True/False
Indicate whether the
sentence or statement is true or false.
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1.
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The largest source of revenue for the UK government
is personal income tax.
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2.
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An excise tax is a tax on income.
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3.
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Expenditure on national defence is an example of a
government transfer payment.
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4.
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To judge the vertical equity of a tax system, one
should look at the average tax rate of taxpayers of differing income levels.
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5.
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The marginal tax rate is the appropriate tax rate
to judge how much a particular tax system distorts economic decision making.
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6.
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A lump-sum tax is a progressive tax.
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7.
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Lump-sum taxes are equitable but not
efficient.
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8.
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An efficient tax is one that generates minimal
deadweight losses and minimal administrative burdens.
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9.
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The personal income tax system in the United
Kingdom is regressive.
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10.
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Corporations bear the burden of corporation
tax.
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11.
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A tax system with a low marginal tax rate generates
less deadweight loss and is more efficient than a similar tax system with a higher marginal tax
rate.
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12.
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If the government runs a budget deficit, it means
that there is an excess of government spending over government receipts.
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13.
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Reducing tax rates can lead to an increase in tax
revenue for a government.
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14.
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The marginal tax rate is total taxes paid divided
by total income.
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15.
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The chief advantage of replacing personal income
tax with a consumption tax is that it would remove the disincentive to saving that arises from the
levying of personal income tax on income from savings.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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Which of the following lists the sources of tax
revenue to the UK government from the largest source to the smallest source?
a. | national insurance contributions, personal income tax,
value added tax. | b. | personal income
tax, national insurance contributions, value added tax. | c. | personal income tax, value added tax, national insurance
contributions. | d. | none of these
answers | e. | value added tax, personal income tax, national insurance
contributions. |
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17.
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In the United Kingdom, the tax system
is
a. | lump sum. | b. | regressive. | c. | progressive. | d. | proportional. |
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18.
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In 2003-04, the total amount of taxes levied in the
UK was equivalent to this much for every man, woman and child in the country.
a. | £7,000. | b. | £6,000. | c. | £8,000. | d. | £4,000. | e. | £5,000. |
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19.
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Which of the following lists the spending by the UK
government from the largest category to the smallest category?
a. | defence, National Health Service, Social Security,
education, transport, pubic order and safety. | b. | Social Security,
defence, National Health Service, transport, pubic order and safety. | c. | Social Security, National Health Service, education, defence, pubic order and
safety, transport. | d. | National Health
Service, defence, education, Social Security, transport, pubic order and
safety. | e. | none of these
answers |
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20.
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If the UK government runs a budget surplus, there
is
a. | an excess of government receipts over government
spending. | b. | an equality of government spending and
receipts. | c. | a surplus of government
workers. | d. | an excess of government spending over government
receipts. |
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21.
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Susan values a pair of blue jeans at £40. If
the price is £35, Susan buys the jeans and generates consumer surplus of £5. Suppose a tax
is placed on blue jeans that causes the price of blue jeans to rise to £45. Now Susan chooses
not to buy a pair of jeans. This example has demonstrated
a. | the deadweight loss from a
tax. | b. | the ability-to-pay principle. | c. | the benefits principle. | d. | horizontal
equity. | e. | the administrative burden of a
tax. |
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22.
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A tax for which high income taxpayers pay a smaller
fraction of their income than do low income taxpayers is known as
a. | a proportional tax. | b. | a regressive tax. | c. | an equitable
tax. | d. | a progressive
tax. |
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23.
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An efficient tax
a. | minimizes the administrative burden from the
tax. | b. | does all of the things described in these
answers. | c. | raises revenue at the smallest possible cost to
taxpayers. | d. | minimizes the
deadweight loss from the tax. |
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24.
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The marginal tax rate is
a. | the taxes paid by the marginal
worker. | b. | total income divided by total taxes
paid. | c. | the extra taxes paid on an additional unit of
income. | d. | total taxes paid divided by total
income. |
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25.
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The appropriate tax rate to consider to judge the
vertical equity of a tax system is the
a. | marginal tax rate. | b. | average tax rate. | c. | horizontal tax
rate. | d. | proportional tax
rate. |
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26.
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The average tax rate is
a. | total taxes paid divided by total
income. | b. | the extra taxes paid on an additional dollar of
income. | c. | the taxes paid by the marginal
worker. | d. | total income divided by total taxes
paid. |
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27.
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Which of the following taxes is the most efficient
tax?
a. | a consumption tax | b. | a lump-sum tax | c. | a progressive
income tax | d. | a proportional
income tax |
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28.
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A progressive tax system is one where
a. | marginal tax rates are high. | b. | higher income taxpayers pay more taxes than do lower income
taxpayers. | c. | marginal tax rates
are low. | d. | higher income taxpayers pay a greater percentage of
their income in taxes than do lower income taxpayers. |
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29.
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Refer to Figure 12-1. The average tax rate for a
taxpayer earning £20,000 is| Figure 12-1 | | | | | Income | Amount of tax | | £10,000 | £1,000 | | 20,000 | 2,000 | | 30,000 | 5,000 | | 40,000 | 15,000 | | |
a. | 0 percent. | b. | none of these answers. | c. | 20
percent. | d. | 10 percent. | e. | 5 percent. |
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30.
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Refer to Figure 12-1. This tax system
is| Figure
12-1 | | | | | Income | Amount
of tax | | £10,000 | £1,000 | | 20,000 | 2,000 | | 30,000 | 5,000 | | 40,000 | 15,000 | | |
a. | regressive. | b. | proportional. | c. | lump-sum. | d. | progressive |
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31.
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Refer to Figure 12-1. The marginal tax rate for a
taxpayer whose earnings rises from £30,000 to £40,000 is| Figure
12-1 | | | | | Income | Amount
of tax | | £10,000 | £1,000 | | 20,000 | 2,000 | | 30,000 | 5,000 | | 40,000 | 15,000 | | |
a. | 100 percent. | b. | 37.5 percent. | c. | 0
percent. | d. | 16.7 percent. | e. | none of these answers. |
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32.
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The ability-to-pay principle of taxation suggests
that if a tax system is to be vertically equitable, it should be
a. | efficient. | b. | progressive. | c. | regressive. | d. | proportional. | e. | lump-sum. |
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33.
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Which of the following taxes can be supported by
the benefits principle of taxation?
a. | All of these answers can be supported by the benefits
principle of taxation. | b. | progressive income
taxes used to pay for national defence | c. | petrol taxes used
to pay for roads | d. | property taxes
used to pay for police and the court system | e. | progressive income
taxes used to pay for antipoverty programs |
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34.
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The appropriate tax rate to consider to gauge how
much the tax system distorts incentives and decision making is the
a. | proportional tax rate. | b. | average tax rate. | c. | marginal tax
rate. | d. | vertical tax rate. | e. | horizontal tax rate. |
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35.
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A tax system is regarded as horizontally equitable
if
a. | all taxpayers pay the same amount of
tax | b. | taxes on all goods are levied at the same
rate | c. | taxes are as low as possible | d. | the system comprises only lump sum taxes | e. | taxpayers with similar abilities to pay taxes pay the same
amount |
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