1. A flat tax system is a system in which tax rates for all income groups __________; in addition, typically there are no ____________ (loopholes) and incomes below a certain amount (for example, below $25,000) are _____________.

A. are low; subsidies; taxed at a higher rate

B. are zero; negative rates; subject to the earned income tax credit

C. are the same; deductions; exempt

d. are high; deductions; taxed at a lower rate

2. Which of the following is true about a consumption tax system that replaces a countrys income tax system?

A. All of the listed choices are true of a consumption tax system

B. A consumption tax system encourages people to save because consumption is taxed at a higher rate; greater savings is good for the long run economic health of people and the country.

C. It is more difficult to evade taxes because consumption taxes are paid to businesses when consumers purchase goods and services; this means that people that don't pay taxes in an income tax system now pay their share of taxes (for example, illegal immigrants, people who work "under the table", illegal drug dealers and people working in other illegal professions).

D. A person with an individual income tax rate of 20% (i.e. a person who earns $30,000 pays $6,000 in taxes), pays the same amount of taxes in a consumption tax system if the person spends her/his entire income and the consumption tax rate is 20% (assume no other taxes).

The Laffer Curve predicts that at very low tax rates, an increase in the rate ________________ government revenue, and at very high tax rates, an increase in the rate _______________ government revenue.

A. increases; increases

B. decreases; increases

C. increases; decreases

D. decreases; decreases