econ exam study guide
A progressive tax takes relatively more from the rich than it does from the poor.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: I Topic: Federal Finance
The benefits-received principle of taxation is used to support corporate and personal income taxes.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a nations tax burden.
Test Bank: I Topic: Apportioning the Tax Burden
Sales taxes are proportional in relation to income because the same tax rate applies regardless of the size of a purchase.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a nations tax burden. Learning Objective: 20-08 Discuss the probable incidence of U.S. taxes and how the distribution of income between rich and poor is affected by government taxes, transfers, and spending.
Test Bank: I Topic: Apportioning the Tax Burden Topic: Probable Incidence of U.S. Taxes
Sales taxes on consumer goods are regressive because poor people consume a larger proportion of their incomes than do rich people.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a nations tax burden. Learning Objective: 20-08 Discuss the probable incidence of U.S. taxes and how the distribution of income between rich and poor is affected by government taxes, transfers, and spending.
Test Bank: I Topic: Apportioning the Tax Burden Topic: Probable Incidence of U.S. Taxes
A highly progressive tax takes relatively more from the rich than it does from the poor.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a nations tax burden. Learning Objective: 20-08 Discuss the probable incidence of U.S. taxes and how the distribution of income between rich and poor is affected by government taxes, transfers, and spending.
Test Bank: I Topic: Apportioning the Tax Burden Topic: Probable Incidence of U.S. Taxes
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: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-07 Explain the principles relating to tax shifting, tax incidence, and the efficiency losses caused by taxes.
Test Bank: I Topic: Tax Incidence and Efficiency Loss
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: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-07 Explain the principles relating to tax shifting, tax incidence, and the efficiency losses caused by taxes.
Test Bank: I Topic: Tax Incidence and Efficiency Loss
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: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-07 Explain the principles relating to tax shifting, tax incidence, and the efficiency losses caused by taxes.
Test Bank: I Topic: Tax Incidence and Efficiency Loss
The greater the elasticity of demand and supply, the greater is the efficiency loss of a tax.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-07 Explain the principles relating to tax shifting, tax incidence, and the efficiency losses caused by taxes.
Test Bank: I Topic: Tax Incidence and Efficiency Loss
Economists agree that corporations always shift the corporate income tax to consumers by raising product prices.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a nations tax burden. Learning Objective: 20-08 Discuss the probable incidence of U.S. taxes and how the distribution of income between rich and poor is affected by government taxes, transfers, and spending.
Test Bank: I Topic: Apportioning the Tax Burden Topic: Probable Incidence of U.S. Taxes
Although state and local taxes are highly progressive, federal taxation is predominantly regressive.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a nations tax burden. Learning Objective: 20-08 Discuss the probable incidence of U.S. taxes and how the distribution of income between rich and poor is affected by government taxes, transfers, and spending.
Test Bank: I Topic: Apportioning the Tax Burden Topic: Probable Incidence of U.S. Taxes
Multiple Choice Questions
In economics, the "public sector" refers to the
general public.
consuming public as well as businesses.
C. federal, state, and local government.
D. publicly owned corporations.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
Public finance is the subdiscipline of economics that studies the various ways in which
A. the general public acquire financing for their purchases.
B. governments raise and expend money.
firms in the financial sector provide services to households and firms.
governments may regulate and promote the stability of the financial sector.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
The following are government activities that are involved in public finance, except
providing public goods and services, such as national defense and education.
running government-owned enterprises, such as hospitals, utilities, and lotteries
redistributing income through various taxes and income-transfer payments,
D. regulating the activities of firms in the financial sector of the economy,
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
The circular flow model with government included would show that government
controls economic resources and sells them in the resource market.
produces goods and services and sells them in the product market to generate net taxes.
C. provides goods and services to businesses and households and pays for them with net taxes.
D. obtains revenues in the product market and uses them to cover costs in the resource market.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
154.
In the diagram, if box E represents government, box C businesses, and box A households, then flows (11) and (12) would represent
goods and services.
government expenditures.
resources.
D. net taxes.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
155.
In the diagram, if box E represents government, box D the resource market, and box B the product market, then flows (5) and (7) represent
A. goods and services.
B. government expenditures.
resources.
net taxes.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
156.
In the diagram, if box E represents government, box C businesses, box D the resource market, and box B the product market, then government purchases of computers, office supplies, and military hardware would be illustrated by arrows
A. 5 and 6.
B. 7 and 8.
9 and 10.
10 and 11.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
157.
In the diagram, if box E represents government, box C businesses, box D the resource market, and box B the product market, then government hiring of teachers, soldiers, police, and judges would be illustrated by arrows
A. 5 and 6.
7 and 8.
9 and 10.
10 and 11.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
The flow of "net taxes" in the circular flow model with a government sector accounts for the following items, except
transfer payments such as social security benefits.
subsidies to farmers, airlines, and others.
proprietary income generated by public utilities and state lotteries.
D. salaries to military personnel, public school teachers, and government inspectors.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of resources is affected by governments revenue and expenditure decisions.
Test Bank: II Topic: Government and the Circular Flow
"Transfer payments" may be thought of as
wages and salaries.
purchases of services.
C. taxes in reverse.
D. expenditures on products.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
A major distinction between government purchases and government transfer payments is that
A. government purchases divert resources from private uses to public uses, while transfer payments do not.
transfer payments divert resources from private uses to public uses, while government purchases do not.
government purchases have to be approved by Congress, while transfer payments do not.
government purchases of goods and services have increased more rapidly during the past 20 years than have transfer payments.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
According to data compiled by the Bureau of Economic Analysis, in 2015, total government spending (comprising purchases and transfers) in the U.S. was about
A. 10 percent of the economy's total output.
B. 33 percent of the economy's total output.
60 percent of the economy's total output.
75 percent of the economy's total output.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
From 1960 to 2015, government purchases as a percentage of U.S. output have
A. remained approximately constant.
B. decreased.
increased slightly.
increased sharply.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
According to data compiled by the Bureau of Economic Analysis, from 1960 to 2015, government transfer payments as a percentage of U.S. output have
decreased as a result of improvements in private pension and health insurance plans.
increased slightly at about the same rate as population.
C. tripled as a percentage of output.
D. remained approximately constant.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
From 1960 to 2015, as percentages of U.S. output, government purchases have
A. declined, but transfer payments have increased significantly.
remained about the same, while transfer payments have increased slightly.
increased sharply, but transfer payments have also decreased significantly.
increased slightly, while transfer payments have remained about the same.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
Government purchases of goods and services are
A. nonexhaustive because they do not directly absorb resources and account for production.
B. exhaustive because they directly absorb or employ resources and account for production.
both exhaustive and nonexhaustive because in some cases they do directly absorb resources or account for production and in other cases they do not.
neither exhaustive nor nonexhaustive because of the tax revenues that finance these purchases.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
One distinction between government purchases and transfer payments is that
A. purchase are exhaustive, whereas transfers are nonexhaustive.
purchase are nonexhaustive, whereas transfers are exhaustive.
purchases are part of total government spending, whereas transfers are not.
purchases are not part of total government spending, whereas transfers are.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
The so-called Tax Freedom Day of each year recognizes the day that
the federal government requires taxpayers to submit their taxes to the Internal Revenue Service.
charitable contributions were made legal under the tax codes of the United States government.
the U.S. Supreme Court ruled that double taxation of income was illegal for corporations and businesses.
D. the average worker had earned enough income to pay his or her share of government spending for that year.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
In 2014, the so-called Tax Freedom Day in the U.S. occurred in
A. February.
B. April.
August.
June.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
In 2014, based on data from the OECD, the government's total tax revenue as a percentage of total output was highest in which of the following nations?
A. Germany
B. France
United States
Mexico
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
A nation’s "tax burden" is measured by the
total amount of tax dollars paid by the citizens.
average tax rate on taxable income in the nation.
C. government’s tax revenues as a percentage of GDP.
D. average of personal-income and corporate-income tax rates.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-02 Identify the main categories of government spending and the main sources of government revenue.
Test Bank: II Topic: Government Finance
The largest expenditure of the U.S. federal government is for
education.
national defense.
C. pensions and income security.
D. interest on public debt.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
The U.S. federal expenditures for "pensions and income security" are dominated by
housing subsidies.
unemployment benefits.
food stamps.
D. Social Security payments.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
The major sources of funds for the U.S. federal government include the following, except
payroll taxes.
proprietary income.
borrowing.
D. general sales taxes.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
In 2015, personal income taxes contributed what percentage of total federal tax revenues in the U.S.?
A. close to 50 percent
between 60 percent and 70 percent
about 33 percent
around 90 percent
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
Which of the following statements about government borrowing is not true?
It provides the government the ability to maintain spending levels during economic downturns.
"Crowding out" of private investments is a major opportunity cost of government borrowing.
C. Its opportunity cost is likely to be quite high during an economic downturn.
D. A bigger budget deficit will result in a bigger amount of government borrowing.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
"Deficit spending" refers to a situation where the government
A. spends borrowed funds.
collects more tax revenues than it spends.
does not need to borrow funds.
is spending less than the year before.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
Which of the following is not a significant source of revenue for the U.S. federal government?
personal income taxes
corporate income taxes
C. property taxes
D. payroll taxes
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
In 2015, corporate income taxes contributed about what percentage of U.S. federal tax revenues?
A. 10 percent
25 percent
50 percent
70 percent
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
The two largest sources of tax revenue for the U.S. federal government are
excise taxes and customs duties.
payroll taxes and excise taxes.
C. personal income taxes and payroll taxes.
D. personal income taxes and corporate income taxes.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
The marginal tax rate is the
sum of all individual tax rates.
tax rate paid by those with the lowest family incomes.
total amount of taxes paid as a percentage of total income.
D. increase in taxes as a percentage of an increase in income.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
If your income increases from $10,000 per year to $14,000 per year and your tax payment increases from $2,000 to $2,840, the marginal tax rate
A. is 20 percent.
B. is 21 percent.
is 25 percent.
cannot be determined from the given data.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
If the marginal tax rate is 20 percent, by how much must income have increased if your tax bill increases by $300? A. $300
B. $1,000
C. $1,500
D. The amount cannot be determined.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
183.
The table represents a personal income tax schedule. The average tax rate at the $60,000 level of income is
10.0 percent.
11.6 percent.
C. 15.0 percent.
D. 20.8 percent.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
184.
The table represents a personal income tax schedule. If income increases from $15,000 to $30,000, the marginal tax rate is
A. 10.0 percent.
B. 13.3 percent.
18.3 percent.
26.6 percent
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
185.
The table represents a personal income tax schedule. As income increases, the average tax rate
A. increases.
decreases.
remains constant.
has no definite pattern
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
186.
The table represents a personal income tax schedule. As income increases, the marginal tax rate
A. increases.
decreases.
remains constant.
has no definite pattern.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
If taxes are $2,000 when income is $15,000 and they are $3,000 when income is $19,000, then the marginal tax rate is
A. 20 percent.
B. 25 percent.
30 percent.
40 percent.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
With a tax of $4,000 on $24,000 taxable income, the average tax rate is
A. 16.67 percent.
20 percent.
23.45 percent.
25 percent.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
With a tax of $4,000 on $20,000 of income and $6,000 on $30,000 of income, the average tax rate is
constant at 10 percent.
lower than the marginal tax rate.
C. equal to the marginal tax rate.
D. higher than the marginal tax rate, which is equal to zero.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.
Test Bank: II Topic: Federal Finance
Joe complains that 32 percent of his income last year went to taxes. He is referring to his
A. average tax rate.
marginal tax rate.
proportional tax rate.
progressive tax rate.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 20-03 List the main categories of federal revenue and spend