Download Exhibit 10 Marginal tax rate lines

Chapter 22
The Public Sector
1. Currently, total government expenditures in the United States
a. 40 percent of GDP.
b. 50 percent of GDP.
c. 75 of GDP.
d. 80 percent of GDP.
ANS
a. Correct. Currently, total government expenditures in the United States are close to40
percent of GDP. See Exhibit 1 in the text.
b. Incorrect. Currently, total government expenditures in the United States are close to
one third of GDP. See Exhibit 1 in the text.
c. Incorrect. Currently, total government expenditures in the United States are close to
one third of GDP. See Exhibit 1 in the text.
d. Incorrect. Currently, total government expenditures in the United States are close to
one third of GDP. See Exhibit 1 in the text.
2. Which of the following categories accounted for the largest percentage of total federal
government expenditures in recent years?
a. income security
b. national defense
c. education and health
d. interest on the national debt
ANS
a. Correct. This category includes Social Security, Medicare, and other federal
government entitlement programs. See Exhibit 2 in the text.
b. Incorrect. This category is in second place. See Exhibit 2 in the text.
c. Incorrect. This category is the third largest. See Exhibit 2 in the text.
d. Incorrect. This category is the fourth largest. See Exhibit 2 in the text.
3. Which of the following taxes contributed the greatest percentage of total federal
government tax revenues in recent years?
a. individual income taxes
b. corporate income taxes
c. social Security taxes
d. excise taxes
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ANS
a. Correct. This is the largest tax receipts category. See Exhibit 4 in the text.
b. Incorrect. This category is in third place. See Exhibit 4 in the text.
c. Incorrect. Social insurance taxes are the second largest category. See Exhibit 4 in the
text.
d. Incorrect. This category and other taxes were below individual income taxes, social
insurance, and corporate income taxes. See Exhibit 4 in the text.
4. How do total taxes as a percentage of GDP in the United States compare to those of
Western European countries, such as the United Kingdom, Germany, and Sweden?
a. U.S. taxation is smaller.
b. U.S. taxation is about the same.
c. U.S. taxation is slightly larger.
d. U.S. taxation is substantially larger.
ANS
a. Correct. U. S. taxation as a percentage of GDP is much smaller compared to these
countries. See Exhibit 3 in the text.
b. Incorrect. U. S. taxation as a percentage of GDP is much smaller compared to these
countries. See Exhibit 3 in the text.
c. Incorrect. U. S. taxation as a percentage of GDP is much smaller compared to these
countries. See Exhibit 3 in the text.
d. Incorrect. U. S. taxation as a percentage of GDP is much smaller compared to these
countries. See Exhibit 3 in the text.
5. The benefits-received principle of taxation is most evident in
a. progressive tax rates.
b. excise taxes on gasoline.
c. the personal income tax.
d. the corporate income tax.
ANS
a. Incorrect. Paying a higher proportion of income as income rises does not necessarily
provide benefits from government programs financed by the tax.
b. Correct. The benefits-received principle of taxation is most evident in excise taxes on
gasoline.
c. Incorrect. People who pay this tax do not necessarily benefit from government
programs financed by the tax.
d. Incorrect. Corporation that pay this tax do not necessarily benefit from government
programs financed by the tax.
6. A tax is regressive if it collects a
a. larger amount as income rises.
b. constant amount as income rises.
c. smaller fraction of income as income falls.
d. smaller fraction of income as income rises.
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ANS
a. Incorrect. A tax is regressive if it collects a smaller fraction of income as income rises.
b. Incorrect. A tax is regressive if it collects a smaller fraction of income as income rises.
c. Incorrect. A tax is regressive if it collects a smaller fraction of income as income rises.
d. Correct. A tax is regressive if it collects a smaller fraction of income as income rises.
7. Which of the following is an example of a progressive tax?
a. excise tax on cigarettes
b. federal tax on gasoline
c. federal personal income tax
d. all of the above answers are correct
ANS
a. Incorrect. An excise tax on cigarettes is regressive.
b. Incorrect. A federal tax on gasoline is regressive.
c. Correct. Person with a higher income pay a higher percentage in taxes.
d. Incorrect. Answer c. is correct.
8. A tax is structured so that people with the same income pay the same percentage of
their income in taxes is called a (an)
a. flat tax.
b. regressive tax.
c. progressive tax.
d. excise tax.
ANS
a. Correct. A tax is structured so that people with the same income pay the same
percentage of their income in taxes is called a flat tax.
b. Incorrect. People with lower incomes pay a larger percentage of their income in taxes.
c. Incorrect. People with lower incomes pay a smaller percentage of their income in
taxes.
d. Incorrect. This is a tax on certain goods.
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Exhibit 10 Marginal tax rate lines
S
Marginal tax
rate
C
A
Income
9. In Exhibit 10, line A represents a (an)
a. regressive tax.
b. progressive tax.
c. proportional tax.
d. ability-to-pay tax.
ANS
a. Correct. Line A is downward sloping because the tax rate falls as income rises.
b. Incorrect. In this case, the line must be upward sloping.
c. Incorrect. In this case, the line must be flat.
d. Incorrect. In this case, the line must be upward sloping.
10. In Exhibit 10, line B represents a
a. regressive tax.
b. progressive tax.
c. proportional tax.
d. flat tax.
ANS
a. Incorrect. In this case, the line must be downward sloping.
b. Correct. Line B is upward sloping because the tax rate rises as income rises.
c. Incorrect. In this case, the line must be flat.
d. Incorrect. In this case, the line must be flat.
11. In Exhibit 10, line C represents a
a. regressive tax.
b. progressive tax.
c. proportional tax.
d. ability-to-pay tax.
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ANS
a. Incorrect. In this case, the line must be downward sloping.
b. Incorrect. In this case, the line must be upward sloping.
c. Correct. Line C is flat because the tax rate is the same for all levels of income.
d. Incorrect. In this case, the line must be upward sloping.
12. In Exhibit 10, if A represents state and local taxes and B represents federal income
taxes, what is the result of imposing both types of taxes?
a. a regressive tax
b. a progressive tax
c. a proportional tax
d. an ability-to-pay tax
ANS
a. Incorrect. In this case, the line must be downward sloping.
b. Incorrect. In this case, the line must be upward sloping.
c. Correct. In this case, progressive federal taxes offset regressive state and local taxes.
d. Incorrect. In this case, the line must be upward sloping.
13. The study of the decision-making process of government is the study of
a. Keynesian economics.
b. public choice theory.
c. rational expectations theory.
d. social economics.
ANS
a. Incorrect. Keynesian economics believes the government should manage aggregate
demand.
b. Correct. The study of the decision-making process of government is the study of public
choice theory.
c. Incorrect. This is the belief that people anticipate government policies.
d. Incorrect. This is a meaningless term.
14. People who often create benefits for the minority and impose the cost on the majority
are called
a. fair-interest groups.
b. encounter groups.
c. laissez-faire groups.
d. special-interest groups.
ANS
a. Incorrect. This is not a public choice theory group.
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b. Incorrect. This is not a public choice theory group.
c. Incorrect. This is not a public choice theory group.
d. Correct. People who often create benefits for the minority and impose the cost on the
majority are called special interest groups.
15. Voters may choose to remain uninformed about an issue because of
a. the special-interest effect.
b. rational ignorance.
c. bureaucratic inefficiency.
d. the shortsightedness effect.
ANS
a. Incorrect. This term does not cover voters being uninformed.
b. Correct. Voters may choose to remain uninformed about an issue because of rational
ignorance.
c. Incorrect. This term does not cover voters being uninformed.
d. Incorrect. This term does not cover voters being uninformed.
16. Which of the following categories accounted for the lowest percentage of total
federal government expenditures in recent years?
a. income security
b. national defense
c. education and health
d. interest on the national debt
ANS
a. Incorrect. Interest on the national debt is the lowest of the categories listed in this
question. See Exhibit 2 in the text.
b. Incorrect. Interest on the national debt is the lowest of the categories listed in this
question. See Exhibit 2 in the text.
c. Incorrect. Interest on the national debt is the lowest of the categories listed in this
question. See Exhibit 2 in the text.
d. Correct. Interest on the national debt is the lowest of the categories listed in this
question. See Exhibit 2 in the text.
17. Since 1929, total government taxes as a percentage of GDP
a. climbed from 10 percent to about 30 percent.
b. remained close to 30 percent.
c. climbed from 30 percent to about 50 percent.
d. climbed from 15 percent to about 50 percent.
ANS
a. Correct. Since 1929, total government taxes as a percentage of GDP climbed from 10
percent to about 30 percent. See Exhibit 1 in the text.
b. Incorrect. Since 1929, total government taxes as a percentage of GDP climbed from 10
percent to about 30 percent. See Exhibit 1 in the text.
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c. Incorrect. Since 1929, total government taxes as a percentage of GDP climbed from 10
percent to about 30 percent. See Exhibit 1 in the text.
d. Incorrect. Since 1929, total government taxes as a percentage of GDP climbed from 10
percent to about 30 percent. See Exhibit 1 in the text.
18. "It would be an undue hardship to require people whose income is below $15,000 per
year to pay income taxes." This statement reflects which of the following principles for a
tax?
a. benefits-received
B .inexpensive-to-collect
c. ability-to-pay
d. fairness of contribution
ANS
a. Incorrect. Under benefits-received, those who benefit from government expenditures
should pay the taxes.
b. Incorrect. This is a meaningless principle.
c. Correct. Under ability-to-pay, people with higher income can afford to pay a greater
percentage of income in taxes.
d. Incorrect. This is a meaningless principle.
19. If a person is taxed $100 on an income of $1,000, taxed $180 on an income of $2,000,
and taxed $220 on an income of $3,000, this person is paying a
a. progressive tax.
b. poll tax.
c. proportional tax.
d. regressive tax.
ANS
a. Incorrect. Tax rates are not rising as income rises in this question.
b. Incorrect. Poll tax is a fixed tax on voters.
c. Incorrect. Tax rates are not the same as income rises in this question.
d. Correct. Taxes as a percentage of income are 10%, 9%, and 7%. Since the percentage
falls as income rises, the tax is regressive
20. According to the shortsightedness effect, politicians tend to favor projects with
a. short-run benefits and short-run costs.
b. short-run benefits and long-run costs.
c. long-run benefits and short-run costs.
d. long-run benefits and long-run costs.
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ANS
a. Incorrect. According to the shortsightedness effect, politicians tend to favor projects with
short-run benefits and long-run costs.
b. Correct. According to the shortsightedness effect, politicians tend to favor projects with
short-run benefits and long-run costs.
c. Incorrect. According to the shortsightedness effect, politicians tend to favor projects with
short-run benefits and long-run costs.
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