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b.
$3.3
c.
$2.7
d.
$1.3
127. In 2011, the top 25 percent of income earners in the U.S. (by the size of their taxable incomes) paid about
__________ percent of the total federal income taxes.
a.
25
b.
30
c.
54
d.
65
e.
86
128. According to the textbook (based upon 2011 data), if the bottom half of all U.S. income tax payers were allowed to
stop paying the income tax entirely and the top 50% continued to pay as they do now, tax revenues to the government
would drop by about
a.
2.9 percent.
b.
15.7 percent.
c.
23.9 percent.
d.
33.3 percent.
e.
50.8 percent
129. The top 1% of income earners in the U.S. (those with the highest taxable incomes) pay
a.
about the same percentage of their incomes in taxes as the average U.S. taxpayer.
b.
a much lower percentage of their incomes in taxes than the average U.S. taxpayer.
c.
a much higher percentage of their incomes in taxes than the average U.S. taxpayer.
d.
about 15 percent of their incomes in income taxes
e.
a and d
130. The U.S. income tax is currently a __________ tax.
a.
progressive
b.
proportional
c.
regressive
d.
proactive
131. A "flat tax" is another term for __________ tax.
a.
a progressive
b.
a proportional
c.
a regressive
d.
the inflation
132. The unique feature of a progressive income tax is that the higher one's income (up to some point), the __________
one pays.
a.
more taxes
b.
higher the tax rate
c.
less taxes
d.
lower the tax rate
e.
none of the above
133. A taxpayer pays __________ tax rate on additional income if the income tax structure is progressive, __________
tax rate on additional income if the income tax structure is proportional, and __________ tax rate on additional income if
the income tax structure is regressive.
a.
a higher; a lower; the same
b.
a higher; the same; a lower
c.
a lower; a higher; the same
d.
the same; a lower; a higher
e.
the same; a higher; a lower
134. The four federal taxes that together accounted for 88 percent of all federal government tax receipts in 2013 were:
a.
individual income tax, corporate income tax, property tax, and sales tax.
b.
corporate income tax, national consumption tax, estate tax, and social security tax.
c.
individual income tax, social security tax, corporate income tax, and Medicare tax.
d.
social security tax, Medicare tax, estate tax, and corporate income tax.
e.
none of the above
135. Senator Smith proposes that the income tax structure be revised to have two tax rates. The first, 16 percent, applies to
persons whose income is between $0 and $40,000 a year. The second, 23 percent, applies to persons whose income is
more than $40,000 a year. This is a
a.
regressive income tax structure.
b.
proportional income tax structure.
c.
progressive income tax structure.
d.
cyclical income tax structure.
136. Which of the following statements is true?
a.
A budget deficit occurs when government expenditures exceed tax receipts during any single year.
b.
The public debt is the total amount the federal government owes its creditors.
c.
The public debt is greater than the net public debt.
d.
b and c
e.
a, b, and c
137. In June 2012, the public debt in the United States was approximately
a.
$5.8 billion.
b.
$90 billion.
c.
$1.6 billion.
d.
$15.8 trillion.
e.
$120 trillion.
138. The deficit that exists when the economy operates at full employment is called the __________ deficit.
a.
net
b.
gross
c.
cyclical
d.
structural
139. That part of the deficit that results from a downturn in economic activity is called the __________ deficit.
a.
net
b.
gross
c.
cyclical
d.
structural
140. Suppose the economy is in a recessionary gap. If government expenditures are currently $1.4 trillion and tax
revenues are currently $1 trillion, the (total) budget deficit is _____________. Assume that economists estimate that if
the economy were operating at full employment, government expenditures would be $1.2 trillion and tax revenues would
be $1.1 trillion. The structural deficit is _________________ and the cyclical deficit is _______________.
a.
$2.4 trillion; $2.2 trillion; $200 billion
b.
$400 billion; $300 billion; $100 billion
c.
$400 billion; $100 billion; $300 billion
d.
$300 billion; $100 billion; $400 billion
141. If the structural deficit is $750 billion and the cyclical deficit is $150 billion, it follows that the __________ is
__________ billion.
a.
public debt; $900
b.
total budget deficit; $600
c.
total budget deficit; $900
d.
net public debt; $600
e.
none of the above
142. Suppose aggregate demand is too high to bring about the Natural Real GDP level. A Keynesian policy prescription
would call for a(n) _____________________ to close this inflationary gap.
a.
increase in government spending
b.
decrease in government spending
c.
increase in taxes
d.
decrease in taxes
e.
b or c
Exhibit 11-4
Taxable Income
Taxes
$0 - $23,000
15% of taxable income
$23,001 - $42,000
$3,450 + 20% of everything over $23,000
$42,001 - $100,000
$7,250 + 25% of everything over $42,000
Greater than $100,000
$21,750 + 30% of everything over $100,000
143. Refer to Exhibit 11-4. If a person’s taxable income is $20,000, how much does he pay in taxes?
a.
$600
b.
$30,000
c.
$18,000
d.
$3,000
144. Refer to Exhibit 11-4. If a person’s taxable income is $30,000, how much does he pay in taxes?
a.
$4,345
b.
$1,400
c.
$3,900
d.
$4,850
145. Refer to Exhibit 11-4. If a person’s taxable income is $50,000, how much does he pay in taxes?
a.
$9,250
b.
$8,500
c.
$24,150
d.
$12,500
146. Refer to Exhibit 11-4. If a person’s taxable income is $90,000, how much does he pay in taxes?
a.
$17,600.
b.
$19,250.
c.
$8,780.
d.
$22,500.
147. Use the information provided in Exhibit 11-4. If a person’s taxable income is $110,000, how much does he pay in
taxes?
a.
$21,750
b.
$33,000
c.
$24,750
d.
$21,840
148. Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,000th of dollar of taxable
income earned?
a.
15%
b.
20%
c.
25%
d.
30%
e.
There is not enough information provided to answer this question.
149. Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,001st dollar of taxable income
earned?
a.
15%
b.
20%
c.
25%
d.
30%
e.
There is not enough information provided to answer this question.
150. Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 42,001st dollar of taxable income
earned?
a.
15%
b.
20%
c.
25%
d.
30%
e.
There is not enough information provided to answer this question.
151. In 2011, the top 50 percent of income earners in the U.S. paid about __________ percent of the total federal income
taxes.
a.
57.1
b.
67.1
c.
77.1
d.
87.1
e.
97.1
152. In 2013, the budget deficit in the United States was approximately
a.
$9.7 billion
b.
$9 billion.
c.
$973 billion.
d.
$17 trillion.
e.
$97 billion.
153. Suppose the economy is in a recessionary gap. If government expenditures are currently $700 billion and tax
revenues are currently $450 billion, the (total) budget deficit is _____________. Assume that economists estimate that if
the economy were operating at full employment then government expenditures would be $600 billion and tax revenues
would be $500 billion. The structural deficit is _________________ and the cyclical deficit is _______________.
a.
$1.15 trillion; $1.1 trillion; $100 billion
b.
$400 billion; $300 billion; $100 billion
c.
$400 billion; $100 billion; $300 billion
d.
$250 billion; $100 billion; $150 billion
154. At a taxable income of $40,000 Mari’s income tax is $7,400. When her taxable income rises to $45,000 her income
tax is $8,400. Based on this information, what is Mari’s marginal tax rate?
a.
18.7 percent
b.
39 percent
c.
10 percent
d.
30 percent
e.
20 percent
155. At a taxable income of $80,000 Adam’s income tax is $18,400. When his taxable income rises to $90,000 his
income tax is $21,000. Based on this information, Adam’s marginal tax rate is _____________ percent and his new
average tax rate is ____________ percent.
a.
3.8; 23.0
b.
23; 26.0
c.
26; 23.3
d.
18; 24.0
e.
21; 23.3
156. Over the past 50 years in the United States, tax revenues as a percentage of GDP have tended to be in the
__________________ percent range.
a.
1 to 9
b.
10 to 14
c.
15 to 19
d.
20 to 24
e.
25 to 30
157. If company Z is receiving a government subsidy, the government is taking money from ____________ and giving it
to company Z. If company Z is getting a tax deduction (instead of receiving a subsidy) then company Z is
______________________.
a.
taxpayers; paying more in taxes than it would without the tax deduction
b.
taxpayers; subsidizing the taxpayers
c.
Congress; paying more in taxes than it would without the tax deduction
d.
taxpayers; paying less in taxes than it would without the tax deduction
Exhibit 11-5
Producer
Price Paid For
Intermediate Goods
Price Sells For
Farmer
$0
$0.60
Miller
$0.60
$1.40
Baker
$1.40
$2.50
Assume that the farmer grows wheat and sells it to the miller, the miller turns the wheat into flour and sells it to the baker,
and the baker turns the flour into bread and sells it to the final consumer.
158. Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). The value added by the
farmer is ______________. If the government imposes a VAT rate of 10 percent, the farmer must pay ___________ in
VAT tax and will need to raise the price he charges the miller to _______________.
a.
$0.60; $0.06; $0.66
b.
$0.80; $0.08; $0.88
c.
$1.40; $0.14; $1.54
d.
$0.60; $0.60; $1.20
159. Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes
a VAT rate of 10 percent, the miller must pay ___________ in VAT tax and will need to raise the price he charges the
baker to _______________.
a.
$0.06; $0.66
b.
$0.08; $0.88
c.
$0.08; $1.54
d.
$0.60; $1.20
160. Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes
a VAT rate of 10 percent, the baker must pay ___________ in VAT tax and will need to raise the price he charges the
final consumer to _______________.
a.
$0.06; $2.25
b.
$0.11; $2.75
c.
$0.25; $2.75
d.
$0.60; $2.57
161. Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT). If the government imposes
a VAT rate of 10 percent, the government will receive ___________ in VAT revenue per loaf of bread sold and the final
consumer will find that he has to pay _______________ more for a loaf of bread than he did prior to the VAT tax.
a.
$0.25; $2.53
b.
$0.11; $2.75
c.
$0.25; $0.25
d.
$0.03; $2.75
162. Suppose that in a certain nation the flat income tax rate of 40 percent is reduced to 35 percent and as a result the tax
base falls from $400 billion to $375 billion. As a result, tax revenues __________, indicating the nation is on the
__________ portion of its Laffer curve.
a.
rise; upward-sloping
b.
rise; downward-sloping
c.
fall; upward-sloping
d.
fall; downward-sloping
163. Based on information provided in the textbook, which of the following statements is true regarding taxing
millionaires and the budget deficit in 2012?
a.
If the government had taxed all income earners who earned more than $1 million a 100 percent income tax
rate, the budget deficit would have been completely eliminated, and a budget surplus would have been
incurred.
b.
If the government had taxed all income earners who earned more than $1 million a 50 percent income tax rate,
the budget deficit would have been completely eliminated.
c.
If the government had taxed all income earners who earned more than $1 million a 100 percent income tax
rate, the budget deficit would have fallen but not been completely eliminated.
d.
If the government had taxed all income earners who earned more than $1 million a 100 percent income tax
rate, the budget would have been balanced.
164. According to Buchanan and Wagner, why is there a political bias toward expansionary fiscal policy rather than
contractionary fiscal policy?
a.
In a democracy, expansionary fiscal policy prescriptions are more politically popular than are the policy
prescriptions associated with contractionary fiscal policy.
b.
In a democracy, contractionary fiscal policy prescriptions are more policitally popular than are the policy
prescriptions associated with expansionary fiscal policy.
c.
They assert that empirical evidence has shown that Keynesian fiscal policy prescriptions have been successful
at closing recessionary gaps, but not inflationary gaps.
d.
They assert that empirical evidence has shown that Keynesian fiscal policy prescriptions have been successful
at closing inflationary gaps, but not recessioinary gaps.
e.
none of the above
Essay
165. List and describe three of the five different lags that can occur which may impede the effectiveness of the use of
fiscal policy.
166. Explain how tax cuts can impact both aggregate demand and aggregate supply. Give an example of each.
167. Describe the fiscal policy remedies that a Keynesian economist might prescribe to close a recessionary gap. How
might the issue of crowding out impact the effectiveness of these policies?
168. Define crowding out. Give a hypothetical numerical example to show the difference between complete crowding out
and incomplete crowding out. Explain how complete and incomplete crowding out could impact the effectiveness of
fiscal policy.
169. Explain the difference between a progressive income tax, a proportional income tax and a regressive income tax.
Under which type of system is the federal income tax?
170. Define the term budget deficit (as it applies to the federal government) and describe the difference between a cyclical
deficit and a structural deficit. Provide a hypothetical numerical example to help support your answer.
171. Explain how a value-added tax (VAT) works and how it differs from a sales tax. What impact does a VAT have on
government revenue and the price of products paid by consumers?
