Chapter 6 Practice Quiz

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Question #1

How do taxation and user charges compare as government revenue sources?

A User charges generate much more revenue than do taxes.

B We don’t know because the government does not publish revenue figures broken down.

C Each generates about the same amount of government revenue.

D Revenues from taxation are much greater than revenues from user charges.

Question #2

Social Security contributions are

A mandatory taxes partially paid out of workers’ wages and salaries.

B entirely paid by your employer.

C a voluntary dollar amount that people contribute towards Social Security.

D collected only from people earning more than $120,000 a year.

Question #3

Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $40,000. What is the marginal and average tax rate for Family A?

A marginal-25 percent; average-20 percent

B marginal-20 percent; average-25 percent

C marginal-10 percent; average-10 percent

D marginal-20 percent; average-10 percent

Question #4

The main source of government funding is

A user fees.

B transfer payments.

C borrowing.

D taxes.

Question #5

Which of the following is TRUE about the effects of an excise tax if consumers are totally unresponsive to price changes?

A Consumers pay all of the excise tax.

B Consumers and producers share the excise tax equally.

C Producers pay all of the excise tax.

D Neither consumers nor producers pay the excise tax.

Question #6

A tax system that applies a lower marginal tax rate at higher levels of income is

A backward.

B proportional.

C progressive.

D regressive.

Question #7

What happens when the government imposes a unit excise tax on a good?

A The demand for the newly taxed good decreases.

B The amount of the tax is added to the current equilibrium price.

C The newly taxed good’s supply curve shifts vertically upward by the amount of the per-unit tax being levied.

D That good’s supply curve shifts down by the amount of the tax.

Question #8

Suppose the capital gains tax is 28 percent and you purchased a house ten years ago for $80,000. If you sold the house today you would get $140,000. Your tax liability would be

A $39,200

B indeterminate without knowing the inflation rate.

C $16,800.00

D indeterminate without knowing the personal income tax rate.

Question #9

Sales taxes are routinely collected by

A the Internal Revenue Service.

B the Department of Commerce.

C the Federal Trade Commission.

D the merchants selling the good or services.

Question #10

The federal income tax code of the United States is

A progressive for individuals but proportional for married couples.

B progressive.

C regressive.

D proportional.

Question #11

The Social Security program is financed directly from

A voluntary contributions by the elderly.

B sales taxes on goods with inelastic demand.

C poll taxes.

D payroll taxes.

Question #12

The imposition of a tax on a product

A shifts the supply curve to the left.

B shifts the demand curve to the right.

C shifts both the supply and the demand curve to the right.

D shifts the supply curve to the right.

Question #13

Assume that the government one day decides to tax greens fees at all state golf courses. To the government’s dismay, not only was the amount of tax collected small, but there was a 90 percent decline in golfing. What type of tax analysis did the government apparently rely upon when it imposed this tax?

A ad hoc tax analysis

B dynamic tax analysis

C transaction cost analysis

D static tax analysis

Question #14

When the profits of a corporation are taxed and the dividends paid to stockholders are also taxed

A the government is engaging in capital gains taxation.

B the government is engaging in regressive taxation.

C the government is engaging in double taxation.

D the government is engaging in progressive taxation.

Question #15

The Social Security tax is considered to be a

A regressive tax.

B proportional tax.

C marginal tax.

D progressive tax.

Question #16

A tax system in which the average and marginal tax rates are the same for every level of taxable income and every change in income is an example of

A proportional taxation.

B regressive taxation.

C premium taxation.

D progressive taxation.

Question #17

Suppose the tax rate on the first $10,000 of income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on income over $60,000. Family A has an income of $55,000. What is the tax liability of Family A?

A $7,500

B $16,500

C $3,400

D $6,600

Question #18

Unit excise taxes imposed on gasoline, alcohol, and cigarettes are

A paid by the wholesalers of these products.

B largely paid by consumers because they are not very responsive to price changes.

C largely paid by the producers because they want to maintain their level of sales.

D shared equally between the producer and the consumer.

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Chapter 6 Practice Quiz

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