Deck 18: Personal Taxation and Behavior

Question 1

The Laffer curve is

A)never referred to in modern day discussions of public finance.
B)a curve that describes the relationship between tax rates and tax revenues.
C)used to describe the relationship between consumption and hours worked.
D)a curve that refers to the endowment of time.

Answer 1

a curve that describes the relationship between tax rates and tax revenues.

Question 2

An intertemporal budget constraint

A)requires an endowment point.
B)requires time to remain constant.
C)has no endowment point.
D)requires time to move in a loop.

Answer 2

requires an endowment point.

Question 3

A compensation package offered by employers often includes

A)wages.
B)health benefits.
C)vacations.
D)pensions.
E)all of the above.

Answer 3

all of the above.

Question 4

An individual's consumption and saving behavior during a given year,as a result of a planning process that considers his or her lifetime economic situations,is known as the

A)lifetime model.
B)consumption model.
C)life-cycle model.
D)income model.

Question 5

An decrease in the interest rate will cause the intertemporal budget constraint to _______________ through the endowment point.

A)pivot clockwise
B)pivot counter-clockwise
C)shift clockwise
D)shift counter-clockwise

Question 6

Real rates of return are

A)not taxed.
B)not adjusted for inflation.
C)adjusted for inflation.
D)used in individual financing and not corporate financing.

Question 7

The personal income tax excludes the imputed rent from owner-occupied housing from taxation.

Question 8

Human capital is

A)how firms use more humans than machines in the production process.
B)the accumulation of investments that make people more productive.
C)more costly than other forms of capital.
D)none of the above.

Question 9

An income effect

A)is measured as the change in prices over time.
B)is not possible when people are unemployed.
C)requires interest rates to remain constant.
D)is the change in the quantity demand due to the fact that real income changes when prices change.

Question 10

In the leisure-income model,taxing income causes

A)the budget constraint to kink.
B)males to work to change their work habits dramatically.
C)utility to increase.
D)all of the above.

Question 11

Social savings is

A)just another way of defining security.
B)the sum of government and private savings.
C)government savings only.
D)defined by higher rates of interest for the government.

Question 12

On the Laffer curve,an increase in tax rates causes tax revenue to increase if the starting point is

A)to the right of the top.
B)exactly at the top.
C)to the left of the top.
D)to the farthest point to the right.

Question 13

The consumption bundle that is available,if there are no exchanges with the market,is known as the

A)federal system.
B)endowment point.
C)Ramsey Rule.
D)Gross Replacement Rate.

Question 14

An example of a tax-preferred savings account would be

A)an IRA.
B)an interest bearing savings account.
C)a noninterest bearing checking account.
D)cash.

Question 15

Residential housing consumption is not affected by U.S.personal income taxes.

Question 16

In 2009,President Obama proposed limiting the value of deductions for high-earners.

Question 17

No profession in the United States has what is known as a "backward bending" supply curve.

Question 18

The theoretical effects of taxation on portfolio composition are ambiguous.

Question 19

Full loss offset allows individuals to

A)claim children as dependents.
B)deduct mortgage interest from taxes.
C)deduct savings interest from taxes.
D)deduct capital losses from taxable income.

Question 20

To accurately draw a labor supply curve,there should be a relationship between _______ and __________.

A)the wage rate;utility
B)total expenditures;the wage rate
C)the wage rate;hours worked
D)taxes;utility

Question 21

In the textbook,there was a discussion of the average numbers of hours worked in the US being around 34 hours per week.As you enter the work force,do you expect this number to increase or decrease?

Question 22

Sometimes increases in the wage rate will cause individuals to work more hours.It is also the case that this same increase could cause people to work fewer hours.What is happening to cause this variance?

Question 23

Big Boi earns $4,000 and she wants to save it for retirement,which is 10 years away.She can either save it in a taxable account or put it into a Roth IRA.Suppose that Big Boi can receive an annual rate of return of 8 percent and her marginal tax rate is 25 percent.By the time she reaches retirement,how much money would she have in either option?
NOTE: Big Boi has to pay tax on the $4,000,so she cannot put the full amount into either the taxable account or the Roth IRA.

Question 24

Jennifer lives in two periods.In the first period,her income is fixed at $72,000;in the second,she is gets a 4% raise in her income.She can borrow and save at the market interest rate of 5 percent.
(A)Sketch her intertemporal budget constraint.
(B)Suppose that Jennifer is unable to lend at any rate of interest,although she can still borrow at 5 percent.Sketch her new intertemporal budget constraint.

Question 25

A capital shortage results from insufficient capital to meet our national "needs."

Question 26

Suppose the labor supply equation is L = (W/3)- (4/3).The wage rate is initially 5.What is the amount of producer surplus here?

Question 27

Refer to Figure 18.7 in your textbook.The intercept point N is actually found by I₁ + I₀(1 + r).The intercept point M is calculated by I₀ + I₁/(1 + r).Show that the slope of the budget constraint is indeed
.

Question 28

Refer to Figure 18.1 in your textbook.If the total number of hours (T)per week is 168 and the wage rate is $10,how much consumption is possible if the number of hours worked is 35? How does your answer change if the wage rate decreases to $8.50 but number of hours worked also increases to 40?

Question 29

The analysis of a progressive tax is very similar to that of a proportional tax.

Question 30

Returns to investments in human capital can be calculated with great accuracy.

Question 31

The tax code in the United States allows for the deductibility of mortgage interest,but not for interest on credit cards.Why is this difference allowed to exist?