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20-61
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficulty:
02 Medium
Learning Objective: 20-07 Explain the principles relating to tax shifting, tax incidence, and the
efficiency losses caused by taxes.
Test Bank: I
To pic :
Tax Incidence and Efficiency Loss
116. (Advanced analysis) The equations for the demand and supply curves for a particular
product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in
units of 100. After an excise tax is imposed on the product, the supply equation is P = 3 +
0.4Q. Government's revenue from this tax is
A. $750.
117. (Advanced analysis) The equations for the demand and supply curves for a particular
product are P = 10 − 0.4Q and P = 2 + 0.4Q, where P is price and Q is quantity expressed in
units of 100. After an excise tax is imposed on the product, the supply equation is P = 3 +
0.4Q. The efficiency loss of this tax is
A. $125.00.
118. Sales and excise taxes are levied on retailers, but retailers add these taxes to the prices of
their products. This illustrates the
119. The property tax may be regressive even though wealthy people own much more taxable
property than do poor people. This possibility arises because
A. marginal and average tax rates on property tend to converge.
120. Which of the following taxes is most likely to be shifted?
D. a property tax on an owner-occupied residence
20-63
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficulty:
02 Medium
Learning Objective: 20-07 Explain the principles relating to tax shifting, tax incidence, and the
efficiency losses caused by taxes.
Test Bank: I
To pic :
Tax Incidence and Efficiency Loss
121. Which of the following taxes is least likely to be shifted?
A. a state excise tax on the sellers of football tickets
122. (Consider This) Which of the following claims is not made by defenders of lotteries?
A. Lotteries are a relatively painless way to fund important government services.
123. (Consider This) Payout rates for state lotteries
20-64
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C. are roughly equal to the payout rates from casinos.
D. cannot be compared with casino payout rates because states do not typically disclose their
payout rates.
124. (Consider This) A value-added tax (VAT)
A. is another name for a retail sales tax but is otherwise the same.
125. (Consider This) Proponents of a value-added tax (VAT) claim that a VAT
A. is progressive, leading to a more equitable distribution of income.
20-65
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b il i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a
nations tax burden.
Learning Objective: 20-08 Discuss the probable incidence of U.S. taxes and how the
distribution of income between rich and poor is affected by government taxes, transfers, and
spending.
Test Bank: I
To pic :
Apportioning the Tax Burden
T o p i c :
Probable Incidence of U.S. Taxes
126. (Consider This) Which of the following claims is not made by opponents of a value-added
tax (VAT)?
A. Savings and investment is discouraged because future consumption is penalized.
127. (Last Word) In 2012, approximately what percentage of household income was transferred
from the top two quintiles to the lowest three quintiles?
A. zero
20-66
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a
nations tax burden.
Learning Objective: 20-08 Discuss the probable incidence of U.S. taxes and how the
distribution of income between rich and poor is affected by government taxes, transfers, and
spending.
Test Bank: I
To pic :
Apportioning the Tax Burden
T o p i c :
Probable Incidence of U.S. Taxes
128. (Last Word) For each dollar paid in taxes, approximately how much do households in the
top quintile receive back in the form of government expenditures?
129. (Last Word) Which of the following statements about taxes and government spending is
correct?
A. Despite the overall progressive tax system, government expenditures disproportionately
favor the rich and result in a system that is slightly regressive.
20-67
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b il i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 20-06 Summarize the different philosophies regarding the distribution of a
nations tax burden.
Learning Objective: 20-08 Discuss the probable incidence of U.S. taxes and how the
distribution of income between rich and poor is affected by government taxes, transfers, and
spending.
Test Bank: I
To pic :
Apportioning the Tax Burden
T o p i c :
Probable Incidence of U.S. Taxes
True / False Questions
130. "Tax Freedom Day" in the United States typically occurs in mid-July.
131. Government assumes some responsibility for providing a minimum standard of living for
all citizens to compensate for the increase in income inequality caused by government tax
revenues and expenditures.
132. The largest source of local government's revenue is the sales tax.
133. The basic source of state government's revenue is the property tax.
134. The major expenditure of local governments is for education.
135. A tax is progressive if the average tax rate rises as income increases.
20-69
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 20-03 List the main categories of federal revenue and spending and
describe the difference between marginal and average tax rates.
Test Bank: I
To pic :
Federal Finance
136. If you pay a $2,000 tax on $10,000 of taxable income and a $4,000 tax on a taxable income
of $16,000, the tax is progressive.
137. The marginal tax rate is the tax rate that applies to additional income.
138. About two-thirds of all federal spending is for national defense.
139. A progressive tax takes relatively more from the rich than it does from the poor.
140. The benefits-received principle of taxation is used to support corporate and personal
income taxes.
141. Sales taxes are proportional in relation to income because the same tax rate applies
regardless of the size of a purchase.
20-71
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
T o p i c :
Probable Incidence of U.S. Taxes
142. Sales taxes on consumer goods are regressive because poor people consume a larger
proportion of their incomes than do rich people.
143. A highly progressive tax takes relatively more from the rich than it does from the poor.
144. Given supply, the more inelastic the demand for a product, the larger the portion of an
excise tax that is shifted to consumers.
20-72
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 20-07 Explain the principles relating to tax shifting, tax incidence, and the
efficiency losses caused by taxes.
Test Bank: I
To pic :
Tax Incidence and Efficiency Loss
145. Given demand, the more inelastic the supply of a product, the larger the portion of an
excise tax that is borne by producers.
146. The efficiency loss of a tax is the tax revenue collected by government minus the value of
the public goods financed through the tax.
147. The greater the elasticity of demand and supply, the greater is the efficiency loss of a tax.
20-73
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
efficiency losses caused by taxes.
Test Bank: I
To pic :
Tax Incidence and Efficiency Loss
148. Economists agree that corporations always shift the corporate income tax to consumers by
raising product prices.
149. Although state and local taxes are highly progressive, federal taxation is predominantly
regressive.
Multiple Choice Questions
150. In economics, the "public sector" refers to the
20-74
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written consent of McGraw-Hill Education.
B. consuming public as well as businesses.
C. federal, state, and local government.
D. publicly owned corporations.
151. Public finance is the subdiscipline of economics that studies the various ways in which
A. the general public acquire financing for their purchases.
152. The following are government activities that are involved in public finance, except
A. providing public goods and services, such as national defense and education.
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153. The circular flow model with government included would show that government
A. controls economic resources and sells them in the resource market.
154.
In the diagram, if box E represents government, box C businesses, and box A households, then
flows (11) and (12) would represent
A. goods and services.
20-76
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written consent of McGraw-Hill Education.
C. resources.
D. net taxes.
155.
In the diagram, if box E represents government, box D the resource market, and box B the
product market, then flows (5) and (7) represent
A. goods and services.
20-77
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 20-01 Use a circular flow diagram to illustrate how the allocation of
resources is affected by governments revenue and expenditure decisions.
Test Bank: II
Topic:
Government and the Circular Flow
156.
In the diagram, if box E represents government, box C businesses, box D the resource market,
and box B the product market, then government purchases of computers, office supplies, and
military hardware would be illustrated by arrows
A. 5 and 6.
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157.
In the diagram, if box E represents government, box C businesses, box D the resource market,
and box B the product market, then government hiring of teachers, soldiers, police, and judges
would be illustrated by arrows
D. 10 and 11.
158. The flow of "net taxes" in the circular flow model with a government sector accounts for
the following items, except
A. transfer payments such as social security benefits.
20-79
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C. proprietary income generated by public utilities and state lotteries.
D. salaries to military personnel, public school teachers, and government inspectors.
159. "Transfer payments" may be thought of as
A. wages and salaries.
160. A major distinction between government purchases and government transfer payments is
that
D. government purchases of goods and services have increased more rapidly during the past 20
years than have transfer payments.
20-80
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written consent of McGraw-Hill Education.
sources of government revenue.
Test Bank: II
Topic:
Government Finance
161. According to data compiled by the Bureau of Economic Analysis, in 2015, total
government spending (comprising purchases and transfers) in the U.S. was about
A. 10 percent of the economy's total output.
162. From 1960 to 2015, government purchases as a percentage of U.S. output have
A. remained approximately constant.
163. According to data compiled by the Bureau of Economic Analysis, from 1960 to 2015,
government transfer payments as a percentage of U.S. output have
A. decreased as a result of improvements in private pension and health insurance plans.
