1.Taxes can be justified if the government uses the revenue to (i) provide public goods such as national defense. (ii) clean up negative externalities such
1.Taxes can be justified if the government uses the revenue to
| (i) | provide public goods such as national defense. |
| (ii) | clean up negative externalities such as water pollution. |
| (iii) | regulate a common resource such as fish in a public lake. |
| (iv) | provide goods with positive externalities such as medical research. |
| C) | (i), (ii), and (iii) only |
| D) | (i), (ii), (iii), and (iv) |
2.A person's tax liability refers to
| A) | the percentage of income that a person must pay in taxes. |
| B) | the amount of tax a person owes to the government. |
| C) | the amount of tax the government is required to refund to each person. |
| D) | deductions that can be legally subtracted from a person's income each yea |
3. Which of the following is an example of a payroll tax?
| A) | a tax on the wages that a firm pays its workers |
| B) | a sin tax on distilled alcohol |
| C) | a tax on corporate profits |
| D) | the portion of federal income taxes earmarked to pay for national defense |
4. A transfer payment is a government payment
| A) | to companies that provide goods or services to government agencies. |
| B | designed to transfer funds from one government agency to another. |
| C) | which transfers revenue from the federal government to state government. |
| D) | not made in exchange for a good or service. |
5. Like spending on Social Security, the share of federal government spending on Medicare has risen substantially over time. This is most likely a result of
| | A)a rising population of poor in the economy. |
| B) | a rising population of the elderly in the economy. |
| C) | an immigration policy that promotes an influx of migrant farm workers. |
| D) | All of the above are important factors. |
6. Medicaid is
| | A)the government's health plan for the elderly. |
| B) | the government's health plan for the poor. |
| C) | another name for Social Security. |
| D) | Both a and c are correct. |
7. A budget deficit
| A) | occurs when government receipts are less than spending. |
| B) | occurs when government spending is less than receipts. |
| C) | occurs when government receipts are equal to spending. |
| D) | is the accumulation of years of government overspending. |
8. State and local governments
| A) | use a mix of taxes and fees to generate revenue. |
| B) | are required by federal mandate to levy income taxes. |
| C) | are required to tax property at a standard rate set by the federal government. |
| D) | must tax wages more heavily than interest and dividend income. |
9. One tax system is less efficient than another if it
| A) | places a lower tax burden on lower-income families than on higher-income families. |
| B) | places a higher tax burden on lower-income families than on higher-income families. |
| C) | raises the same amount of revenue at a higher cost to taxpayers. |
| D) | raises less revenue at a lower cost to taxpayers. |
10. The deadweight loss of a tax is:
| A) | the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government. |
| B) | the improved efficiency created as people reallocate resources according to the tax incentive rather than the true costs and benefits. |
| C) | the loss in tax revenues. |
| D) | Both a and b are correct. |
11. A value-added tax or VAT is a tax on
| A) | retail purchases only. |
| B) | wholesale purchases only. |
| D) | all stages of production of a good. |
12. A person's marginal tax rate equals
| A) | her tax obligation divided by her average tax rate. |
| B) | the increase in taxes she would pay as a percentage of the rise in her income. |
| C) | her tax obligation divided by her income. |
| D) | the increase in taxes if her average tax rate were to rise by 1percent |
