microeconomics

_______ marginal tax rates tend to reduce incentives.

Higher

Which of the following statements are true about a progressive tax?

It claims a larger absolute or dollar amount from taxpayers' income. It claims a larger percentage of one's income as income increases. The average rate of tax increases as one's income increases.

As a teacher, Jonathan earns an annual income of $30,000, while Jose earns an annual income of $400,000 as an investment banker. On the one hand, low-income Jonathan spends all of his income on pure necessities of life and is unable to save. On the other hand, Jose spends $200,000 of his income and saves the balance. Suppose a 10 percent general sales tax applies to all the expenditures of Jonathan and Jose. We find that Jonathan pays $3,000 in sales taxes and Jose pays $20,000 in sales taxes. Which of the following are true of this scenario? Select all that apply.

Jose pays less in sales tax as a percentage of his income than does Jonathan. This sales tax is a regressive tax.

A graph that depicts the income distribution in a nation is the ______.

Lorenz curve

Which of the following were part of the Bush Tax Cuts?

New loopholes Reductions in marginal tax rates

Government completes the redistribution process by transferring income to consumers through which of the following? Select all that apply.

Social Security payments unemployment insurance welfare benefits

Which of the following are not characteristic of a regressive tax? Select all that apply.

Such a tax claims not only a larger absolute amount but also a larger percentage of income as income increases. The average rate increases as income increases.

Choose two reasons why part of the employer portion of the payroll tax gets shifted to workers.

The payroll tax makes it costly to hire workers, thus reducing the quantity demanded for labor. The market wage that employers pay their workers is reduced by all or some of the payroll tax.

Which one of the following helps explain why property taxes are regressive?

The poor spend a larger percentage of their incomes for housing than do high-income families.

True or false: A Lorenz curve that coincides with the diagonal line indicates a perfectly equal distribution of income.

True

True or false: Factor and product markets tend to be permissive of income inequality.

True

True or false: One way to analyze income distribution in a nation is to look at the percentage of households in various income brackets.

True

True or false: The "size distribution of income" tells us how large a share of total personal income is received by various households, grouped by income class.

True

Wealth is the accumulated ____ of a person over time.

assets

Suppose the tax rate structure is such that a household with an annual taxable income of less than $15,000 pays 60% in taxes; a household with annual taxable income of $15,000 to $30,000 pays 30%; and a household with annual taxable income of $30,000 to $60,000 pays 15% in taxes. What type of tax does this system exemplify?

a regressive tax

Subsidized school lunches, housing subsidies, and other similar programs where the government provides some households with specific goods or services rather than cash are called:

in-kind income

The market system permits a high degree of income inequality because

it rewards people based on their contributions to society's output.

Part of the employer portion of payroll taxes gets shifted to workers in the form of ______.

lower before-tax wages

Employers have the ability to cover their portion of the Social Security payroll tax by paying

lower before-tax wages to their employees.

President Obama intended to reverse the Bush tax cuts by raising the _______ tax rates.

marginal

The major component of the Obama tax hike was an increase in _____ tax rates.

marginal

Wealth refers to the _____ value of assets (such as houses, cars, and bank accounts) that people own.

market

The government has been called upon to address an implicit _____, as evidenced by the increase in income inequality.

market failure

The economy's tax base is _____ to the number and generosity of tax loopholes.

negatively related

Dividing taxes paid by taxable income gives the _____ rate; dividing taxes paid by total (gross) income gives the _____ rate.

nominal, effective

Most cities in the United States rely on _____ taxes as their primary revenue source.

property

When all things are considered, the U.S. tax system as a whole is nearly _____________.

proportional

Higher marginal tax rates tend to ______________.

reduce incentives

A tax is _____ if its average rate declines as income increases.

regressive

A tax whose average rate declines as income increases is called a _____ tax.

regressive

The combination of declining tax revenues and a constant average tax rate implies a(n) _____ tax base.

shrinking

Sales taxes are the primary source of revenue for ______.

state governments

The nominal tax rate is taxes paid divided by _______ income; the effective tax rate is taxes paid divided by _______ income.

taxable; total

One tool that the government uses in order to redistribute income is

taxation

The total tax paid divided by total taxable income is known as:

the average tax rate

One main argument for income inequality is that ______.

there is a trade-off between equality and efficiency

True or false: The diagonal line in a Lorenz curve represents a case where any given percentage of households in a nation receives that same percentage of the nation's total income.

true

The principle that states people with higher incomes should pay more tax is called _____ equity.

vertical

The proliferation of exemptions and exemptions has _____ the principle of vertical equity.

weakened

The amount of income or property directly subject to nominal tax rates is the tax

base

The government completes the redistribution process by transferring income to

consumers

Goods and services received directly, without payment in a market transaction are called:

in-kind income

Suppose Henry paid total taxes of $120 on the $600 he earned last week on his job at the dining hall. Henry's average tax rate is

20

Suppose an economy has only two household types: Rich and Not Rich. If the average Not Rich household pays $10,000 in taxes on an income of $50,000, then the minimum tax the average Rich household must pay on its $100,000 income is $_____ if the tax is to be progressive.

20,001

The widely accepted claim that higher marginal tax rates reduces incentives and, hence, total output, suggests that the goals of equity (more progressive taxes) and efficiency (more output) are

in conflict.

President Trump's motive for reducing business taxes was an increase in _______.

efficiency

The essence of the income equality versus inequality debate is the belief that there is a fundamental trade-off between equality and ______.

efficiency

Horizontal equity states that people with equal incomes should pay ______.

equal taxes

Critics of the Trump tax cut proposals expressed concerns primarily about the _____ implications of the cuts.

equity

The diagonal line in a Lorenz curve indicates a distribution of income where ______.

every household has the same income

Property taxes are regressive because the average tax rate

falls as taxable income rises.

If Frank and Hank both "knock down" $120K per year, yet Hank pays quite a bit more in taxes because he's got fewer deductions, the principle of _____ equity appears to be violated.

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