Deck 33: Taxes: Equity Versus Efficiency

Question 1

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.

Answer 1

Only money income.

Question 2

How income is distributed is typically measured using

A)In-kind income.
B)Personal income.
C)Wealth.

Answer 2

Personal income.

Question 3

According to the Census Bureau,in 2010 nearly _____________ Americans were counted as poor.

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

Answer 3

9 million

Question 4

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.

Question 5

The federal income tax is designed to

A)Shift the Lorenz curve inward.
B)Shift the Lorenz curve outward.
C)Raise the Gini coefficient.

Question 6

Income is measured as

A)A flow only.
B)A stock only.
C)Both a flow and a stock.

Question 7

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.

Question 8

Medicare is an example of

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

Question 9

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

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

Question 10

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

Question 11

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.

Question 12

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.

Question 13

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.

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.

Question 15

In the United States between 1980 and 2009,the Gini coefficient

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

Question 16

Public housing is an example of

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

Question 17

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.

Question 18

Wealth is measured as

A)A flow only.
B)A stock only.
C)Both a flow and a stock.

Question 19

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

A)Market share.
B)Income share.
C)Gini coefficient.

Question 20

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.

Question 21

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.

Question 22

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.

Question 23

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

A)Regressive tax only.
B)Flat tax only.
C)Progressive tax only.

Question 24

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.

Question 25

In general,lower marginal tax rates provide incentives to

A)Work less.
B)Produce more output.
C)Invest less.

Question 26

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.

Question 27

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.

Question 28

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.

Question 29

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.

Question 30

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.

Question 31

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.

Question 32

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.

Question 33

A tax is progressive if it takes a

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

Question 34

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

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

Question 35

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.

Question 36

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.

Question 37

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.

Question 38

Which of the following is a progressive tax?

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

Question 39

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.

Question 40

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 Aaron has taxable income equal to $60,000 for the year,what is his tax bill?

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

Question 41

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.

Question 42

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.

Question 43

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.

Question 44

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.

Question 45

If an accountant makes $80,000 and after deductions pays $8,000 in taxes while a secretary makes $35,000 and after deductions pays $4,000 in taxes,this is an example of

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

Question 46

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.

Question 47

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.

Question 48

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

Question 49

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.

Question 50

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.

Question 51

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.

Question 52

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.
C)A flat tax.

Question 53

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.

Question 54

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.

Question 55

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.

Question 56

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.

Question 57

A tax that is designed to be progressive will improve

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

Question 58

An increase in deductions,exemptions,and credits in the tax code will

A)Reduce the tax base.
B)Allow lower rates to raise the same tax revenues.
C)Induce economic activity to go underground.

Question 59

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.

Question 60

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.

Question 61

A 7.25 percent sales tax

A)Is a proportional tax because the rate is the same for all income groups.
B)Is a progressive tax because high-income individuals buy more goods and services than low-income individuals.
C)Is a regressive tax because poor individuals consume a higher percentage of their income than high-income individuals.

Question 62

The argument against greater equality in the distribution of income in the United States hinges basically on

A)Loss of incentives.
B)Greater productivity.
C)The loss of horizontal equity.

Question 63

Government failure

A)Occurs whenever the government intervenes in the market.
B)Does not occur;only market failure occurs.
C)Results when government intervention fails to improve market outcomes.

Question 64

A tax system in which tax rates fall as incomes rise is

A)Regressive.
B)Proportional.
C)Flat.

Question 65

Which of the following is an example of an indirect income transfer?

A)Public schools.
B)Social Security payments.
C)Unemployment benefits.

Question 66

The changes contained in the 1990 and 1993 tax increases

A)Increased the variation in the effective tax rates.
B)Left a lot of variation in the effective tax rates.
C)Reduced the variation in the nominal tax rates.

Question 67

The changes contained in the Tax Reform Act (TRA)of 1986 included

A)Narrowing the tax base.
B)Lowering marginal tax rates.
C)A partial shift from corporate to personal taxes.

Question 68

Which of the following was a basic feature of the Tax Reform Act of 1986?

A)A shift from corporate to personal taxes.
B)Tax relief for the rich.
C)Loophole closing.

Question 69

The Bush tax cuts of 2001-2010 reduced

A)The top marginal tax rate from 39.6 percent to 35 percent.
B)The marginal tax rate for the highest income class to 10 percent.
C)Incentives for education.

Question 70

The U.S.tax system as a whole is basically

A)Progressive.
B)Regressive.
C)Proportional.

Question 71

The fact that landlords are able to pass the majority,but not all,of the burden of property taxes on to renters suggests that the price elasticity of demand for apartments is

A)Elastic.
B)Inelastic.
C)Perfectly elastic.

Question 72

Which of the following is a payroll tax?

A)The Social Security tax.
B)A sales tax.
C)The federal income tax.

Question 73

Greater equality in income is supported by the argument that it

A)Increases horizontal equity.
B)Stimulates consumption.
C)Increases incentives to work for low-income earners.

Question 74

The marginal revenue product (MRP)establishes

A)An upper limit to the productivity of a worker.
B)An upper limit to the wage rate an employer is willing to pay.
C)A lower limit to the wage rate demands of laborers.

Question 75

Which of the following is an example of an explicit income transfer?

A)The check received by a person currently employed by the postal service.
B)A Social Security pension paid to a retired factory worker.
C)A payment to a member of the U.S.Army who has recently been transferred to Germany.

Question 76

Which of the following is true about a payroll tax?

A)It shifts the labor supply curve to the right.
B)It reduces the net wage to employees.
C)It results in more workers being employed.

Question 77

State and local governments generate most of their revenues through

A)Income taxes.
B)Sales and property taxes.
C)Corporate profit taxes.

Question 78

The Bush tax cuts of 2001-2010 increased education incentives,and as a result,

A)New vertical inequities were introduced into the tax system.
B)Low-income households benefited more than all other households.
C)College enrollments were expected to increase significantly.

Question 79

Since the current tax system is fairly ineffective at redistributing income,some people think this indicates

A)Government failure.
B)A problem with externalities.
C)Market failure.

Question 80

Tax incidence most accurately refers to

A)Those from whom a tax is collected.
B)The distribution of the real burden of a tax.
C)The relative tax burdens of state and local governments.