ECO 450 Week 7 Quiz – Strayer
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Quiz 5 Chapter 10
Chapter
10
Introduction
to
Government Finance
Government Finance
True/False
Questions
1. Taxes
simultaneously ration and finance government goods and services.
2. The federal
government finances only half of its expenditures with taxes.
3. The benefit
principle argues that the means of financing government goods and services
should be linked to the benefits received from those goods and services.
4. Horizontal equity is achieved when individuals of
the same economic capacity pay the same amount of taxes over a given
period.
5. A flat-rate
income tax is a proportional tax on an income base.
6. The marginal
tax rate will eventually exceed the average tax rate if the tax rate structure
is proportional.
7. The marginal tax rate for a payroll tax is 7
percent on all wages up to $60,000 per year. The marginal tax rate for
wages in excess of $60,000 per year is zero. The payroll tax is therefore a
regressive tax.
8. Tax evasion
would be less of a problem if tax rates were lowered.
9. The user
charge for a congestible public good should be zero at all times.
10. Zero prices
for price-excludable government services provide benefits only to the
poor.
11. The gasoline
tax is an example of a general tax on consumption.
12. For a
proportional tax, the marginal tax rate is always equal to the average tax
rate.
13. Tax avoidance
is an illegal activity in the United States.
14. An increase in
marginal tax rates is likely to increase tax evasion.
15. Most studies
indicate that state-run lotteries are equivalent to a progressive tax on
gambling.
16. Government activity requires the
reallocation of resources from government to private use.
17. A flat income tax (i.e. a fixed
amount paid by every taxpayer) is an example of a selective tax.
18. The average tax rate and marginal tax
rate are the same under a progressive tax rate structure.
Multiple Choice Questions
1. According to
the benefit principle,
a. taxes
should be distributed according to ability to pay.
b. user
charges are an ideal source of finance for government goods and services.
c. the
progressive income tax represents the ideal way of distributing taxes among
citizens.
d. flat-rate
taxes are always the best kind.
2. If horizontal equity
is achieved in taxation,
a. vertical
equity will also be achieved.
b. individuals
of equal economic capacity will pay equal taxes.
c. a
flat-rate tax will be used.
d. the
tax system will not result in losses in efficiency in markets.
3. The tax base
of a payroll tax is:
a. consumer
expenditures.
b. interest
income.
c. labor
income.
d. both
(b) and (c)
4. A 5-percent
retail sales tax on all consumer purchases in a state is imposed. The sales tax
is:
a. a
flat-rate tax.
b. a
tax with a regressive rate structure.
c. levied
on an income base.
d. all
of the above
5. A tax on the
value of real estate holdings is a:
a. selective
tax on wealth.
b. general
tax on wealth.
c. general
tax on income.
d. selective
tax on income.
6. An excise tax
is a:
a. general
consumption tax.
b. selective
consumption tax.
c. general
wealth tax.
d. selective
tax on wealth.
7. A proportional income tax has
an average tax rate that:
a. always
is less than the marginal tax rate.
b. always
exceeds the marginal tax rate.
c. equals
the marginal tax rate at first and then becomes less than the marginal tax
rate.
d. always
equals the marginal tax rate.
8. 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:
a. proportional.
b. progressive.
c. regressive.
d. flat-rate.
9. A bridge
becomes congested after 100 vehicles per hour use it on any day. To achieve
efficiency, a toll:
a. that
charges all users of the bridge, no matter how many vehicles use it per hour,
should be imposed.
b. on
additional users in excess of 100 per hour should be imposed.
c. on
all users should be imposed, if more than 100 users per hour are expected.
d. is
not required.
10. A government
prints money to finance its expenditures. As a result,
a. the
economy can operate at a point outside its production possibility curve.
b. inflation
will occur.
c. consumers
will give up private goods to finance the increased government expenditures.
d. both
(b) and (c)
11. Taxes are
likely to affect:
a. market
equilibrium.
b. political
equilibrium.
c. the
distribution of income.
d. all
of the above
12. Taxes:
a. are
voluntary payments to governments.
b. are
unlikely to affect market supply and demand.
c. never
affect efficiency in the allocation of resources.
d. are
compulsory payments associated with certain activities.
13. A tax on real
estate is a:
a. general
wealth tax.
b. general
consumption tax.
c. selective
wealth tax.
d. selective
income tax.
14. The marginal
tax rate will eventually exceed the average tax rate for a:
a. proportional
tax.
b. regressive
tax.
c. progressive
tax.
d. flat-rate
tax.
15. Marginal tax
rates were reduced in 2001. Other things being equal, this is likely to:
a. increase tax evasion.
b. decrease tax evasion.
c. have no effect on tax evasion.
d. increase tax avoidance.
16. What
is an example of a normative criterion that a government must trade-off in its
method of
taxation?
a. Equity
b. Efficiency
c. Administrative ease
d. all of the above
17. Tax
avoidance is:
a. a means of tax evasion.
b. a means of decreasing taxes paid by adjusting
behavior.
c. a political process explicitly for the
reduction of taxation.
d. a means to avoid tax owed.
18. If the
marginal tax rate is 20% under a proportional tax rate structure, the average
tax rate:
a. should be 20%.
b. should be above 20%.
c. should be below 20%.
d. cannot be determined.
19. If the
average tax rate under a progressive tax rate structure is 35%, a possible
marginal tax rate is:
a. 30%.
b. 25%.
c. 42%.
d. not able to be determined.
20. Which of
the following countries has the highest average tax rate relative to GDP?
a. Japan
b. Sweden
c. Iceland
d. United Kingdom
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