Question 1

The marginal tax rate will eventually exceed the average tax rate for a:

Accepted Answer

A progressive tax means that the more someone earns, the higher the percentage of their income they pay in taxes. As their income increases, they move into higher tax brackets with higher tax rates. This means that their marginal tax rate (the tax on each additional dollar earned) will be higher than their average tax rate (the total tax paid as a percentage of their total income). Therefore, the marginal tax rate will eventually exceed the average tax rate for a progressive tax.

Question 2

Taxes:

Accepted Answer

Taxes are compulsory payments associated with certain activities, such as income, sales, property ownership, and so on. Governments enforce tax collection to fund public expenditures and provide public goods and services. Taxes can significantly affect market outcomes and resource allocation, as they create incentives and disincentives for individuals and firms to consume, produce, work, save, and invest. Therefore, taxes have important economic and social implications and are a crucial tool for government policy.

Question 3

If the marginal tax rate is 20% under a proportional tax rate structure, the average tax rate:

Accepted Answer

In a proportional tax rate structure, the marginal tax rate is equal to the average tax rate, so both should be 20%.

Question 4

A proportional income tax has an average tax rate that:

Accepted Answer

In a proportional income tax system, the average tax rate is constant and equal to the marginal tax rate for all levels of income.

Question 5

Marginal tax rates were reduced in 2001. Other things being equal, this is likely to:

Accepted Answer

The reduction in marginal tax rates would decrease the incentive for individuals or businesses to engage in tax evasion because the tax burden would be lower. Therefore, they would have less motivation to hide their income or assets or underreport their liabilities to avoid paying taxes. This is because the cost of tax evasion is higher when marginal tax rates are higher as the potential penalty is more substantial. Thus, decreasing marginal tax rates is likely to discourage tax evasion.

Question 6

Which of the following countries has the highest average tax rate relative to GDP

Accepted Answer

The answer of Which of the following countries has the...

Question 7

If the average tax rate under a progressive tax rate structure is 35%, a possible marginal tax rate is:

Accepted Answer

In a progressive tax system, the marginal tax rate is higher than the average tax rate. Therefore, a marginal tax rate of 42% is possible when the average tax rate is 35%.

Question 8

Taxes are likely to affect:

Accepted Answer

Taxes affect market equilibrium by changing the supply and demand for goods and services. They affect political equilibrium by influencing the distribution of power and resources among different groups in society. They also affect the distribution of income by redistributing wealth from one group to another.

Question 9

The tax base of a payroll tax is:

Accepted Answer

The tax base of a payroll tax is labor income, as payroll taxes are typically levied on wages and salaries.

Question 10

A government prints money to finance its expenditures. As a result,

Accepted Answer

Printing money to finance expenditures typically leads to inflation (B) as it increases the money supply without a corresponding increase in goods and services. Additionally, inflation can erode purchasing power, effectively making consumers give up private goods (C) as prices rise.

Question 11

A bridge becomes congested after 100 vehicles per hour use it on any day. To achieve efficiency, a toll:

Accepted Answer

The answer of A bridge becomes congested after 100 vehicles...

Question 12

A tax on the value of real estate holdings is a:

Accepted Answer

A tax on the value of real estate holdings is a selective tax on wealth, as it specifically targets the value of one's real estate holdings rather than their overall income or wealth.

Question 13

Explain why it is difficult to evaluate alternative means of government finance according to a single criterion. What important economic and social variables are likely to be affected by the means of financing government goods and services Are flat-rate taxes inherently more desirable than taxes with progressive rate structures

Accepted Answer

The answer of Explain why it is difficult to evaluate...

Question 14

A payroll tax taxes a worker's wages at 14 percent until the worker earns $60,000 per year. All labor earnings in excess of $60,000 are not subject to tax. The tax rate structure of the payroll tax is therefore:

Accepted Answer

A regressive tax system means that people with lower incomes pay a higher percentage of their income in taxes compared to those with higher incomes. In this case, the payroll tax is regressive because all workers are taxed at the same 14 percent rate until they reach $60,000 in income, after which any additional income is not subject to the tax. This means that someone earning $100,000 per year would pay a lower overall percentage of their income in taxes compared to someone earning $70,000 per year, for example. Therefore, the payroll tax is regressive.

Question 15

An excise tax is a:

Accepted Answer

An excise tax is a selective consumption tax that is levied on specific goods and services such as tobacco, alcohol, and gasoline. It is not a general tax that applies to all goods and services.

Question 16

A 5-percent retail sales tax on all consumer purchases in a state is imposed. The sales tax is:

Accepted Answer

A 5-percent retail sales tax is a flat-rate tax because it applies the same percentage rate to all consumer purchases regardless of the amount.

Question 17

A tax on real estate is a:

Accepted Answer

A tax on real estate is a selective wealth tax because it targets the specific asset of real estate and is based on the value of that asset. It is not a general tax on all income or consumption, nor does it apply to all types of wealth.

Question 18

Tax avoidance is:

Accepted Answer

Tax avoidance is the legal practice of minimizing tax liability through various means, such as deductions and credits, by adjusting financial behavior within the law.

Question 19

What is an example of a normative criterion that a government must trade-off in its method of taxation

Accepted Answer

Normative criteria in taxation involve value judgments about what is fair or desirable. Equity, efficiency, and administrative ease are all normative criteria that governments consider and trade-off when designing tax systems.

Quiz 10: Introduction to Government Finance