (Last Word) Which of the following statements about taxes and government spending is correct? A. Despite the overall progressive tax system, government expenditures disproportionately favor the rich and result in a system that is slightly regressive. B. The progressive tax system is almost perfectly offset by regressive expenditures, making the overall system proportional. C. The regressive tax system is offset by expenditures directed toward lower income households, making the overall system proportional. D. The overall system of taxes and spending is progressive, as over $1 trillion per year gets transferred from upper income households to lower and middle income households. True / False Questions 130. "Tax Freedom Day" in the United typically occurs in mid-July. True False 16-31 Chapter 16 - Public Finance: Expenditures and Taxes 131. Government assumes some responsibility for providing a minimum standard of living for all citizens to compensate for the increase in income inequality caused by government tax revenues and expenditures. True False 132. The largest source of local government's revenue is the sales tax. True False 133. The basic source of state government's revenue is the property tax. True False 134. The major expenditure of local governments is for education. True False 135. A tax is progressive if the average tax rate rises as income increases. True False 136. If you pay a $2000 tax on $10,000 of taxable income and a $4000 tax on a taxable income of $16,000, the tax is progressive. True False 137. The marginal tax rate is the tax rate that applies to additional income. True False 138. About two-thirds of all Federal spending is for national defense. True False 16-32 Chapter 16 - Public Finance: Expenditures and Taxes 139. A progressive tax takes relatively more from the rich than it does from the poor. True False 140. The benefits-received principle of taxation is used to support corporate and personal income taxes. True False 141. Sales taxes are proportional in relation to income because the same tax rate applies regardless of the size of a purchase. True False 142. Sales taxes on consumer goods are regressive because poor people consume a larger proportion of their incomes than do rich people. True False 143. A highly progressive tax takes relatively more from the rich than it does from the poor. True False 144. Given supply, the more inelastic the demand for a product, the larger the portion of an excise tax that is shifted to consumers. True False 145. Given demand, the more inelastic the supply of a product, the larger the portion of an excise tax that is borne by producers. True False 16-33 Chapter 16 - Public Finance: Expenditures and Taxes 146. The efficiency loss of a tax is the tax revenue collected by government minus the value of the public goods financed through the tax. True False 147. The greater the elasticity of demand and supply, the greater is the efficiency loss of a tax. True False 148. Economists agree that corporations always shift the corporate income tax to consumers by raising product prices. True False 149. Although state and local taxes are highly progressive, Federal taxation is predominantly regressive. True False 16-34 Chapter 16 - Public Finance: Expenditures and Taxes Chapter 16 Public Finance: Expenditures and Taxes Answer Key Multiple Choice Questions 1. Proprietary income refers to: A. revenue flowing to the government from taxes. B. money borrowed by the government to finance its operations. C. revenue generated by government-run businesses. D. transfer payments from the government to the owners of property resources. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Government and the circular flow 2. Revenues flowing to the government from government-run or government-sponsored businesses, such as public utilities and state lotteries, are known as: A. proprietary income B. transfer payments C. tax revenue D. subsidies AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Government and the circular flow 16-35 Chapter 16 - Public Finance: Expenditures and Taxes 3. The addition of government to the circular-flow model illustrates that government: A. purchases resources in the resource market. B. provides services to businesses and households. C. purchases goods in the product market. D. does all of these. AACSB: Analytic Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow 4. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (1) might represent: A. corporate income tax payments. B. government provision of highways for truck transportation. C. business property tax payments. D. transfer payments to low-income families. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow Type: Figure 16-36 Chapter 16 - Public Finance: Expenditures and Taxes 5. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (2) might represent: A. the provision of national defense by government. B. a government subsidy to farmers. C. corporate income tax payments. D. welfare payments to low-income families. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow Type: Figure 6. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (3) might represent: A. government salaries paid to school teachers. B. property tax payments. C. a state university's purchase of computers. D. social security payments to retirees. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow Type: Figure 7. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (4) might represent: A. the services of NASA astrophysicists. B. the purchase of Stealth bombers. C. personal income taxes. D. investment spending by private corporations. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow Type: Figure 16-37 Chapter 16 - Public Finance: Expenditures and Taxes 8. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (5) might represent: A. personal income tax revenues. B. the provision of public schools by local governments. C. the purchase of laptop computers by the state of Iowa. D. transfer payments to unemployed workers. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow Type: Figure 9. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (6) might represent: 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. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow Type: Figure 10. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (7) might represent: A. a transfer payment to disabled persons. B. wage payments to public school teachers. C. subsidies to corporations to stimulate exports. D. the U.S. Bureau of Engraving and Printing's expenditures for paper. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow Type: Figure 16-38 Chapter 16 - Public Finance: Expenditures and Taxes 11. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (8) might represent: A. personal income taxes. B. automobile purchases by the state of Maine. C. the services of firefighters. D. subsidies to farmers. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government and the circular flow Type: Figure 12. In 2009, "Tax-Freedom Day" (the day average workers have earned enough to pay their tax bills) was: A. April 8. B. April 15. C. April 30. D. July 4. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Government finance 13. Transfer payments are about ____ of U.S. domestic output (as of 2009). A. 35 percent B. 8 percent C. 15 percent D. 22 percent AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Government finance 16-39 Chapter 16 - Public Finance: Expenditures and Taxes 14. Total governmental purchasesFederal, state, and local combinedaccount for about what percentage of domestic output? A. 35 percent B. 20 percent C. 10 percent D. 5 percent AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Government finance 15. The total amount of U.S. tax revenue needed to finance the public sector: 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. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government finance 16. As a proportion of domestic output, taxes in the United States: A. are lower than in most other industrially advanced countries. B. are higher than in most other industrially advanced countries. C. are approximately the same as in most other industrially advanced countries. D. doubled in the 1990s. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government finance 16-40 Chapter 16 - Public Finance: Expenditures and Taxes 17. Which of the following is an exhaustive governmental outlay? A. a Federal $5,000 subsidy check to an Illinois farmer B. a Temporary Assistance to Needy Families payment made by the state of New York C. a NASA payment to Boeing Corporation for space hardware D. a Federal old age insurance payment to a retired coal miner AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government finance 18. Government purchases and transfer payments: 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. AACSB: Analytic Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Government finance 19. Government borrowing: A. is the primary means of financing public expenditures. B. provides a stimulus to government spending with no opportunity cost. C. may crowd out private sector investment. D. is prohibited by the U.S. constitution. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Federal finance 16-41 Chapter 16 - Public Finance: Expenditures and Taxes 20. The opportunity cost of borrowing funds to finance government deficits is: A. greatest when the economy is doing well. B. greatest when the economy is in a recession. C. zero. D. the same regardless of the state of the economy. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Federal finance 21. The largest source of tax revenue for the U.S. Federal government is: A. personal income taxes. B. property taxes. C. corporate income taxes. D. sales and excise taxes. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 22. Approximately what percentage of the Federal government's tax revenues are generated from personal income taxes (in 2009)? A. 85 percent B. 18 percent C. 37 percent D. 43 percent AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Federal finance 16-42 Chapter 16 - Public Finance: Expenditures and Taxes 23. The three most important sources of Federal tax revenue in order of descending importance are: A. sales, payroll, and personal income taxes. B. personal income, corporate income, and sales taxes. C. personal income, corporate income, and payroll taxes. D. personal income, payroll, and corporate income taxes. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 24. In determining one's personal income tax, taxable income is: A. total income less deductions and exemptions. B. all income. C. all income other than wages and salaries. D. wage and salary income only. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 25. The largest category of Federal spending is for: A. health care. B. science, space, and technology. C. pensions and income security. D. national defense. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 16-43 Chapter 16 - Public Finance: Expenditures and Taxes 26. The tax rates embodied in the Federal personal income tax are such that: A. a rising absolute amount, but a declining proportion, of income is paid in taxes. B. the marginal and average tax rates are equal, making the tax progressive. C. the average tax rate rises more rapidly than does the marginal tax rate. D. the marginal tax rate is higher than the average tax rate, causing the average tax rate to rise. AACSB: Analytic Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 27. The maximum Federal marginal tax rate on taxable personal income is currently (2010): A. 50 percent. B. 35 percent. C. 45 percent. D. 28 percent. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 28. Which of the following is not an important source of revenue for the Federal government? A. corporate income taxes B. property taxes C. payroll taxes D. personal income taxes AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 16-44 Chapter 16 - Public Finance: Expenditures and Taxes 29. A progressive tax is such that: 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. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 30. An income tax is progressive if the: A. absolute amount paid as taxes varies directly with income. B. percentage of income paid as taxes is the same regardless of the size of income. C. percentage of income paid as taxes increases as income increases. D. tax rate varies inversely with income. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 31. The average tax rate is: A. equal to the marginal tax rate if the tax is progressive. B. the total tax rate minus the marginal tax rate. C. the ratio of total taxes paid to total taxable income. D. the tax rate that applies to incremental dollars of income. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 16-45 Chapter 16 - Public Finance: Expenditures and Taxes 32. If you would have to pay $5000 in taxes on a $25,000 taxable income and $7000 on a $30,000 taxable income, then the marginal tax rate on the additional $5000 of income is: A. 40 percent and the average tax rate is about 23 percent at the $30,000 income level. B. 50 percent and the average tax rate is 40 percent at the $30,000 income level. C. 40 percent and the average tax rate is 25 percent at the $25,000 income level. D. 30 percent but average tax rates cannot be determined from the information given. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 33. The marginal tax rate is: A. the difference between the total tax rate and the average tax rate. B. the percentage of total income paid as taxes. C. change in taxes/change in taxable income. D. total taxes/total taxable income. AACSB: Analytic Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 34. The average tax rate is: A. change in taxes/change in taxable income. B. total taxes/total taxable income. C. the sum of the marginal tax rate and the rate of transfer payments. D. the tax on incremental income less the tax on total income. AACSB: Analytic Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 16-46 Chapter 16 - Public Finance: Expenditures and Taxes 35. 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: A. 5 percent. B. 12 percent. C. 35 percent. D. 42 percent. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 36. The marginal tax rate is: A. less than average the tax rate when a tax is progressive. B. calculated by dividing total taxes paid by one's total taxable income. C. the percentage of one's total income that is paid in taxes. D. the percentage of an increment of income that is paid in taxes. AACSB: Analytic Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 37. Currently (2010) the marginal tax rates of the Federal personal income tax: A. are less than corresponding average tax rates. B. rise from 5 to 50 percent. C. fall from 20 to 10 percent. D. rise from 10 to 38 percent. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 16-47 Chapter 16 - Public Finance: Expenditures and Taxes 38. Assume that in year 1 your average tax rate is 20 percent on a taxable income of $20,000. If the marginal tax rate on the next $10,000 of taxable income is 30 percent, what will be the average tax rate if your taxable income rises to $30,000? A. 7 percent B. 30 percent C. about 16 percent D. about 23 percent AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance The following data represent a personal income tax schedule. Answer the question on the basis of this information. 39. Refer to the above table. If your taxable income is $8,000, your average tax rate is: 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. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance Type: Table 16-48 Chapter 16 - Public Finance: Expenditures and Taxes 40. Refer to the above table. This tax is such that the after-tax distribution of income will be: 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. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance Type: Table Answer the question on the basis of the following data: 41. The tax represented above is: A. optimal. B. proportional. C. regressive. D. progressive. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance Type: Table 16-49 Chapter 16 - Public Finance: Expenditures and Taxes 42. Refer to the above data. If your taxable income is $4000, your average tax rate will be: A. 20 percent. B. 15 percent. C. 10 percent. D. 5 percent. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance Type: Table 43. Refer to the above data. If your taxable income increases from $4000 to $5000, you will encounter a marginal tax rate of: A. 40 percent. B. 25 percent. C. 15 percent. D. 10 percent. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance Type: Table 44. Taxable income is: A. total income less deductions and exemptions. B. the same as gross income. C. only income to which marginal tax rates apply. D. the sum of all wage and property income. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 16-50 Chapter 16 - Public Finance: Expenditures and Taxes 45. The basic tax rate on taxable corporate income is: A. 15 percent. B. 22 percent. C. 35 percent. D. 52 percent. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 46. Taxes on commodities or on purchases are known as: A. corporate income taxes B. sales and excise taxes C. personal income taxes D. payroll taxes AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 47. Indy currently earns $50,000 in taxable income and pays $8000 in taxes. Suppose that Indy faces a marginal tax rate of 25 percent and his boss offers him a raise of $2000 per year. Indy should: A. accept the raise because his after-tax income will rise by $1500. B. reject the raise because his after-tax income will fall by $3000. C. reject the raise because his after-tax income will fall by $4500. D. reject the raise because his after-tax income will fall by $6000. AACSB: Analytic Bloom's: Level 5 Evaluate Difficulty: 3 Hard Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 16-51 Chapter 16 - Public Finance: Expenditures and Taxes 48. With respect to state finance, for most states: A. estate taxes are the major source of revenue and most expenditures are for health services. B. the corporate income tax is the major source of revenue and natural resource development is the major type of expenditure. C. property taxes are the basic source of revenue and education is the major type of expenditure. D. sales and excise taxes are the major source of revenue and education is the major type of expenditure. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 49. The main difference between sales and excise taxes is that: A. sales taxes apply to a wide range of products, while excise taxes apply only to a select group of products. B. excise taxes apply to a wide range of products, while sales taxes apply only to a select list of products. C. sales taxes are consumption taxes, while excise taxes are not. D. excise taxes are consumption taxes, while sales taxes are not. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 16-52 Chapter 16 - Public Finance: Expenditures and Taxes 50. One difference between sales and excise taxes is that: A. sales taxes are only applied at the state level, while excise taxes are only applied at the federal level. B. excise taxes apply to a wide range of products, while sales taxes apply only to a select list of products. C. sales taxes are calculated as a percentage of the price paid, while excise taxes are levied on a per-unit basis. D. excise taxes are calculated as a percentage of the price paid, while sales taxes are levied on a per unit basis. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: State and local finance 51. With respect to local finance: A. death and gift taxes are the major source of revenue and most expenditures are for hospitals and health services. B. the corporate income tax is the major source of revenue and natural resource development the major type of expenditure. C. property taxes are the basic source of revenue and education is the major type of expenditure. D. sales and excise taxes are the major source of revenue and highway construction and maintenance is the major type of expenditure. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 16-53 Chapter 16 - Public Finance: Expenditures and Taxes 52. Government lotteries are: 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. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 53. Approximately what percentage of local government expenditures goes to finance education? A. 36 B. 44 C. 53 D. 69 AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 54. Approximately what percentage of state spending goes to finance education? A. 36 B. 44 C. 47 D. 53 AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 16-54 Chapter 16 - Public Finance: Expenditures and Taxes 55. In 2008, U.S. governments (local, state, and Federal) employed approximately how many million workers? A. 9.2 B. 13.0 C. 19.4 D. 22.5 AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Local, state and Federal employment 56. Approximately what percentage of the U.S. labor force works for U.S. governments at the Federal, state, and local levels? A. 7 B. 10 C. 13 D. 19 AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Local, state and Federal employment 57. At the state and local levels of the U.S. government, a majority of government employees work in which of the following areas? A. Postal Service B. Education C. Hospitals and other health care D. Police and corrections AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Local, state and Federal employment 16-55 Chapter 16 - Public Finance: Expenditures and Taxes 58. Federal employment in the United States is dominated by what two functions? A. National defense and Postal Service B. Health care and police C. Postal Service and education D. Health care and national defense AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Local, state and Federal employment 59. The ability-to-pay principle of taxation: A. has been declared unconstitutional because it deprives individuals of property without due process of law. B. suggests that people should pay taxes in proportion to the benefits they derive from public goods and services. C. suggests that taxes should vary directly with people's income and wealth. D. suggests that taxes should vary inversely with people's income and wealth. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 60. The benefits-received principle of taxation is most evident in: A. inheritance taxes. B. excise taxes on gasoline. C. the personal income tax. D. the corporate income tax. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 16-56 Chapter 16 - Public Finance: Expenditures and Taxes 61. Which of the following best reflects the ability-to-pay philosophy of taxation? A. a tax on residential property B. a progressive income tax C. an excise tax on gasoline D. an excise tax on coffee AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 62. Entry fees at national parks and monuments are an example of: 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. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 63. The rationale for ability-to-pay taxation and the contention that those with large incomes should pay more taxes both absolutely and relatively is that: A. high-income receivers are generally in a better position to shift taxes than are low-income receivers. B. the transfer system is regressive and it is therefore essential to have an offsetting progressive tax structure. C. rational consumers spend their first dollars of income on the most urgently desired goods and successive dollars on less essential goods. D. taxes should be paid for financing public goods in direct proportion to the satisfaction an individual derives from those goods. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 16-57 Chapter 16 - Public Finance: Expenditures and Taxes 64. Which of the following statements is most consistent with the benefits-received principle of taxation? A. A childless couple should not be required to pay taxes for the support of public schools. B. Prosperous corporations should pay substantial taxes even if they use few government goods and services. C. The best tax is the income tax. D. People with high incomes should pay more taxes than people with low incomes. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 65. The Federal gasoline tax is assessed on a per-gallon basis and the proceeds are used for highway maintenance and improvements. This tax is consistent with the: A. ability-to-pay principle of taxation. B. benefits-received principle of taxation. C. single-tax theory of taxation. D. pay-as-you go theory of taxation. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 66. The Federal income tax is consistent with the __________ principle of taxation, whereas an excise tax on sporting event tickets is consistent with the ___________ principle of taxation. A. benefits-received; ability-to-pay B. benefits-received; pay-as-you go C. ability-to-pay; benefits received D. ability-to-pay; pay-as-you-go AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 16-58 Chapter 16 - Public Finance: Expenditures and Taxes 67. Using income as the tax base, which of the following best illustrates a regressive tax? A. the Federal inheritance tax B. a 7 percent general sales tax C. the corporate income tax D. the personal income tax AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden Answer the 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. 68. Which of the above schedules represent(s) a progressive tax? A. V only B. III and V C. II and III D. III only AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden Type: Table 16-59 Chapter 16 - Public Finance: Expenditures and Taxes 69. Which of the above schedules represent(s) a regressive tax? A. V only B. III and V C. IV only D. I only AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden Type: Table 70. Which of the above schedules represent(s) a proportional tax? A. II and IV B. III and V C. IV only D. I only AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden Type: Table 71. The sales tax is a regressive tax because the: A. percentage of income paid as taxes falls as income rises. B. administrative costs associated with the collection of the tax are relatively high. C. percentage of income paid as taxes is constant as income rises. D. tax tends to reduce the total volume of consumption expenditures. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 16-60 Chapter 16 - Public Finance: Expenditures and Taxes 72. A tax that takes a larger proportion of income from low-income groups than from highincome groups is a: A. stabilizing tax. B. regressive tax. C. progressive tax. D. proportional tax. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 73. If each taxpayer paid the same lump-sum amount regardless of income level, the tax system would be: A. disproportionate. B. progressive. C. proportional. D. regressive. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 16-61 Chapter 16 - Public Finance: Expenditures and Taxes 74. Refer to the above graph. Which of the lines in the above diagram represent(s) a progressive tax? A. both A and B. B. D only. C. C only. D. B only. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden Type: Graph 75. Refer to the above graph. Which of the lines in the above diagram represent(s) a proportional tax? A. both A and B. B. D only. C. C only. D. B only. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden Type: Graph 76. Refer to the above graph. Which of the lines in the above diagram represent(s) a regressive tax? A. both A and B. B. D only. C. C only. D. B only. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden Type: Graph 16-62 Chapter 16 - Public Finance: Expenditures and Taxes 77. Assume you pay a tax of $4,000 on a taxable income of $24,000. If your taxable income were $30,000, your tax payment would be $5,000. This suggests that the tax is: A. progressive. B. proportional. C. regressive. D. discriminatory. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 78. Assume that you pay $10,000 of tax on a taxable income of $50,000. If your taxable income were $150,000, your tax payment would be $25,000. This suggests the tax is: A. progressive. B. proportional. C. regressive. D. discriminatory. AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 79. Which of the following is correct? A. The Federal tax system is regressive, while the state and local tax system is progressive. B. Both the Federal tax system and the state and local tax system are regressive. C. The Federal tax system is progressive, while the state and local tax system is regressive. D. Both the Federal tax system and the state and local tax systems are progressive. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 16-63 Chapter 16 - Public Finance: Expenditures and Taxes 80. Overall, the U.S. tax system (combined Federal, state, and local) is: A. highly progressive. B. slightly progressive. C. slightly regressive. D. highly regressive. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 81. In 2006, the top 1 percent of all taxpayers in the United States paid what percent of the Federal income tax? A. 21.2 percent. B. 33.7 percent. C. 39.1 percent. D. 60.7 percent. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Status: New Topic: Apportioning the tax burden 82. The U.S. tax-transfer system (as distinct from the tax system alone) is: A. progressive. B. proportional. C. bimodal. D. regressive. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 16-64 Chapter 16 - Public Finance: Expenditures and Taxes 83. In 2006, the 20 percent of families with the lowest incomes paid an average Federal tax rate (on all Federal taxes) of about __, whereas the 20 percent of families with the highest incomes paid an average tax rate of about __. A. 5.5 percent; 50 percent B. 10.3 percent; 30.9 percent C. 8.4 percent; 27.5 percent D. 4.3 percent; 25.8 percent AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Status: New Topic: Apportioning the tax burden 84. In 2006, the top 1 percent of all taxpayers in the United States faced an overall Federal tax rate of: A. 31.2 percent. B. 27.5 percent. C. 39.1 percent. D. 60.9 percent. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Status: New Topic: Apportioning the tax burden 85. The incidence of a tax pertains to: A. the degree to which it alters the distribution of income. B. how easy it is to evade the tax. C. who actually bears the burden of a tax. D. the progressiveness or regressiveness of tax rates. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-65 Chapter 16 - Public Finance: Expenditures and Taxes Answer the question on the basis of the following demand and supply data for a competitive market: 86. Refer to the above data. If government levies a per unit excise tax of $1 on suppliers of this product, equilibrium price and quantity will be: A. $9 and 3,000. B. $7.50 and 2,250. C. $8.50 and 2,250. D. $7 and 3,000. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Table 87. Refer to the above data. If government provides a per unit subsidy of $2 to suppliers of this product, equilibrium price and quantity would be: A. $9 and 3,000. B. $7.50 and 2,250. C. $8.50 and 2,750. D. $7 and 3,000. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Table 16-66 Chapter 16 - Public Finance: Expenditures and Taxes 88. Assume the Environmental Protection Agency imposes an excise tax on polluting firms. In which of the following situations would we expect the additional costs to be borne most heavily by consumers? A. demand is highly elastic and supply is highly inelastic B. demand and supply are both highly elastic C. demand and supply are both highly inelastic D. demand is highly inelastic and supply is highly elastic AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 89. If the demand for a product is perfectly elastic and supply is upsloping, a $1 excise tax per unit on suppliers will: A. not raise price at all. B. lower price by $1. C. raise price by more than $1. D. raise price by $1. AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 90. If the supply of a product is perfectly elastic and demand is downsloping, an excise tax of $2 per unit will increase price by: A. more than $2. B. less than $2. C. $2 and increase equilibrium output. D. $2 and reduce equilibrium output. AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-67 Chapter 16 - Public Finance: Expenditures and Taxes 91. Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the consumers pay $.25, we can conclude that the: 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. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 92. Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that consumers pay $1.80 of the tax and the producers pay $.20, we can conclude that the: 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. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-68 Chapter 16 - Public Finance: Expenditures and Taxes 93. 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 producers of X pay $1.90 of the tax and the consumers pay $.10, we can conclude that the: 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. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 94. 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 consumers pay $.15, we can conclude that the: 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. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-69 Chapter 16 - Public Finance: Expenditures and Taxes 95. 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 producers? A. 4 B. 3 C. 1 D. 2 AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 16-70 Chapter 16 - Public Finance: Expenditures and Taxes 96. 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? A. 4 B. 3 C. 1 D. 2 AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 97. In which of the above market situations will the efficiency loss of an excise tax be the greatest? A. 4 B. 3 C. 1 D. 2 AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 98. Assume the demand for automobile tires is highly inelastic and that the supply is highly elastic. The burden of a $2 excise tax on each tire will be: A. borne by resource suppliers who provide the inputs for manufacturing tires. B. shared about equally by buyers and sellers of tires. C. borne primarily by buyers of tires. D. borne primarily by sellers of tires. AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-71 Chapter 16 - Public Finance: Expenditures and Taxes 99. Assume the supply curve for product X is perfectly elastic and that government imposes a $2 per unit excise tax. We can conclude that the resulting: A. increase in output will be greater the less elastic the demand curve. B. decrease in output will be greater the less elastic the demand curve. C. decrease in output will be greater the more elastic the demand curve. D. increase in output will be greater the more elastic the demand curve. AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 100. If the demand for a product is perfectly inelastic and the supply curve is upsloping, a $1 excise tax per unit of output will: A. raise price by less than $1. B. raise price by more than $1. C. raise price by $1. D. lower price by $1. AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-72 Chapter 16 - Public Finance: Expenditures and Taxes 101. Refer to the above figure in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total tax collection from this excise tax will be area: A. ABCE + ECF. B. ABCE. C. ECF. D. 0BCG. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 102. Refer to the above figure in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The efficiency loss of this tax will be area: A. ABCE. B. ABCE + ECF. C. 0AEG. D. ECF. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 103. Refer to the above figure in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The burden of this tax is borne: A. equally by consumers and producers. B. most heavily by consumers. C. most heavily by producers. D. only by consumers. AACSB: Reflective Thinking Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 16-73 Chapter 16 - Public Finance: Expenditures and Taxes 104. The more inelastic is demand and supply the: A. larger is the efficiency loss of an excise tax. B. smaller is the efficiency loss of an excise tax. C. higher the proportion of an excise tax paid by consumers. D. smaller the proportion of an excise tax paid by producers. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 105. If the demand for a product is perfectly inelastic, the incidence of an excise tax will be: A. entirely on the buyer. B. mostly on the buyer. C. entirely on the seller. D. mostly on the seller. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 106. The efficiency loss of a tax is the idea that: A. in addition to taking income from the citizenry, taxes also increase the rate of inflation. B. taxes cause a decline in output for which marginal benefit exceeds marginal cost. C. taxes diminish incentives to work. D. government spends dollars less efficiently than do households and businesses. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-74 Chapter 16 - Public Finance: Expenditures and Taxes 107. The greater the elasticity of supply of and demand for a good the: A. smaller will be the efficiency loss of an excise tax on the good. B. more likely the good will be a public good rather than a private good. C. larger will be the efficiency loss of an excise tax on the good. D. larger will be the proportion of an excise tax on the good that will be shifted forward to consumers. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 108. The efficiency loss of a tax is: A. the net value of sacrificed output caused by the tax. B. that portion of the tax paid by producers minus the portion paid by consumers. C. that portion of the tax paid by consumers minus the portion paid by producers. D. the total tax revenue minus the output loss caused by the tax. AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-75 Chapter 16 - Public Finance: Expenditures and Taxes 109. Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total tax payment to government is shown by area(s): A. A only. B. A + B + C + E + F. C. A + B + C. D. E + F. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 110. Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total amount of the tax paid by consumers is shown by area(s): A. A + B + F. B. A + B. C. A + B + C. D. E + F. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 16-76 Chapter 16 - Public Finance: Expenditures and Taxes 111. Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total amount of the tax paid by producers is shown by area(s): A. A + B + F. B. C only. C. A + B + C. D. E + F. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph 112. Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The efficiency loss of the tax is shown by area(s): A. A + B + C + E + F . B. A + B + C. C. A + B + F. D. E + F. AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss Type: Graph (Advanced analysis) Answer the question on the basis of the following information: The equations for the demand and supply curves for a particular product are P = 10 - .4Q and P = 2 + .4Q, where P is price and Q is quantity expressed in units of 100. After an excise tax is imposed on the product the supply equation is P = 3 + .4Q. 16-77 Chapter 16 - Public Finance: Expenditures and Taxes 113. Refer to the above information. The excise tax on each unit of the product: A. is $1. B. is $2. C. is $3. D. cannot be determined with the information given. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 114. Refer to the above information. The equilibrium quantity before the excise tax is imposed is: A. 800 units. B. 1,000 units. C. 1,200 units. D. 1,400 units. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 115. Refer to the above information. The equilibrium quantity after the excise tax is imposed is: A. 750 units. B. 850 units. C. 875 units. D. 950 units. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-78 Chapter 16 - Public Finance: Expenditures and Taxes 116. Refer to the above information. Government's revenue from this tax is: A. $750. B. $1,500. C. $875. D. $800. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 117. Refer to the above information. The efficiency loss of this tax is: A. $125.00. B. $62.50. C. $87.50. D. $1.00. AACSB: Analytic Bloom's: Level 4 Analyze Difficulty: 3 Hard Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 118. Sales and excise taxes are levied on retailers, but retailers add these taxes to the prices of their products. This illustrates the: A. equal sacrifice theory of taxation. B. shifting of taxes to consumers. C. ability-to-pay principle of taxation. D. benefits-received principle of taxation. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-79 Chapter 16 - Public Finance: Expenditures and Taxes 119. The property tax may be regressive even though wealthy people own much more taxable property than do poor people. This possibility arises because: A. marginal and average tax rates on property tend to converge. B. wealthy people can evade property taxes while poor people cannot. C. property taxes on rental property and business property are shifted. D. statutory property tax rates decline as the value of property rises. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 120. Which of the following taxes is most likely to be shifted? A. a general sales tax B. a flat-rate state income tax C. a progressive Federal income tax D. a property tax on an owner-occupied residence AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 121. Which of the following taxes is least likely to be shifted? A. a state excise tax on the sellers of football tickets B. a personal income tax C. a general sales tax on retailers who sell foodstuffs and clothing D. a Federal excise tax on the producers of whiskey AACSB: Reflective Thinking Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-80 Chapter 16 - Public Finance: Expenditures and Taxes 122. (Consider This) Which of the following claims is not made by defenders of lotteries? A. Lotteries are a relatively painless way to fund important government services. B. Lotteries help reduce organized crime by providing an alternative to illegal gambling. C. Lotteries are preferable to taxes because they are voluntary. D. Lotteries are progressive in nature, with higher income families playing more frequently. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: State and local finance 123. (Consider This) Payout rates for state lotteries: A. are considerably lower than payout rates from casinos. B. are considerably higher than payout rates from casinos. C. are roughly equal to the payout rates from casinos. D. cannot be compared with casino payout rates because states do not typically disclose their payout rates. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: State and local finance 124. (Consider This) A value-added tax (VAT): A. is another name for a retail sales tax, but is otherwise the same. B. is like a sales tax, but is only imposed on the difference between a firm's sales and its purchases from other firms. C. is like an income tax, but is only imposed on the difference between a person's income and their consumption. D. only applies to imported goods. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Status: New Topic: Apportioning the tax burden 16-81 Chapter 16 - Public Finance: Expenditures and Taxes 125. (Consider This) Proponents of a value-added tax (VAT) claim that a VAT: A. is progressive, leading to a more equitable distribution of income. B. equalizes the tax burden between buyers and sellers of goods. C. is proportional, so all income groups pay a fair share. D. penalizes consumption and encourages savings and investment. AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Status: New Topic: Apportioning the tax burden 126. (Consider This) Which of the following claims is not made by opponents of a valueadded tax (VAT)? A. Savings and investment is 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. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Status: New Topic: Apportioning the tax burden 127. (Last Word) In 2004, approximately what percent of household income was transferred from the top two quintiles to the lowest three quintiles? A. zero B. 10 C. 15 D. 22 AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Status: New Topic: Apportioning the tax burden 16-82 Chapter 16 - Public Finance: Expenditures and Taxes 128. (Last Word) For each dollar paid in taxes, approximately how much do households in the top quintile receive back in the form of government expenditures? A. 12 cents B. 28 cents C. 41 cents D. 73 cents AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Status: New Topic: Apportioning the tax burden 129. (Last Word) Which of the following statements about taxes and government spending is correct? A. Despite the overall progressive tax system, government expenditures disproportionately favor the rich and result in a system that is slightly regressive. B. The progressive tax system is almost perfectly offset by regressive expenditures, making the overall system proportional. C. The regressive tax system is offset by expenditures directed toward lower income households, making the overall system proportional. D. The overall system of taxes and spending is progressive, as over $1 trillion per year gets transferred from upper income households to lower and middle income households. AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Status: New Topic: Apportioning the tax burden True / False Questions 16-83 Chapter 16 - Public Finance: Expenditures and Taxes 130. "Tax Freedom Day" in the United typically occurs in mid-July. FALSE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 131. Government assumes some responsibility for providing a minimum standard of living for all citizens to compensate for the increase in income inequality caused by government tax revenues and expenditures. FALSE AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Federal finance 132. The largest source of local government's revenue is the sales tax. FALSE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 133. The basic source of state government's revenue is the property tax. FALSE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 16-84 Chapter 16 - Public Finance: Expenditures and Taxes 134. The major expenditure of local governments is for education. TRUE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: State and local finance 135. A tax is progressive if the average tax rate rises as income increases. TRUE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 136. If you pay a $2000 tax on $10,000 of taxable income and a $4000 tax on a taxable income of $16,000, the tax is progressive. TRUE AACSB: Analytic Bloom's: Level 3 Apply Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Federal finance 137. The marginal tax rate is the tax rate that applies to additional income. TRUE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 16-85 Chapter 16 - Public Finance: Expenditures and Taxes 138. About two-thirds of all Federal spending is for national defense. FALSE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-01 Identify the main categories of government spending and the main sources of government revenue. Topic: Federal finance 139. A progressive tax takes relatively more from the rich than it does from the poor. TRUE AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Federal finance 140. The benefits-received principle of taxation is used to support corporate and personal income taxes. FALSE AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-02 Summarize the different philosophies regarding the distribution of a nation's tax burden. Topic: Apportioning the tax burden 141. Sales taxes are proportional in relation to income because the same tax rate applies regardless of the size of a purchase. FALSE AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 16-86 Chapter 16 - Public Finance: Expenditures and Taxes 142. Sales taxes on consumer goods are regressive because poor people consume a larger proportion of their incomes than do rich people. TRUE AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 143. A highly progressive tax takes relatively more from the rich than it does from the poor. TRUE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 144. Given supply, the more inelastic the demand for a product, the larger the portion of an excise tax that is shifted to consumers. TRUE AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 145. Given demand, the more inelastic the supply of a product, the larger the portion of an excise tax that is borne by producers. TRUE AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 16-87 Chapter 16 - Public Finance: Expenditures and Taxes 146. The efficiency loss of a tax is the tax revenue collected by government minus the value of the public goods financed through the tax. FALSE AACSB: Analytic Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 147. The greater the elasticity of demand and supply, the greater is the efficiency loss of a tax. TRUE AACSB: Reflective Thinking Bloom's: Level 2 Understand Difficulty: 2 Medium Learning Objective: 16-03 Explain the principles relating to tax shifting; tax incidence; and the efficiency losses caused by taxes. Topic: Tax incidence and efficiency loss 148. Economists agree that corporations always shift the corporate income tax to consumers by raising product prices. FALSE AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 149. Although state and local taxes are highly progressive, Federal taxation is predominantly regressive. FALSE AACSB: Reflective Thinking Bloom's: Level 1 Remember Difficulty: 1 Easy Learning Objective: 16-04 Demonstrate how the distribution of income between rich and poor is affected by government taxes; transfers; and spending. Topic: Apportioning the tax burden 16-88

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Richmond - HIST - 199
Whose Side is God Really On?Joan of Arcs piety, virginity, willingness to speak her mind, and successes inbattle made her a very powerful and inspirational leader in the eyes of her Frenchfollowers, but this power became an enormous threat to her Engli
Commack High School - MATH - PreIB Trig
Name: _ Period: _Date: _Applications of Sequences and Series1. Mr. Popes Algebra 2 class has decided to give all of their money to Ann Xavier, as thanks for thewonderful book she has provided them. They decide to donate $10 the first year, and then $2
DeVry Fremont - ECON - 301
Chapter 17 - Asymmetric Information, Voting, and Public ChoiceChapter 17Asymmetric Information, Voting, and Public ChoiceMultiple Choice Questions1. Where there is asymmetric information between buyers and sellers.A. product shortages will occur at t
DeVry Fremont - ECON - 301
Chapter 18 - Antitrust Policy and RegulationChapter 18Antitrust Policy and RegulationMultiple Choice Questions1. All of the following can file antitrust charges under the Sherman Act except:A. the U.S. Justice Department.B. state attorney generals.
DeVry Fremont - ECON - 301
Chapter 19 - Agriculture: Economics and PolicyChapter 19Agriculture: Economics and PolicyMultiple Choice Questions1. The demand for agricultural products is:A. relatively elastic with respect to price.B. relatively inelastic with respect to price.C
DeVry Fremont - ECON - 301
Chapter 20 - Income Inequality and PovertyChapter 20Income Inequality and PovertyMultiple Choice Questions1. In 2008, the average income for households in the United States was about:A. $68,424.B. $42,820.C. $19,610.D. $62,725.2. In the quintile
DeVry Fremont - ECON - 301
Chapter 21 - Health CareChapter 21Health CareMultiple Choice Questions1. Approximately how many workers are employed in the U.S. health care industry?A. 820,000B. 1 millionC. 5.8 millionD. 16 million2. In the U.S., approximately how many doctors
DeVry Fremont - ECON - 301
Chapter 22 - ImmigrationChapter 22ImmigrationMultiple Choice Questions1. Economic immigrants:A. are defined as any international migrants that have an impact on the economy.B. are defined as international migrants motivated by economic gain.C. only
DeVry Fremont - ECON - 301
Chapter 23 - An Introduction to MacroeconomicsChapter 23An Introduction to MacroeconomicsMultiple Choice Questions1. Macroeconomics is mostly focused on:A. the individual markets within an economy.B. only the largest industries in the economy.C. th
DeVry Fremont - ECON - 301
Chapter 24 - Measuring Domestic Output and National IncomeChapter 24Measuring Domestic Output and National IncomeMultiple Choice Questions1. The National Income and Product Accounts (NIPA) help economists and policymakers to:A. determine which firms
DeVry Fremont - ECON - 301
Chapter 25 - Economic GrowthChapter 25Economic GrowthMultiple Choice Questions1. Economic growth is best defined as an increase in:A. either real GDP or real GDP per capita.B. nominal GDP.C. total consumption expenditures.D. wealth in the economy.
DeVry Fremont - ECON - 301
Chapter 26 - Business Cycles, Unemployment, and InflationChapter 26Business Cycles, Unemployment, and InflationMultiple Choice Questions1. Recurring upswings and downswings in an economy's real GDP over time are called:A. recessions.B. business cycl
DeVry Fremont - ECON - 301
Chapter 27 - Basic Macroeconomic RelationshipsChapter 27Basic Macroeconomic RelationshipsMultiple Choice Questions1. The most important determinant of consumer spending is:A. the level of household borrowing.B. consumer expectations.C. the stock of
DeVry Fremont - ECON - 301
Chapter 28 - The Aggregate Expenditures ModelChapter 28The Aggregate Expenditures ModelMultiple Choice Questions1. John Maynard Keynes created the aggregate expenditures model based primarily on whathistorical event?A. Bank panic of 1907B. Great De
DeVry Fremont - ECON - 301
Chapter 29 - Aggregate Demand and Aggregate Supply (+ Appendix)Chapter 29Aggregate Demand and Aggregate Supply (+ Appendix)Multiple Choice Questions1. The aggregate demand curve:A. is upsloping because a higher price level is necessary to make produc
DeVry Fremont - ECON - 301
Chapter 30 - Fiscal Policy, Deficits, and DebtChapter 30Fiscal Policy, Deficits, and DebtMultiple Choice Questions1. The group of three economists appointed by the President to provide fiscal policyrecommendations is the:A. Council of Economic Advis
DeVry Fremont - ECON - 301
Chapter 31 - Money, Banking, and Financial InstitutionsChapter 31Money, Banking, and Financial InstitutionsMultiple Choice Questions1. To say money is socially defined means that:A. money has been defined in a Constitutional amendment.B. whatever pe
DeVry Fremont - ECON - 301
Chapter 32 - Money CreationChapter 32Money CreationMultiple Choice Questions1. The goldsmith's ability to create money was based on the fact that:A. withdrawals of gold tended to exceed deposits of gold in any given time period.B. consumers and merc
DeVry Fremont - ECON - 301
Chapter 33 - Interest Rates and Monetary PolicyChapter 33Interest Rates and Monetary PolicyMultiple Choice Questions1. The transactions demand for money is most closely related to money functioning as a:A. unit of account.B. medium of exchange.C. s
DeVry Fremont - ECON - 301
Chapter 34 - Financial EconomicsChapter 34Financial EconomicsMultiple Choice Questions1. What are the two most important factors influencing investor preferences?A. The desire for high rates of return and the thrill of uncertainty.B. The desire for
DeVry Fremont - ECON - 301
Chapter 35 - Extending the Analysis of Aggregate SupplyChapter 35Extending the Analysis of Aggregate SupplyMultiple Choice Questions1. In terms of aggregate supply, a period in which nominal wages and other resource pricesare unresponsive to price-le
DeVry Fremont - ECON - 301
Chapter 36 - Current Issues in Macro Theory and PolicyChapter 36Current Issues in Macro Theory and PolicyMultiple Choice Questions1. The equation underlying the mainstream view of macroeconomics is:A. MV = PQ.B. Ca + Ig + Xn + G = GDP.C. S = a - bY
DeVry Fremont - ECON - 301
Chapter 37 - International TradeChapter 37International TradeMultiple Choice Questions1. United States exports of goods and services (on a national income account basis) are about:A. 20 percent of U.S. GDP.B. 4 percent of U.S. GDP.C. 28 percent of
DeVry Fremont - ECON - 301
Chapter 38 - The Balance of Payments, Exchange Rates, and Trade DeficitsChapter 38The Balance of Payments, Exchange Rates, and Trade DeficitsMultiple Choice Questions1. International transactions fall into what two broad categories?A. Manufacturing t
DeVry Fremont - ECON - 301
Chapter 39W - The Economics of Developing CountriesChapter 39WThe Economics of Developing CountriesMultiple Choice Questions1. According to the United Nations, approximately what percentage of the world's income isreceived by the richest one-fifth of
DeVry Fremont - ACCT - 553
381Chapter 1Introduction to Federal Taxation andUnderstanding the Federal Tax LawTRUE-FALSE QUESTIONSCHAPTER 11.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.25.26.27.The majority of dollars collected by the
DeVry Fremont - ACCT - 553
389Chapter 2Tax Research, Practice, and ProcedureTRUE-FALSE QUESTIONSCHAPTER 2*Questions 2144 have been adapted from the IRS Examinations.1. Committee reports of the House Ways and Means Committee, the Senate Finance Committee, and theconference com
DeVry Fremont - ACCT - 553
411Chapter 3Individual TaxationAn OverviewTRUE-FALSE QUESTIONSCHAPTER 31.2.Taxpayers are allowed to take the larger of their itemized deductions or the standard deduction.If no one person contributes more than half the support of a dependent, the e
DeVry Fremont - ACCT - 553
423Chapter 4Gross IncomeTRUE-FALSE QUESTIONSCHAPTER 41.2.3.4.5.6.7.8.9.10.11.12.13.Dr. Yomo, a cash basis taxpayer, received a check for $250 after banking hours on December 30, 2010,from a patient. Since Dr. Yomo could not deposit the c
DeVry Fremont - ACCT - 553
443Chapter 5Gross IncomeExclusionsTRUE-FALSE QUESTIONSCHAPTER 5*The True-False questions have been adapted from the IRS Examinations.1. Interest on insurance dividends left on deposit with an insurance company and withdrawable upon demandis taxable
DeVry Fremont - ACCT - 553
459Chapter 6Deductions: General Concepts andTrade or Business DeductionsTRUE-FALSE QUESTIONSCHAPTER 61.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.An ordinary expenditure is one which is commonly incurred by o
DeVry Fremont - ACCT - 553
485Chapter 7Deductions: Business/Investment Lossesand Passive Activity LossesTRUE-FALSE QUESTIONSCHAPTER 71.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.Practically all tax shelters were formed as limited partnerships.Portfolio i
DeVry Fremont - ACCT - 553
501Chapter 8Deductions: Itemized DeductionsTRUE-FALSE QUESTIONSCHAPTER 81.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.Itemized deductions only reduce taxable income if the taxpayers itemized deductions exceed the stand
DeVry Fremont - ACCT - 553
519Chapter 9Tax Credits, Prepayments, and Special MethodsTRUE-FALSE QUESTIONSCHAPTER 91.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.A tax credit produces a tax benet only to the extent of the effective tax rate in the
DeVry Fremont - ACCT - 553
537Chapter 10Property Transactions: Determination of Basis andGains and LossesTRUE-FALSE QUESTIONSCHAPTER 10*Some of the true-false questions have been adapted from the IRS Examinations.1. Terry Trumbull purchased a tract of land. In order to have c
DeVry Fremont - ACCT - 553
559Chapter 11Property Transactions: Nonrecognition ofGains and LossesTRUE-FALSE QUESTIONSCHAPTER 11*Some of the true-false questions have been adapted from the IRS Examinations.1. Alfred Ahern sold a truck with an adjusted basis of $6,000 for $1,500
DeVry Fremont - ACCT - 553
585Chapter 12Property Transactions: Treatment of Capitaland Section 1231 AssetsTRUE-FALSE QUESTIONSCHAPTER 12*Some of the true-false questions have been adapted from the IRS Examinations.1. For purposes of determining the holding period for property
DeVry Fremont - ACCT - 553
609Chapter 13Tax AccountingTRUE-FALSE QUESTIONSCHAPTER 131.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.A partnership may adopt any tax year without IRS permission.A corporation ling its rst return must annualize its income if the tax
DeVry Fremont - ACCT - 553
633Chapter 14Deferred Compensation and Education Savings PlansTRUE-FALSE QUESTIONSCHAPTER 141.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.23.An S corporation is permitted to adopt a Keogh plan or a SEP IRA for its emp
DeVry Fremont - ACCT - 553
647Chapter 15Tax Planning for IndividualsTRUE-FALSE QUESTIONSCHAPTER 151.2.3.4.5.6.7.8.9.10.11.12.13.14.15.The 50 percent limitation on business meals and entertainment is applied before the two percent of adjustedgross income oor for
DeVry Fremont - ACCT - 553
659Chapter 16Partnerships, Corporations, and S CorporationsTRUE-FALSE QUESTIONSCHAPTER 161.2.3.4.5.6.7.8.9.10.11.12.13.In general, a partnership must have the same tax year as that of its partners holding greater than a 50percent interes
DeVry Fremont - ACCT - 553
693Chapter 17Federal Estate Tax, Federal Gift Tax, andGeneration-Skipping Transfer TaxTRUE-FALSE QUESTIONSCHAPTER 171.2.Gift taxes paid on post-1976 gifts are generally allowed as a credit against the tentative estate tax.For 2010 the rst $3,500,0
DeVry Fremont - ACCT - 553
711Chapter 18Income Taxation of Trusts and EstatesTRUE-FALSE QUESTIONSCHAPTER 181.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.25.The decedents nal income tax return is due four months after the date of death.
DeVry Fremont - ACCT - 304
Chapter 01 - Environment and Theoretical Structure of Financial AccountingCHAPTER 1ENVIRONMENT AND THEORETICAL STRUCTURE OF FINANCIAL ACCOUNTINGOverviewThe primary function of financial accounting is to provide useful financial information to users ex
DeVry Fremont - ACCT - 304
Chapter 02 - Review of the Accounting ProcessCHAPTER 2REVIEW OF THE ACCOUNTING PROCESSOverviewChapter 1 explained that the primary means of conveying financial information to investors, creditors, and other external users is through financial statemen
DeVry Fremont - ACCT - 304
Chapter 03 - The Balance Sheet and Financial DisclosuresCHAPTER 3THE BALANCE SHEET AND FINANCIAL DISCLOSURESOverviewChapter 1 stressed the importance of the financial statements in helping investors and creditorspredict future cash flows. The balance
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Chapter 04 - The Income Statement and Statement of Cash FlowsCHAPTER 4THE INCOME STATEMENT AND STATEMENT OF CASH FLOWSOverviewThe purpose of the income statement is to summarize the profit-generating activities thatoccurred during a particular report
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Chapter 05 - Income Measurement and Profitability AnalysisCHAPTER 5INCOME MEASUREMENT AND PROFITABILITY ANALYSISOverviewThe timing of revenue recognition is critical to income measurement. Revenue affects income,and, under the matching principle, exp
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Chapter 06 - Time Value of Money ConceptsCHAPTER 6TIME VALUE OF MONEY CONCEPTSOverviewTime value of money concepts, specifically future value and present value, are essential in a variety of accounting situations. These concepts and the related comput
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Chapter 07 - Cash and ReceivablesCHAPTER 7CASH AND RECEIVABLESOverviewWe begin our study of assets by looking at cash and receivables-the two assets typically listed first in a balance sheet. Internal control and classification on the balance sheet ar
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Chapter 08 - Inventories: MeasurementCHAPTER 8INVENTORIES: MEASUREMENTOverviewThe next two chapters continue our study of assets by investigating the measurement and reporting issues involving inventories and the related expense-cost of goods sold. In
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Chapter 09 - Inventories: Additional IssuesCHAPTER 9INVENTORIES: ADDITIONAL ISSUESOverviewWe covered most of the principal measurement and reporting issues involving the assetinventory and the corresponding expense cost of goods sold in the previous
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Chapter 10 - Property, Plant, and Equipment and Intangible Assets: Acquisition and DispositionCHAPTER 10PROPERTY, PLANT, AND EQUIPMENT AND INTANGIBLE ASSETS: ACQUISITION ANDDISPOSITIONOverviewThis chapter and the one that follows address the measurem
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Chapter 11 - Property, Plant, and Equipment and Intangible Assets: Utilization and ImpairmentCHAPTER 11PROPERTY, PLANT, AND EQUIPMENT AND INTANGIBLE ASSETS: UTILIZATION ANDIMPAIRMENTOverviewThis chapter completes our discussion of accounting for prop
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Chapter 12 - InvestmentsCHAPTER 12INVESTMENTSOverviewIn this chapter we cover various approaches used to account for investments that companiesmake in the debt and equity of other companies. An investing company has the option to account forthese in
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Chapter 13 - Current Liabilities and ContingenciesCHAPTER 13CURRENT LIABILITIES AND CONTINGENCIESOverviewWith the discussion of investments in the previous chapter we concluded our six-chapter coverageof assets that began in Chapter 7 with cash and r
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Chapter 14 - Bonds and Long-Term NotesCHAPTER 14BONDS AND LONG-TERM NOTESOverviewThis chapter continues the presentation of liabilities. Specifically, the discussion focuses on theaccounting treatment of long-term liabilities. Long-term notes and bon
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Chapter 15 - LeasesCHAPTER 15LEASESOverviewIn the previous chapter, we saw how companies account for their long-term debt. The focus ofthat discussion was bonds and notes. In this chapter we continue our discussion of debt, but we nowturn our attent
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Chapter 16 - Accounting for Income TaxesCHAPTER 16ACCOUNTING FOR INCOME TAXESOverviewIn this chapter we explore the financial accounting and reporting standards for the effects ofincome taxes. The discussion defines and illustrates temporary differen
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Chapter 17 - Pensions and Other Postretirement Benefit PlansCHAPTER 17PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANSOverviewEmployee compensation comes in many forms. Salaries and wages, of course, provide directand current payment for services prov
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Chapter 18 - Shareholders EquityCHAPTER 18SHAREHOLDERS EQUITYOverviewWe turn our attention in this chapter from liabilities, which represent the creditors interests inthe assets of a corporation, to the shareholders residual interest in those assets.