STAYER ECO 450 Week 9 Quiz 7 Ch 13 and 14 .pdf
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STAYER ECO 450 Week 9 Quiz 7 Ch 13 and 14
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1. The actual federal income tax currently taxes all income irrespective of its source
or use at the same tax rate.
2. Comprehensive income excludes unrealized capital gains.
3. Under a comprehensive income tax, transfer payments received by Social
Security recipients would be fully taxable.
4. Homeowners earn rental income-in-kind from their home that would be taxable
under a comprehensive income tax.
5. A comprehensive income tax is a lump-sum tax.
6. A comprehensive income tax will result in a divergence between gross wages paid
by employers and net wages received by workers.
7. A comprehensive income tax will always reduce work effort by taxpayers.
8. The substitution effect of a tax-induced decline in wages always leads workers to
9. The market wage elasticity of labor is zero. If this is the case, the excess burden of
a tax on labor income will also be zero.
10. Points on a compensated labor supply curve are always more elastic than points
for corresponding wage levels on a regular labor supply curve.
11. Comprehensive income is the sum of annual consumption and the change in net
12. A tax on interest income does not prevent credit market from efficiently
13. If an individual is subject to a 30-percent income tax, then the net interest on a
certificate of deposit yielding 5 percent would be 3.5 percent after taxes.
14. Because a tax on interest income results in income and substitution effects, it is
not possible to predict the effect it will have on saving.
15. Most empirical studies indicate that the interest elasticity of supply of savings is
close to zero.
16. Income tax became a permanent fixture in the United States starting in the early
17. The Haig-Simons definition of income is different from comprehensive income.
18. Comprehensive income equals consumption plus the change in net worth.
Multiple Choice Questions
1. Comprehensive income:
a. is the sum of annual consumption and realized capital gains.
b. is the sum of annual consumption and changes in net worth.
c. excludes corporation income.
d. is the sum of annual consumption and net worth.
2. A tax on labor income:
a. results only in an income effect that always decreases hours worked per year.
b. results in a substitution effect that always decreases hours worked per year.
c. results in an income effect that increases hours worked per year if leisure is a
d. both (a) and (b)
e. both (b) and (c)
3. The market supply of labor is perfectly inelastic. Then it follows that:
a. the substitution effect of wage changes is zero.
b. the income effect of wage changes is zero.
c. leisure is a normal good and the income effect of wage changes exactly offsets the
d. the excess burden of a tax on labor income will be zero.
4. The compensated labor supply curve:
a. will always be vertical.
b. will always be upward sloping.
c. will always be downward sloping.
d. reflects both the income and substitution effects of wage changes.
5. Using a regular labor supply curve instead of a compensated supply curve to
calculate the excess burden of a tax on labor income will:
a. result in an accurate estimate of the excess burden.
b. overestimate the excess burden.
c. underestimate the excess burden.