United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
73. The average tax rate is
a.
the ratio of additional taxes to an additional dollar of income.
b.
the ratio of taxes to income.
c.
the ratio of taxes to GDP.
d.
the ratio of income to direct taxes.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
74. If a tax is regressive, the average tax rate
a.
remains the same as income rises.
b.
rises as income rises.
c.
falls as income rises.
d.
falls as income falls.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
75. If a tax is proportional, the average tax rate
a.
remains the same as income rises.
b.
rises as income rises.
c.
falls as income rises.
d.
falls as income falls.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
76. If a tax is progressive, the average tax rate
a.
remains the same as income rises.
b.
rises as income rises.
c.
falls as income rises.
d.
falls with passage of time.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
77. The ____ is the fraction of each additional dollar of income that is paid in taxes.
a.
deferred tax rate
b.
cumulative tax rate
c.
average tax rate
d.
marginal tax rate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
78. A $10 fee to obtain a driver’s license is a
a.
regressive tax.
b.
degressive tax.
c.
proportional tax.
d.
progressive tax.
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The Level and Types of Taxation
79. Taxes are either
a.
b.
c.
d.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
80. Which of the following is an example of a direct tax?
a.
sales tax
b.
property tax
c.
gasoline tax
d.
income tax
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
81. Which of the following is an example of an indirect tax?
a.
value-added tax
b.
income tax
c.
inheritance tax
d.
head tax
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
82. Compared to other countries, the U.S. federal government relies
a.
more heavily on direct taxes than do governments of other countries.
b.
less heavily on direct taxes than do governments of other countries.
c.
more heavily on indirect taxes than do governments of other countries.
d.
on direct taxes about as heavily as do governments of other countries.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Level and Types of Taxation
83. State governments’ main source of revenue is
a.
property taxes.
b.
income taxes.
c.
excise taxes.
d.
sales taxes.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Level and Types of Taxation
84. Examples of indirect taxes are
a.
income taxes levied by some states.
b.
sales taxes and property taxes.
c.
poll taxes.
d.
corporate profits taxes.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
85. The main difference between direct and indirect taxes is that
a.
indirect taxes are automatically deducted from workers’ paychecks and direct taxes are not.
b.
direct taxes are paid to state and local governments and indirect taxes are paid to the federal government.
c.
direct taxes are taxes levied on people and indirect taxes are taxes levied on activities undertaken by people.
d.
direct taxes are usually proportional and indirect taxes are usually progressive.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
86. A head tax is
a.
always regressive.
b.
an indirect tax on the value of property.
c.
the primary tax used by U.S. municipalities to raise revenue.
d.
All of the above are correct.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Level and Types of Taxation
87. Which of the following is a direct tax?
a.
excise tax
b.
tax on corporate profits
c.
property tax
d.
sales tax
United States – BPROG: Analytic
The Level and Types of Taxation
88. The most important indirect taxes in the United States are
a.
federal and state income taxes.
b.
inheritance taxes.
c.
corporate profits taxes.
d.
sales and property taxes.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Level and Types of Taxation
89. Members of the European Union (EU), rely heavily on this form of indirect taxes.
a.
Value-added tax
b.
Excise tax
c.
Property tax
d.
Sales tax
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Level and Types of Taxation
90. The largest single source of revenue for the federal government is the
a.
corporate income tax.
b.
federal excise tax.
c.
personal income tax.
d.
Social Security tax.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
91. The second largest source of revenue for the federal government is the
a.
import tax.
b.
payroll tax.
c.
export tax.
d.
federal property tax.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
92. Which is the correct order of importance in terms of revenue collected among the following federal taxes?
a.
(1) corporate income taxes (2) value-added taxes (3) excise taxes
b.
(1) personal income taxes (2) corporate income taxes (3) sales taxes
c.
(1) payroll taxes (2) personal income taxes (3) federal excise taxes
d.
(1) personal income taxes (2) payroll taxes (3) corporate income taxes
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
93. A tax loophole is
a.
an illegal method by which individuals or corporations avoid paying the taxes they legally owe.
b.
a provision in the tax code that allows individuals or corporations to reduce their tax burdens legally by
meeting certain conditions.
c.
a tax surcharge on incomes within certain ranges.
d.
a provision in the tax code that allows individuals or corporations to shift the economic incidence of a
particular tax on to someone else.
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Federal Tax System
94. Most loopholes in the income tax system
a.
are more likely to be exploited by the wealthy.
b.
make it more progressive.
c.
were created by the tax reforms instituted in 1986.
d.
do not affect the economic decisions of the people who benefit from them.
a
Easy
The study of economics, and defi – The study of economics, and definitions of economics
The Federal Tax System
95. The people most likely to pay little personal income tax to the U.S. government are
a.
the middle class.
b.
renters.
c.
the very poor.
d.
earners of wages (as opposed to salaries).
c
Easy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
96. The way in which most persons pay their personal income tax is in the form of
a.
quarterly payments throughout the year.
b.
annual payment by April 15.
c.
monthly payments as part of mortgage payments.
d.
payroll withholding during the year.
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
97. The federal income tax is a good example of a
a.
regressive tax.
b.
proportional tax.
c.
digressive tax.
d.
progressive tax.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
98. Interest income on municipal bonds
a.
is subject to a portion of federal income tax.
b.
is taxable on amounts greater than $15,000 per year.
c.
is payable quarterly, at time of coupon redemption.
d.
is exempt from federal income tax.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
99. Homeowners
a.
are subject to double taxation.
b.
benefit from several loopholes.
c.
have no particular advantages in the tax system.
d.
must pay tax on the “income” of living in a house.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
100. The federal income tax is an example of a
a.
progressive tax.
b.
regressive tax.
c.
proportional tax.
d.
value-added tax.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
101. Mrs. Dodge has $8 million in income and pays no income taxes. Her income is most likely
a.
capital gains.
b.
interest on corporate bonds.
c.
interest on municipal bonds.
d.
offset by mortgage interest.
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The Federal Tax System
BLOOMS: Application
102. Philip purchased one million dollars’ worth of New York City bonds. His interest earnings were $100,000. His total
federal tax on this income will be
a.
$40,000, since his marginal tax rate was 40 percent.
b.
$40,000, since only 40 percent of capital gains is taxed.
c.
zero.
d.
very small, since he had a clever accountant who knew how to use loopholes.
c
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
BLOOMS: Application
103. In 2005, the median income of renters was $26,317 and the median income of homeowners was $50,505. If imputed
rent were added to household income or rent became deductible, the personal income tax would become
a.
more progressive.
b.
more regressive.
c.
about proportional.
d.
less progressive.
a
Difficult
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The Federal Tax System
104. If Linda’ annual income is $160,000 and she pays $35,000 in taxes and Paul’s annual income is $100,000 and he pays
$25,000 in taxes, the tax system is
a.
regressive.
b.
progressive.
c.
proportional.
d.
degressive.
a
Difficult
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
BLOOMS: Application
105. Which of the following is exempt from taxation (a tax exemption)?
a.
interest on a home mortgage
b.
interest from municipal bonds
c.
rent
d.
property taxes
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
106. The federal income tax began in the United States with the
a.
Morrill Act of 1862.
b.
addition of the Bill of Rights to the Constitution in 1791.
c.
passage of the 16th Amendment to the Constitution in 1913.
d.
New Deal legislation of the 1930s.
c
Easy
DISC: Marginal costs & benefits
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
107. Tax loopholes
a.
reduce the progressivity of the federal income tax.
b.
encourage particular patterns of behavior.
c.
include exemption of interest earned on municipal bonds.
d.
All of the above are correct.
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The Federal Tax System
108. The payroll tax appears to be a proportional tax. In reality it is
a.
highly progressive.
b.
actually proportional.
c.
highly regressive.
d.
regressive on low-income persons and progressive on high-income persons.
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
109. Social Security payroll taxes are examples of
a.
progressive taxation.
b.
regressive taxation.
c.
proportional taxation.
d.
marginal taxes.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
110. The payroll tax is a
a.
progressive tax.
b.
neutral tax.
c.
regressive tax.
d.
proportional tax.
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The Federal Tax System
111. The second largest source of income for the federal budget is:
a.
personal income taxes.
b.
corporate income taxes.
c.
payroll taxes.
d.
inheritance taxes.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
112. The payroll tax represents
a.
the largest source of revenue in the federal budget.
b.
the second largest source of revenue in the federal budget.
c.
the third largest source of revenue in the federal budget.
d.
the largest source of revenue in state government budgets.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
113. The corporate income tax is
a.
a tax on corporate profit, not revenue.
b.
the single largest source of federal revenue.
c.
a payroll tax paid partially by employees and partially by employers.
d.
has increased as a proportion of federal tax revenue since 1950.
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Federal Tax System
114. Since the end of World War II, corporate income taxes have accounted for
a.
an increasing share of federal revenue.
b.
a steady share of federal revenue.
c.
a declining share of federal revenue.
d.
a rising share of revenue until 1980, and then a falling share.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
115. The corporate income tax is
a.
an indirect tax.
b.
a regressive tax.
c.
the second largest source of revenue for the federal government.
d.
a direct tax.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Federal Tax System
116. An excise tax
a.
is a sales tax on the purchase of a particular good or service.
b.
is a tax on the profits earned from the sale of an asset.
c.
represents a surcharge on corporate profits beyond the normal corporate tax rate.
d.
is a tax on income-earning rental property.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Federal Tax System
117. Taxes on sales of liquor, tobacco, and tires are examples of
a.
direct taxes.
b.
excise taxes.
c.
progressive taxation.
d.
loopholes.
Easy
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Federal Tax System
118. An excise tax on gasoline is regressive if
a.
rich people buy more gasoline than poor people.
b.
the demand for gasoline is elastic.
c.
the tax causes people to buy less gasoline.
d.
poor people spend a larger portion of their incomes on gasoline than rich people.
Difficult
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
119. The money for Social Security payments to current retirees comes from
a.
payroll taxes collected from those retirees when they were working.
b.
income taxes collected from the current working population.
c.
payroll taxes collected from the current working population.
d.
only the interest earned now by the government on the invested Social Security trust fund.
c
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
120. The payroll tax receipts
a.
are used to reduce the national debt.
b.
are invested in private business for future payments.
c.
pay off current recipients of Social Security payments.
d.
go directly into a trust fund for investment in private businesses.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
121. The United States Social Security system
a.
pays benefits in direct accordance to what each individual has paid into the system.
b.
has paid the current generation of recipients less in benefits than it paid in payroll taxes.
c.
has paid the current generation of recipients more than it paid in payroll taxes.
d.
paid the earlier generations more and the current generation less than each paid in payroll taxes.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
122. A factor that would reduce the ability of the Social Security system to maintain current benefit levels with constant
tax rates is
a.
rapid real wage growth.
b.
reduced population growth.
c.
adoption of a “pay as you go” system.
d.
a slowdown in inflation.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
123. The method of financing the Social Security system until 1983 is best described as
a.
trust fund.
b.
excise tax.
c.
indirect tax.
d.
“pay as you go.”
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Federal Tax System
124. Two reasons why the Social Security system nearly went bankrupt in the early 1980s are: (i) wages were indexed but
benefits were not; (ii) the percentage of elderly people in the country declined.
a.
i and ii
b.
i but not ii
c.
ii but not i
d.
neither i nor ii
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
125. Officially, the payroll tax is referred to as
a.
the trust fund tax.
b.
Social Security tax.
c.
contributions for social insurance.
d.
investment in Social Security.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Federal Tax System
126. The Social Security system in the United States today is
a.
actuarially sound.
b.
composed of a private pension fund into which workers have paid and who will withdraw their invested funds
upon retirement.
c.
currently in no danger of running out of money in the long run.
d.
no longer a “pay as you go” system.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The Federal Tax System
127. Most state governments finance their budgets through ____, and most local governments finance their budgets
through ____.
a.
income taxes; property taxes
b.
property taxes; sales taxes
c.
sales taxes; property taxes
d.
income taxes; sales taxes
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The State and Local Tax System
128. Cities and towns mainly rely for revenue on
a.
property taxes.
b.
income taxes.
c.
excise taxes.
d.
payroll taxes.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The State and Local Tax System
129. Which of the following government entities relies most heavily on sales taxes?
a.
local government
b.
state government
c.
federal government
d.
the Social Security Administration
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The State and Local Tax System
130. State and local governments typically spend most of their budgets on providing
a.
education.
b.
public goods.
c.
public welfare programs.
d.
police protection and administrative services.
a
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
The State and Local Tax System
131. Michigan recently did away with property taxes. Alternative funding for schools could come from
a.
a lottery system.
b.
an increase in sales tax and income tax.
c.
an increase in corporate taxes.
d.
All of the above are correct.
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The State and Local Tax System
132. The courts in some states have declared the financing of public schools by local property taxes unconstitutional
because
a.
housing should never be the basis for taxation of any kind.
b.
taxes on real estate generate too much tax revenue.
c.
disparity in property values means some communities have more in tax revenues to spend on education than
do communities containing less valuable property.
d.
the funds for public education should come from federal revenues, not from local property taxes.
c
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
The State and Local Tax System
133. Fiscal federalism refers to
a.
passing money from one level of government to another.
b.
leaving indirect taxes to the states.
c.
keeping property taxes low.
d.
making all levels of government operate on a “pay as you go” basis.
DISC: The study of economics, an – DISC: The study of economics, and definitions in
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The State and Local Tax System
134. The term “fiscal federalism” refers to
a.
deficit financing of government programs.
b.
the power of Congress to tax and to determine how tax revenues are spent.
c.
transferring money between levels of government (for example, from a state government to a local
government).
d.
the system under which governments ask citizens to vote on major revenue-raising measures (for example, on
issues of municipal bonds).
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The State and Local Tax System
135. Revenue sharing is usually a means of
a.
making states transfer money to the federal government.
b.
equalizing expenditures per pupil made by school districts.
c.
splitting the revenue earned from excise taxes between states and the federal government.
d.
making grants to state and local governments.