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STAYER ECO 450 Week 7 Quiz 5 Ch 10 .pdf

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STAYER ECO 450 Week 7 Quiz 5 Ch 10

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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
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
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.

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