Question 1

Refer to the labor market in Figure 33.5.Suppose that the government imposes a payroll tax on employers in this market.How much of the tax burden will the employers actually pay?

Accepted Answer

The answer of  Refer to the labor market in...

Question 2

A person can have a great deal of wealth but have very little income.

Accepted Answer

Wealth refers to the value of assets owned by a person, such as real estate, investments, and savings, while income refers to the money earned through employment, business ventures, or investments. Therefore, it is possible for a person to have amassed substantial wealth but have very little income.

Question 3

One World View article is titled "Top Tax Rates." The highest marginal tax rates in the world in 2015 were found in

Accepted Answer

In 2015, Denmark had one of the highest marginal tax rates in the world, with a top rate of around 60%.

Question 4

One World View article is titled "Top Tax Rates." The lowest marginal tax rates in the world in 2015 were in

Accepted Answer

According to the article "Top Tax Rates," the lowest marginal tax rates in the world in 2015 were in Monaco.

Question 5

A cartoon in the text says that while the economy has been expanding,the share of income to blacks and poor whites has decreased.This implies that the

Accepted Answer

The cartoon implies that the income inequality has increased, as the share of income to blacks and poor whites has decreased while the economy has been expanding. This means that the area between the Lorenz curve and the absolute equality line has expanded, leading to a larger income gap between the rich and poor. Therefore, choice A is the best answer.

Question 6

The flat tax was originally proposed by

Accepted Answer

The flat tax was first proposed by economist Milton Friedman in 1962. Reagan did advocate for a simplified tax code, but he did not specifically propose a flat tax. Clinton and Romer did not propose a flat tax at all.

Question 7

High-income families pay a significantly greater percentage of their income in taxes compared to low-income families.

Accepted Answer

Low-income families often pay a higher percentage of their income in taxes when considering all types of taxes, including sales, property, and payroll taxes, not just income taxes.

Question 8

The effective tax rate refers to the actual taxes paid as a percentage of taxable income.

Accepted Answer

The effective tax rate refers to the actual taxes paid as a percentage of total income, not just taxable income.

Question 9

The greater the area between the Lorenz curve and the diagonal line of absolute equality,the more inequality exists.

Accepted Answer

The area between the Lorenz curve and the diagonal line represents the degree of income inequality in a society. The greater the area between the Lorenz curve and the line of absolute equality, the more unequal the distribution of income in that society. Therefore, the statement is true.

Question 10

Loopholes,exemptions,and deductions cause an erosion of the tax base.

Accepted Answer

Loopholes, exemptions, and deductions reduce the amount of taxable income and therefore lead to a shrinkage of the tax base.

Question 11

The argument for greater equality of income distribution in the United States hinges on the idea that low-income earners would be more willing and able participants in the economy if income were distributed more equally.

Accepted Answer

The argument for greater equality of income distribution is that by distributing income more equally, low-income earners would have more purchasing power and thus be more willing and able to participate in the economy, increasing overall economic growth.

Question 12

The tax incidence of a payroll tax results in an increase in net wages.

Accepted Answer

The tax incidence of a payroll tax falls on both the employer and employee, resulting in a decrease in net wages. The employer may pass some of the tax burden onto the employee through lowering their wage or benefits, but ultimately both parties are affected.

Question 13

The nominal tax rate refers to the actual taxes paid as a percentage of taxable income.

Accepted Answer

The nominal tax rate is the actual tax liability divided by the taxable income, expressed as a percentage.

Question 14

A sales tax is a proportional tax.

Accepted Answer

A sales tax is considered a regressive tax because it takes a larger percentage of income from low-income earners than from high-income earners, as opposed to a proportional tax which takes the same percentage of income from all income groups.

Question 15

The values of the Gini coefficient range from zero to +1.

Accepted Answer

The Gini coefficient ranges from 0 to 1, where 0 represents perfect equality and 1 represents perfect inequality.

Question 16

One World View article is titled "Bono Says "Stupid" to Pay Irish Taxes."" The band U2 moved its corporate headquarters to Amsterdam because the Irish government

Accepted Answer

The Irish government capped tax-free royalty income at $360,000, which prompted U2 to move its corporate headquarters to Amsterdam to benefit from more favorable tax laws regarding royalty income.

Question 17

Public education is an in-kind benefit.

Accepted Answer

Public education is provided by the government as a service to citizens and is not directly paid for by individuals, thus it is an in-kind benefit.

Question 18

The benefits of a flat tax include all of the following except

Accepted Answer

The elimination of exemptions for children is a disadvantage of a flat tax as it may disproportionately affect families with children.

Question 19

The principle of horizontal equity is violated if two people who earn the same amount of income actually pay a different amount in taxes.

Accepted Answer

Horizontal equity means that individuals who have the same income should pay the same amount of taxes. If two people who earn the same amount of income actually pay a different amount in taxes, then the principle of horizontal equity is violated.

Question 20

In making comparisons of personal income among countries,care must be exercised because in poor countries much of what is produced does not pass through markets and thus does not get counted in the nation's income.

Accepted Answer

This statement is true. In poor countries, a significant portion of economic activity may occur in the informal sector or subsistence agriculture, meaning that it is not captured in official statistics of national income. As a result, comparisons of personal income across countries based solely on official statistics may be misleading.

Quiz 33: Taxes: Equity Versus Efficiency