Deck 19: Taxes: Equity Versus Efficiency

Question 1

If the area between the diagonal line of absolute equality and the Lorenz curve is greater for the United States than for Japan, we can conclude that the

A)Distribution of income in Japan is closer to being equal than in the United States.
B)Distribution of income in Japan is as equal as in the United States.
C)Distribution of income in Japan is less equal than in the United States.
D)Relative distributions of income in the two countries are the same.

Answer 1

A

Question 2

According to the Census Bureau, in 2013 nearly _____________ Americans were counted as poor.

A)1 million
B)9 million
C)20 million
D)45 million

Answer 2

D

Question 3

Income is measured as

A)A flow only.
B)A stock only.
C)Both a flow and a stock.
D)Neither a flow nor a stock.

Answer 3

A

Question 4

The proportion of total income received by a particular group is called the group's

A)Market share.
B)Income share.
C)Gini coefficient.
D)Functional distribution of income.

Question 5

A mathematical summary of inequality based on the Lorenz curve is known as the

A)Okun coefficient.
B)Income distribution share.
C)Gini coefficient.
D)Lorenz coefficient.

Question 6

Wealth refers to

A)The way personal income is divided among households.
B)The purchasing power this year.
C)A flow of money over time.
D)The market value of assets people own.

Question 7

The federal income tax is designed to

A)Shift the Lorenz curve inward.
B)Shift the Lorenz curve outward.
C)Raise the Gini coefficient.
D)Decrease vertical equity.

Question 8

Medicare is an example of

A)Free goods.
B)Personal income.
C)In-kind income.
D)A direct cash transfer payment.

Question 9

When the Census Bureau counts the number of poor Americans, it counts

A)Only in-kind income.
B)Both in-kind and money income.
C)Only money income.
D)Personal income plus transfer payments.

Question 10

Which of the following statements regarding the distribution of money income is most correct?

A)The distribution of money income is synonymous with the distribution of goods and services.
B)The distribution of money income includes the monetary value of in-kind benefits.
C)Statistics on the distribution of money income include the underground economy.
D)The distribution of money income overstates the extent of poverty in the United States.

Question 11

A graphic illustration of the cumulative size distribution of income is known as the

A)Size distribution of income.
B)Okun curve.
C)Lorenz curve.
D)Gini coefficient.

Question 12

How income is distributed is typically measured using

A)In-kind income.
B)Personal income.
C)Wealth.
D)The production of goods and services.

Question 13

If a greater portion of income is distributed to those in the highest income quintile, the

A)Lorenz curve is a straight line.
B)Line of equality sags below the Lorenz curve.
C)Lorenz curve sags below the diagonal line of absolute equality.
D)Gini coefficient is less than zero.

Question 14

The size distribution of income

A)Is the same thing as the functional distribution of income.
B)Tells how personal income is divided up among households or income classes.
C)Focuses on the distribution of income to different factors of production.
D)Reflects the distribution of financial assets.

Question 15

In-kind benefits are a way of correcting

A)Market power.
B)Government failure.
C)Natural monopoly.
D)Inequity.

Question 16

Public housing is an example of

A)In-kind income.
B)Free goods.
C)Money income.
D)Personal expenditure.

Question 17

Wealth is measured as

A)A flow only.
B)A stock only.
C)Both a flow and a stock.
D)Neither a flow nor a stock.

Question 18

If the area between the diagonal line of absolute equality and the Lorenz curve is greater for China than for the United States, we can conclude that the

A)Distribution of income in China is closer to being equal than in the United States.
B)Distribution of income in China is as equal as in the United States.
C)Distribution of income in China is less equal than in the United States.
D)Relative distributions of income in the two countries are the same.

Question 19

Personal income is

A)The sum of wealth and in-kind income.
B)The sum of taxes, in-kind income, and personal consumption.
C)A good measure of the distribution of output.
D)The income received by households before payment of personal taxes.

Question 20

If income is distributed equally, the

A)Lorenz curve is a straight line.
B)Line of equality sags below the Lorenz curve.
C)Lorenz curve sags below the line of equality.
D)Gini coefficient is greater than zero.

Question 21

If the Gini coefficient is greater for Zambia than for the Netherlands, we can conclude that the

A)Relative distributions of income in the two countries are the same.
B)Distribution of income in the Netherlands is less equal than in Zambia.
C)Distribution of income in the Netherlands is as equal as it is in Zambia.
D)Distribution of income in the Netherlands is closer to being equal than in Zambia.

Question 22

Figure 33.3 illustrate Lorenz curves for four different economies.Which economy will have a Gini coefficient of zero?

A)A
B)B
C)C
D)D

Question 23

Which of the following is a progressive tax?

A)The federal income tax.
B)The Social Security tax.
C)Local sales taxes.
D)Local property taxes.

Question 24

Figure 33.3 illustrate four different Lorenz curves.Assume Brazil has a larger Gini coefficient than the United States.If the income distribution for the United States is represented by curve C, which curve would most likely represent the income distribution for Brazil?

A)A
B)B
C)C
D)D

Question 25

Figure 33.2 illustrates Lorenz curves for four different economies.Which economy should have a Gini coefficient of zero?

A)A
B)B
C)C
D)D

Question 26

Which of the following taxes is most likely to reduce inequity?

A)A local property tax.
B)The federal income tax.
C)A gasoline tax.
D)A sales tax.

Question 27

In Alpha the lowest 20 percent of families receive approximately what percentage of income? (See Figure 33.1)

A)10 percent.
B)5 percent.
C)20 percent.
D)80 percent.

Question 28

In Figure 33.1, suppose that the Gini coefficient for Omega is 0.55.The Gini coefficient for Alpha must be

A)Less than 0.55.
B)Equal to 0.55.
C)Greater than 0.55.
D)0.45.

Question 29

The bottom 80 percent of families in Alpha receive approximately what percentage of total income? (See Figure 33.1.)

A)80 percent.
B)60 percent.
C)50 percent.
D)40 percent.

Question 30

Figure 33.3 illustrates Lorenz curves for four different economies.For which economy would the lowest 20 percent of families receive the smallest share of total income?

A)A
B)B
C)C
D)D

Question 31

If the percentage of income paid in taxes increases as income rises, then the tax system is

A)Regressive.
B)Progressive.
C)Marginal.
D)Nominal.

Question 32

If the Gini coefficient is greater for the United Kingdom than for Japan, we can conclude that the

A)Relative distributions of income in the two countries are the same.
B)Distribution of income in the United Kingdom is less equal than in Japan.
C)Distribution of income in the United Kingdom is as equal as it is in Japan.
D)Distribution of income in the United Kingdom is closer to being equal than in Japan.

Question 33

In the United States between 2000 and 2013, the Gini coefficient

A)Increased, indicating greater income inequality.
B)Increased, indicating less income inequality.
C)Decreased, indicating greater income inequality.
D)Decreased, indicating less income inequality.

Question 34

In Omega the lowest 40 percent of families receive approximately what percentage of income? (See Figure 33.1)

A)20 percent.
B)40 percent.
C)10 percent.
D)17 percent.

Question 35

A tax is progressive if it takes a

A)Smaller number of dollars as income rises.
B)Larger number of dollars as income falls.
C)Smaller fraction of income as income falls.
D)Smaller fraction of income as income rises.

Question 36

Figure 33.2 illustrates Lorenz curves for four different economies.For which economy would the lowest 20 percent of families receive the smallest share of total income?

A)A
B)B
C)C
D)D

Question 37

As the ________ becomes larger, the distance between the line of absolute equality and the ________ becomes greater.

A)Gini coefficient; Lorenz curve
B)Gini coefficient; production possibilities curve
C)Lorenz curve; Gini curve
D)Income distribution size; Lorenz curve

Question 38

Figure 33.2 illustrates Lorenz curves for four different economies.For which economy would lower-income families receive the largest share of total income?

A)A
B)B
C)C
D)D

Question 39

The size distribution of income in Figure 33.1 reveals that

A)Incomes are more equally distributed in Alpha than in Omega.
B)Incomes are more equally distributed in Omega than in Alpha.
C)The Gini coefficient for Alpha is larger than for Omega.
D)People are wealthier in Alpha than in Omega.

Question 40

Market failure exists whenever

A)Income distribution is unequal.
B)The market generates a suboptimal outcome of income distribution.
C)The government intervenes in the market.
D)Government intervention makes the income distribution worse.

Question 41

Assume that the marginal tax rate is 10 percent for the first $10,000 of income, 20 percent for income between $10,000 and $40,000, and 30 percent for any income over $40,000.If Jerome has taxable income equal to $60,000 for the year, what is his tax bill?

A)$6,000.
B)$13,000.
C)$15,000.
D)$18,000.

Question 42

The taxation principle that says people with higher incomes should pay more in taxes than those with lower incomes is called

A)A flat tax system.
B)A regressive tax system.
C)Vertical equity.
D)Horizontal equity.

Question 43

In general, lower marginal tax rates provide incentives to

A)Work less.
B)Produce more output.
C)Invest less.
D)Find more tax loopholes.

Question 44

Assume the marginal tax rate is 12 percent for the first $40,000 of income, 28 percent for income between $40,000 and $100,000, and 30 percent for any income over $100,000.If Sarah has taxable income equal to $120,000 for the year, what is her tax bill?

A)$27,600.
B)$33,600.
C)$34,000.
D)$36,000.

Question 45

Government attempts to create a more equitable income distribution by increasing marginal tax rates may do all of the following except

A)Reduce output.
B)Increase unemployment.
C)Reduce government tax receipts.
D)Increase work effort.

Question 46

The tax elasticity of supply measures the

A)Response of workers to a change in the tax rate.
B)Response of workers to a change in prices.
C)Change in the amount of taxes workers must pay when tax rates change.
D)Response of employers to a change in the tax rate.

Question 47

Exemptions and deductions included in the tax laws

A)Are designed to encourage specific economic activities.
B)Reduce vertical inequities.
C)Make the tax structure more progressive.
D)Reduce horizontal inequities.

Question 48

As exemptions are raised and allowable deductions are increased, there is

A)A smaller gap between effective and nominal tax rates.
B)Greater vertical inequity.
C)A smaller gap between gross income and taxable income.
D)Greater horizontal equity.

Question 49

If the marginal tax rate is too high, it can cause all of the following except

A)Businesses to produce more.
B)Government tax receipts to decline.
C)The rate of saving to decline.
D)Work effort to decrease.

Question 50

The many loopholes present in the federal income tax system prior to the 1986 tax reform caused all of the following except

A)Greater vertical inequity by making the income tax more regressive.
B)Greater horizontal inequity since the loopholes were more accessible to some taxpayers than others.
C)The system to be more progressive since loopholes favored those at lower income levels.
D)The Lorenz curve for after-tax income to shift away from absolute equality.

Question 51

A tax elasticity of supply equal to 0.21 indicates that

A)Employers will not hire any workers if tax rates increase.
B)Employers will hire more workers if tax rates increase.
C)Workers will not cut back on the number of hours worked if tax rates increase.
D)Workers will cut back on the number of hours worked if tax rates increase.

Question 52

Additional loopholes in the personal income tax law tend to

A)Make the system less progressive.
B)Increase horizontal equity.
C)Increase the tax base.
D)Increase vertical equity.

Question 53

To make a tax system more progressive, policy makers could

A)Raise marginal tax rates for higher incomes.
B)Narrow the tax base.
C)Allow all interest expenses to be deductible, not just interest on mortgages.
D)Raise sales taxes on commonly purchased items.

Question 54

If an individual is taxed at a 17 percent rate for each extra dollar earned, the reference is to the

A)Marginal tax rate.
B)Nominal tax rate.
C)Average tax rate.
D)Effective tax rate.

Question 55

A tax elasticity of supply equal to zero indicates that

A)Employers will not hire any workers if tax rates increase.
B)Employers will hire more workers if tax rates increase.
C)Workers will not cut back on the number of hours worked if tax rates increase.
D)Workers will not work at all if tax rates increase.

Question 56

Assume the marginal tax rate is 10 percent for the first $30,000 of income, 15 percent for income between $30,000 and $70,000, and 20 percent for any income over $70,000.If Emily has taxable income equal to $80,000 for the year, what is her tax bill?

A)$16,000.
B)$11,000.
C)$8,000.
D)$12,000.

Question 57

If the tax elasticity of supply is 0.6 and tax rates increase by 10 percent, the quantity of labor supplied will

A)Increase by 1.67 percent.
B)Decrease by 1.67 percent.
C)Increase by 6 percent.
D)Decrease by 6 percent.

Question 58

Vertical equity can be determined by comparing the

A)Effective tax rate of the taxpayer with the highest nominal income to the effective tax rates of taxpayers with lower nominal incomes.
B)Marginal tax rate of the taxpayer with the highest nominal income to the marginal tax rates of taxpayers with lower nominal incomes.
C)Marginal tax rates for two taxpayers with the same nominal incomes.
D)Effective tax rates for two taxpayers with the same nominal incomes.

Question 59

The U.S.federal income tax is classified as a

A)Regressive tax only.
B)Flat tax only.
C)Progressive tax only.
D)Regressive or flat tax, but not a progressive tax.

Question 60

Increasing tax rates on businesses can be justified based on equity considerations when

A)Perfectly competitive conditions exist.
B)The tax is a flat tax.
C)Externalities exist.
D)Long-run economic profits exist.

Question 61

If Luis makes $50,000 per year as a computer programmer and pays $6,000 in taxes while Hector makes $50,000 per year as a roofing contractor and pays $7,000 in taxes, this is an example of

A)A regressive tax system.
B)Horizontal inequity.
B)A flat tax.
C)Vertical inequity.

Question 62

Suppose a taxpayer has an income of $100,000 and a taxable income of $80,000, and pays taxes of $10,000.If the taxpayer talks of being taxed at a 10 percent rate, she is referring to the

A)Average tax rate.
B)Marginal tax rate.
C)Nominal tax rate.
D)Effective tax rate.

Question 63

Suppose a taxpayer has an income of $90,000 and a taxable income of $75,000, and pays $7,500 in taxes.If the taxpayer says he is taxed at a 10 percent tax rate, he is referring to the

A)Vertical tax rate.
B)Marginal tax rate.
C)Effective tax rate.
D)Nominal tax rate.

Question 64

Suppose a taxpayer has an income of $70,000 and a taxable income of $60,000, and pays $9,000 in taxes.If the taxpayer says she is taxed at a 15 percent tax rate, she is referring to the

A)Marginal tax rate.
B)Nominal tax rate.
C)Effective tax rate.
D)Average tax rate.

Question 65

The effective tax rate is

A)Equal to the taxes paid divided by taxable income.
B)The percentage of tax payable on the last dollar of income received.
C)Never higher than the nominal tax rate.
D)Always equal to the marginal tax rate.

Question 66

If an accountant makes $80,000 and after deductions pays $8,000 in taxes while an administrative assistant makes $35,000 and after deductions pays $2,000 in taxes, this is an example of

A)Marginal inequity.
B)Horizontal equity.
C)Vertical equity.
D)Effective inequity.

Question 67

Suppose a taxpayer has an income of $120,000 and a taxable income of $80,000, and pays $20,000 in taxes.If the taxpayer says she is taxed at a 25 percent tax rate, she is referring to the

A)Nominal tax rate.
B)Marginal tax rate.
C)Effective tax rate.
D)Average tax rate.

Question 68

A tax that is designed to be progressive will improve

A)Efficiency.
B)Vertical equity.
C)Horizontal equity.
D)Equality.

Question 69

If Alejandra makes $46,000 per year as a nurse and pays $7,000 in taxes while Emily makes $46,000 per year as a high school teacher and pays $6,500 in taxes, this is an example of

A)Horizontal inequity.
B)Marginal inequity.
C)A flat tax.
D)Vertical inequity.

Question 70

The taxation principle that says people with equal incomes should pay equal taxes is called

A)Horizontal equity.
B)A progressive tax system.
C)A regressive tax system.
D)Vertical equity.

Question 71

Horizontal equity can be determined by comparing the

A)Effective tax rate of the taxpayer with the highest nominal income to the effective tax rates of taxpayers with lower nominal incomes.
B)Marginal tax rate of the taxpayer with the highest nominal income to the marginal tax rates of taxpayers with lower nominal incomes.
C)Marginal tax rates for two taxpayers with the same nominal incomes.
D)Effective tax rates for two taxpayers with the same nominal incomes.

Question 72

Suppose Ms.Sanchez has a total income of $200,000, has a taxable income of $120,000, and pays $40,000 in taxes.Considering the information, what is Ms.Sanchez's nominal tax rate?

A)20.0 percent.
B)18.5 percent.
C)33.3 percent.
D)60.0 percent.

Question 73

Suppose Mr.Lee has total income of $120,000, has taxable income of $90,000, and pays $30,000 in taxes.Considering the information, what is Mr.Lee's effective tax rate?

A)33.33 percent.
B)25 percent.
C)72 percent.
D)66.7 percent.

Question 74

If a tax system has no deductions, exemptions, or other loopholes, then the effective tax rate will be

A)Greater than the nominal tax rate.
B)Equal to the nominal tax rate.
C)Less than the nominal tax rate.
D)Equal to the vertical tax rate.

Question 75

The nominal tax rate is

A)Lower than the effective tax rate.
B)Taxes paid divided by total economic income.
C)Taxes paid divided by taxable income.
D)Equal to the marginal tax rate.

Question 76

Taxes paid divided by total income is the

A)Nominal tax rate.
B)Horizontal tax rate.
C)Marginal tax rate.
D)Effective tax rate.

Question 77

An economy with nominal tax rates significantly higher than effective tax rates has

A)Loopholes in the tax code.
B)A regressive tax system.
C)A progressive tax system.
D)Large in-kind benefits.

Question 78

To determine horizontal equity, two taxpayers with

A)The same taxable incomes should be compared for their effective tax rates.
B)The same gross incomes should be compared for their effective tax rates.
C)Different gross incomes should be compared for their effective tax rates.
D)Different taxable incomes should be compared for their nominal tax rates.

Question 79

Suppose a taxpayer has an income of $50,000 and a taxable income of $45,000, and pays $5,000 in taxes.If the taxpayer talks of being taxed at a 10 percent tax rate, she is referring to the

A)Effective tax rate.
B)Marginal tax rate.
C)Nominal tax rate.
D)Average tax rate.

Question 80

Suppose Mr.Lee has total income of $120,000, has taxable income of $90,000, and pays $30,000 in taxes.Considering the information, what is Mr.Lee's nominal tax rate?

A)25 percent.
B)75 percent.
C)33.33 percent.
D)10 percent.