Practice_Ch4_ - Chapter 4 Practice Test The U.S. Economy:...

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Chapter 4 Practice Test The U.S. Economy: Private and Public Sectors 1. Refer to the following: Taxable income Total tax $ 0 $ 0 1000 300 2000 600 3000 900 4000 1200 5000 1500 The tax represented in the table above is: a. regressive b. proportional c. progressive d. optimal Answer: b Feedback: Total tax increases in direct proportion to income at a rate of 30%. 2. Production of good X creates substantial external costs in addition to private costs. Economic theory suggests X should be: a. prohibited b. discouraged by taxing either its manufacture or its consumption c. encouraged by subsidizing either its manufacture or its consumption d. neither encouraged nor discouraged in a free market society Answer: b Feedback: A free market tends to devote too many resources to the production of a good that generates negative externalities. Reducing output in such industries will increase efficiency. 3. If a free market allocates too many resources to the production of some good, then: a. production of this good likely creates external costs b. production of this good likely creates external benefits c. this good is likely characterized by nonrivalry and nonexcludability d. production of this good likely should be subsidized Answer: a Feedback: If resources are overallocated in a free market, then it is likely that some costs of production are being ignored. 4. “Tax Freedom Day” is: a. the anniversary of the day the constitutional amendment allowing for a U.S. income tax was ratified b. April 15 th of each year c. the day by which Congress must pass any new budget resolutions d. the day by which the typical worker has earned enough money to pay his or her share of taxes Answer: d Feedback: Tax freedom day is the day on which the average worker has earned enough to pay his or her share of the taxes necessary to finance government operations.
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5. Which type of business organization provides limited liability to its owners? a. Sole proprietorship b. Partnership c. Corporation d. Principal company Answer: c Feedback: A corporation is a legal entity separate from its owners. This form limits the owners’ liability to the value of their investment in the company’s stock. 6. Refer to the following, in which solid arrows are real flows and broken arrows are monetary flows. Flow 3 might represent: a. federal government bond purchases b. wages paid to chemists at the Environmental Protection Agency c. tax refunds from filing federal income taxes d. federal disability payments Answer: b Feedback: Flow 3 represents payments by government for the purpose of obtaining resources. Tax refunds and disability payments are transfers to households; they are illustrated as a reduction in flow 6 (they are subtracted from taxes paid to obtain “net taxes.”) 7. Legal business forms, listed in order from fewest to greatest in number, are comprised of: a. partnership, sole proprietor, corporation b. monopolist, oligopolist, competitor c. corporation, partnership, sole proprietor
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This note was uploaded on 02/22/2011 for the course ECON 2023 taught by Professor Meier during the Spring '11 term at St. Petersburg College.

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Practice_Ch4_ - Chapter 4 Practice Test The U.S. Economy:...

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