Chap002 - Test Bank Chapter 2 page 1 Chapter 2 Policy...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Test Bank Chapter 2, page 1 Chapter 2 Policy Standards for a Good Tax True/False 1. A tax meets the standard of sufficiency if it is easy for people to pay the tax. Answer: False (Easy; LO 1) 2. The federal government is not required to pay interest on the national debt. Answer: False (Easy; LO 1) 3. A static forecast of the revenue effect of a tax rate change assumes that the tax base does not change. Answer: True (Easy; LO 1) 4. A dynamic forecast of the revenue effect of a tax rate change assumes that the tax base does not change. Answer: False (Easy; LO 1) 5. The federal Social Security tax burden on employees has not increased since 1990 because the tax rate has not increased since that year. Answer: False (Medium; LO 1) Feedback: The Social Security tax burden increases annually because the tax base increases annually. 6. If State H increases its sales tax rate by 1 percent, its sales tax revenue must also increase by 1 percent. Answer: False (Easy; LO 1) 7. The city of Berne recently enacted a 10% tax on the price of a subway ticket. Consequently, Mrs. Lane now walks to work instead of taking the subway. Her behavior illustrates the substitution effect of a tax increase. Answer: True (Difficult; LO 2) Feedback: Mrs. Lane substituted a nontaxable activity for a taxable activity. 8. Jurisdiction P recently increased its income tax rate. A taxpayer who reacts to the increase by working harder to earn more income is demonstrating the income effect of the rate increase. Answer: True (Easy; LO 2)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Test Bank Chapter 2, page 2 9. According to supply-side economic theory, a decrease in tax rates for high-income individuals could actually cause an increase in tax revenue. Answer: True (Easy; LO 2) 10. Supply-side economic theory holds that people who benefit from a tax rate reduction will spend their tax windfall on consumption goods. Answer: False (Difficult; LO 2) Feedback: Supply-side economic theory predicts that people who benefit from a tax rate reduction will invest their tax windfall in new economic ventures. 11. State use taxes are more convenient for individual consumers than state sales taxes. Answer: False (Medium; LO 3) Feedback: State sales taxes are more convenient because they are collected by the seller. Consumers must pay use taxes directly. 12. The Internal Revenue Service’s cost of collecting $100 of tax revenue is about $3 dollars. Answer: False (Medium; LO 3) Feedback: The IRS’s cost of collecting $100 of tax revenue averages less than 50 cents. 13. A convenient tax has low compliance costs for taxpayers and low collection and enforcement costs for the government. Answer: True (Easy; LO 3) 14. According to the classical concept of efficiency, an efficient tax should be neutral in its effect on free market allocations of economic resources. Answer: True (Medium; LO 4)
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 18

Chap002 - Test Bank Chapter 2 page 1 Chapter 2 Policy...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online