Deck 9: The Mixed Economy of the United States

Question 1

A value-added tax amounts to a national sales tax on consumer goods.

Answer 1

True

Question 2

Critics of a value-added tax maintain that it is regressive and thus violates the ability-to-pay principle.

Answer 2

True

Question 3

In its purest form, a flat-rate income tax would establish a system of exemptions, deductions and credits and tax remaining income at a proportional rate.

Answer 3

False

Question 4

Proponents of a flat-rate tax contend that it simplifies the tax system and thus reduces the cost of keeping records and filling out tax forms.

Question 5

The main supporters of a flat-rate tax are tax accountants and lawyers.

Question 6

Because the distribution of income in the United States is quite unequal, many people look to the federal income tax to redistribute income from the rich to the poor.

Question 7

Most economists argue that when federal, state, and local taxes are combined, the overall effect is highly regressive.

Question 8

Economists generally agree that sales, property, and excise taxes are progressive.

Question 9

The federal corporate income tax is essentially a regressive tax.

Question 10

The Social Security tax has both proportional and regressive features.

Question 11

A tax is regressive if it takes a smaller fraction of income as income rises.

Question 12

Under a progressive tax, the average tax rate and the marginal tax rate both increase as income increases.

Question 13

Under a regressive tax, the marginal tax rate decreases, and the average tax rate increases, as income increases.

Question 14

The ability-to-pay principle is founded on the notion that people with greater income and wealth should be taxed at a higher rate because their ability to pay is presumably greater.

Question 15

The personal income tax and corporate income tax are examples of the benefits-received principle of taxation.

Question 16

For the federal government, corporate income taxes provide the largest source of tax revenue and national defense is the largest expenditure item.

Question 17

For state and local governments, the largest source of tax revenues is from sales and excise taxes, while the largest category of spending is for public education.

Question 18

Senior citizens would welcome removing the income cap to generate more tax revenue for the Social Security system.

Question 19

The Social Security trust funds are simply accounts that are located at the U.S. Treasury.

Question 20

The Social Security system is the largest retirement and disability program in the United States.

Question 21

Under our Social Security system, the payroll taxes of Ned Young are placed into his personal retirement account, with which he can invest in the stocks and bonds of his choice.

Question 22

The purpose of transfer payments is to provide a "safety net" of income security for the poor and needy.

Question 23

Among the problems facing corporations are the double taxation of income and the separation of ownership and control.

Question 24

A sole proprietorship suffers from the problem of limited liability.

Question 25

The personal distribution of income shows the shares of the nation's income accruing to wages, rent, interest, and profits.

Question 26

The personal distribution of income shows the shares of a nation's income accruing to the factors of production.

Question 27

In the year 2006, corporate profits comprised the largest share of U.S. income.

Question 28

Going to college can be considered an investment in human capital.

Question 29

Durable goods are items such as refrigerators that have an expected life of one year or more.

Question 30

Food stamps are an example of transfer payments.

Question 31

In the past 20 years, the income gap between the rich and poor has decreased.

Question 32

Accoding to the disposition of household income in 2005, the majority of consumer purchases are for services, rather than goods.

Question 33

The U.S. economy would best be characterized as

A) capitalist
B) socialist
C) communist
D) mixed

Question 34

The ______ distribution of income shows the shares of a nation's income accruing to land, labor, capital, and entrepreneurship as rent, wages, interest, and profits.

A) functional
B) personal
C) national
D) social

Question 35

The ______ distribution of income shows the nation's income shared by individual households.

A) functional
B) personal
C) national
D) social

Question 36

The determinants of income differences among members of society include all of the following except

A) age
B) investment in human capital
C) discrimination
D) proportional income taxes

Question 37

For most Americans, income rises to a peak at around age

A) 16 to 20
B) 25 to 30
C) 45 to 50
D) 70 to 80

Question 38

American consumers typically devote the largest share of their consumption dollar to

A) services
B) charities
C) durable goods
D) nondurable goods

Question 39

American households allocate the largest share of their incomes to

A) personal income taxes
B) Social Security taxes
C) saving
D) consumption

Question 40

Limited liability applies to

A) sole proprietorships
B) partnerships
C) corporations
D) all businesses

Question 41

Unlimited liability applies to all of the following forms of business except

A) partnership of two individuals
B) partnership of three individuals
C) sole proprietorship
D) corporation

Question 42

Which of the following is a disadvantage of a corporation, when compared to a partnership or sole proprietorship?

A) limited liability
B) ability to raise funds through the sale of shares of stock
C) efficient in transferring ownership
D) double taxation of income

Question 43

Which form of business is numerically dominant in the U.S.?

A) partnerships of two individuals
B) partnerships of three individuals
C) sole proprietorships
D) corporations

Question 44

Which form of business accounts for the largest share of total sales (output) in the U.S.?

A) partnerships of two individuals
B) partnerships of three individuals
C) sole proprietorships
D) corporations

Question 45

Separation of ownership and control is a major limitation of

A) partnerships of two individuals
B) partnerships of three individuals
C) sole proprietorships
D) corporations

Question 46

All of the following are examples of government purchases except

A) payments on Medicaid claims
B) expenditures on national defense
C) spending on the restoration of a national park
D) expenditures on a new highway system

Question 47

______ is the largest retirement and disability program in the U.S.

A) Medicare
B) Medicaid
C) Aid to Families with Dependent Children
D) Social Security

Question 48

Concerning the Social Security system, which of the following is false?

A) Social Security is mandatory for most wage earners.
B) Any surplus of taxes in the Social Security system is used to buy stock.
C) Social Security benefits are automatically raised annually to reflect inflation.
D) Social Security is a pay-as-you-go system financed by payroll taxes.

Question 49

Social Security trust funds are

A) simply accounts that are located at the U.S. Treasury
B) estimated to be wiped out by the year 2010
C) entirely invested in corporate stocks and bonds
D) primarily used to pay the salaries of the Secret Service

Question 50

Social Security

A) is a pay-as-you-go system financed by payroll taxes
B) provides individual investment accounts for all participants
C) is financed primarily out of revenues from personal income taxes
D) provides fixed incomes to beneficiaries regardless of the rate of inflation

Question 51

A person approaching retirement age would be least likely to object to which of the following reforms of the Social Security system?

A) increase the retirement age before benefits can be collected
B) decrease the cost-of-living adjustment for benefits
C) determine eligibility for benefits on the basis of financial need
D) allow individuals to place part of their Social Security taxes in stocks

Question 52

If the Social Security system were privatized, households would

A) be able to invest their Social Security taxes in the stock market
B) no longer belong to the Social Security system
C) receive cost-of-living adjustment in Social Security benefits
D) find their retirement incomes fixed at a constant level

Question 53

The largest component of the federal government's budget is

A) national defense
B) police and fire protection
C) interest on the public debt
D) income transfer programs

Question 54

To finance its debt, the federal government

A) levies property taxes and sales taxes
B) sells securities to households, financial institutions, and businesses
C) borrows from commercial banks and savings and loan associations
D) issues stock that is sold to foreign investors

Question 55

The major expenditure item of state and local governments is

A) public education
B) highways
C) public welfare
D) police and fire protection

Question 56

The largest source of tax revenue for state and local governments is

A) personal income taxes
B) corporate income taxes
C) sales and excise taxes
D) license fees

Question 57

According to the ______ principle, taxes should be paid in proportion to the benefits that taxpayers derive from public expenditures.

A) ability-to-pay
B) benefits-received
C) progressive tax
D) regressive tax

Question 58

The benefits-received principle of taxation is least characteristic in

A) Social Security taxes
B) gasoline taxes
C) taxes on airlines tickets
D) tolls used to finance the construction of a bridge

Question 59

According to the ______ principle, people with greater income and wealth should be taxed at a higher rate.

A) benefits-received
B) ability-to-pay
C) proportional
D) regressive

Question 60

As income rises under a progressive tax system, the

A) average tax rate and marginal tax rate increase
B) average tax rate and marginal tax rate decrease
C) average tax rate increases and the marginal tax rate remains constant
D) marginal tax rate increases and the average tax rate remains constant

Question 61

As income rises under a regressive tax system, the

A) average tax rate and marginal tax rate increase
B) average tax rate and marginal tax rate decrease
C) average tax rate increases and the marginal tax rate decreases
D) marginal tax rate increases and the average tax rate decreases

Question 62

The federal personal income tax is a

A) flat-rate tax
B) regressive tax
C) progressive tax
D) proportional tax

Question 63

Property taxes are essentially

A) regressive taxes
B) flat-rate taxes
C) progressive taxes
D) proportional taxes

Question 64

Most economists argue that when federal, state, and local taxes are combined, the overall effect is

A) proportional
B) progressive
C) regressive
D) unfair

Question 65

Most economists agree that the U.S. system of taxation and transfer payments is more helpful to the ______ than the U.S. taxation system by itself.

A) stock market
B) poor
C) rich
D) U.S. Treasury

Question 66

The various exemptions, deductions, and credits permitted by the Internal Revenue Service ______ of the personal income tax system

A) increase the progressivity
B) decrease the progressivity
C) increase the regressivity
D) decrease the regressivity

Question 67

In its purest form, a ______ system would eliminate the existing array of different tax rates on personal income and replace them with a single tax.

A) value-added tax
B) consumption tax
C) sales tax
D) flat-rate income tax

Question 68

A(n) ______ operates like a retail sales tax, except that it is collected at the various stages of production of goods and services.

A) progressive income tax
B) payroll tax
C) value-added tax
D) assembly tax

Question 69

Total tax receipts, as a percentage of domestic output, are highest in which one of the following countries?

A) Japan
B) United States
C) France
D) Sweden

Question 70

The advantages of a flat tax include all of the following except it

A) keeps the distribution of income the same as it is now
B) provides fewer opportunities for tax cheating
C) lowers the costs of tax recordkeeping
D) encourages people to earn extra income

Question 71

Consumer spending by households includes all of the following categories except

A) durable goods
B) investment goods
C) nondurable goods
D) services

Question 72

The largest share of tax revenue to the federal government is from the

A) social security tax
B) sales tax
C) personal income tax
D) corporate income tax

Question 73

Which of the following is an example of a government purchase?

A) agricultural assistance payments to farmers
B) housing and energy subsidies
C) Aid to Families with Dependent Children payments
D) expenditures for police cars and fire trucks

Question 74

The main sources of the increasing size of government transfer payments have been

A) government purchases
B) Social Security and Medicare programs
C) consumer spending
D) Food Stamps and Supplemental Security Income payments

Question 75

A major concern about the future of the Social Security program is

A) there are too many workers and not enough retirees
B) COLAs are contributing to revenue shortfalls
C) the U.S. Treasury will go bankrupt
D) its trust funds are being eroded away in the stock market

Question 76

Some people have suggested that the social security system needs to be reformed so that it will become financially stronger. Options to accomplish this could include all of the following except

A) adopt means testing
B) increase the tax rates paid by current employees
C) increase the COLA
D) raise the retirement age

Question 77

Which tax is most consistent with the benefits-received principle?

A) a sales tax on diamond jewelry
B) a progressive tax on second homes
C) a federal income tax
D) a gasoline tax

Question 78

An advantage of the value-added tax is that it

A) encourages saving, and thus can lead to greater investment and growth
B) is a progressive tax
C) is hidden and consumers are not always aware of what it is
D) is easy for people to avoid paying the tax

Question 79

What tax operates like a retail sales tax, except it is collected from businesses at each stage of production?

A) a national sales tax
B) a progressive tax
C) a value-added tax
D) a benefits-received tax

Question 80

If the U.S. adopted a flat-rate income tax system,

A) transition costs from the current system would be minimal
B) all exemptions, deductions, and credits would be eliminated
C) tax revenue would have to decrease from its current levels
D) people would easily avoid paying their taxes