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Suppose a researcher identifies the effect of the Earned Income Tax Credit (EITC) on the labor supply of single mothers by comparing the labor supply of those mothers after the EITC expansion with the labor supply of single women without children before and after the EITC expansion. Which of the following statements would cause the estimates from such a study to be biased? a. Single women without children tend to work more hours than do single women with children. b. Preferences regarding work among single women with children change over time. c. Single women with children have higher income requirements for their larger family than do single women without children. d. Preferences regarding work among single women with children remain the same over time.

? c. Single women with children have higher income requirements for their larger family than do single women without children.

Corporate taxes can be calculated based on: a. Taxes = ([Revenues - Expenses] × tax rate) - Tax Credits b. Taxes = ([Revenues - Expenses] × [1 - tax rate]) - Tax Credits c. Taxes = ([Revenues - Expenses] × [1 - tax rate]) + Tax Credits d. Taxes = ([Revenues - Expenses] × tax rate) + Tax Credits

a. Taxes = ([Revenues - Expenses] × tax rate) - Tax Credits

Which statement is TRUE when a good is taxed? a. There is a deadweight loss. b. The new equilibrium quantity is higher than the optimal amount. c. Firms produce more than the optimal amount of the good. d. The price is reduced by the amount of the tax.

a. There is a deadweight loss.

An individual's savings is defined as the difference between: a. current income and current consumption. b. cumulative income and cumulative consumption to the present time, EXCLUDING interest gained or lost over that time. c. cumulative income and cumulative consumption to the present time, INCLUDING interest gained or lost over that time. d. lifetime spending and lifetime income.

a. current income and current consumption.

A periodic payment investors receive from the company per share owned is a(n): a. dividend. b. capital gain. c. economic profit. d. accounting profit.

a. dividend.

The estimates of the effect of wages on labor supply, from the study of a negative income tax system run by President Lyndon B. Johnson's Office of Economic Opportunity between 1968 and 1976, is an example of what type of empirical analysis? a. random experiment b. cross-sectional regression c. time series d. quasi-experimental

a. random experiment

If the payroll tax were to be lowered, empirical evidence suggests that: a. secondary earners would work more hours. b. primary earners would work fewer hours. c. labor force participation among secondary workers would be reduced. d. worker hours remain unchanged.

a. secondary earners would work more hours.

The deadweight loss of a tax is larger when: a. the taxed product is produced by a monopolist. b. there is a negative consumption externality. c. there is a negative production externality .d. the demand for the product is perfectly inelastic.

a. the taxed product is produced by a monopolist.

Assume that all people have identical utility functions that exhibit diminishing marginal utility and that, as people are taxed more, they work less. If the tax rate is currently 0%, which statement is TRUE? a. The marginal utility of high-income people is equal to the marginal utility of low-income people. b. The marginal revenue achieved by a 1% tax increase on high-income people is higher than the marginal revenue achieved by a 1% tax increase on low-income people. c. The marginal revenue achieved by a 1% tax increase on high-income people is lower than the marginal revenue achieved by a 1% tax increase on low-income people. d. The ratio of marginal utility to marginal revenue is equal for high- and low-income people.

b. The marginal revenue achieved by a 1% tax increase on high-income people is higher than the marginal revenue achieved by a 1% tax increase on low-income people.

The amount of money that firms can deduct from their taxes to account for capital investment depreciation is called: a. a depreciation credit. b. a depreciation allowance. c. economic depreciation. d. a depreciation schedule.

b. a depreciation allowance.

Which term refers to the increase in the price of a share since its purchase? a. dividend b. capital gain c. pure profit d. economic profit

b. capital gain

Consumers aim for _____ because of _____. a. self-insurance; diminishing marginal utility b. consumption smoothing; diminishing marginal utility c. self-insurance; means-tested program benefits d. consumption smoothing; means-tested program benefits

b. consumption smoothing; diminishing marginal utility

An excise tax is a tax on _____; a value-added tax is a tax on _____. a. capital gains; income b. consumption; consumption c. consumption; income d. income; income

b. consumption; consumption

If you do not qualify for a federal insurance program because your income or wealth is too high, that program is characterized by: a. adverse selection. b. means testing. c. moral hazard. d. experience rating.

b. means testing.

Limited liability: a. means that there are tight limits on the damages that a firm can be forced to pay due to lawsuits over product safety and so on. b. means that the owners of a firm cannot personally be held responsible for the obligations of the firm. c. is the major disadvantage of incorporation. d. is the major advantage of proprietorship.

b. means that the owners of a firm cannot personally be held responsible for the obligations of the firm.

Empirical evidence suggests that the Earned Income Tax Credit (EITC): a. does not affect men's labor supply. b. reduces the labor supply of married women. c. has significantly increased hours of work for those in the labor force. d. has not caused workers to enter the labor force.

b. reduces the labor supply of married women.

the share of total national revenue from consumption taxation is approximately ____ in the US a. 36.2% b. 46.0% c. 14.7% d. 26.7%

c. 14.7%

The share of total national tax revenue from consumption taxation averages approximately _____ in OECD nations. a. 2.1% b. 15.7% c. 30.5% d. 52.0%

c. 30.5%

Which of the following is NOT true about the change in government spending over the past 50 years? a. The share of defense spending has decreased significantly. b. Spending on health and Social Security spending has increased dramatically. c. After adjusting for inflation, government spending has remained constant. d. The share of health care spending increased more than the spending in Social Security and income security.

c. After adjusting for inflation, government spending has remained constant.

Suppose there are only two people in an economy. Under the current income tax system, the marginal revenue of a 1% tax increase on Tyrone is $100, while the marginal revenue of a 1% tax increase on Vanessa is $30. The marginal utility of Tyrone is 150 utils, while the marginal utility of Vanessa is 45 utils. Which action would make the tax system optimal without affecting total government revenues? a. Tyrone should be taxed more, and Vanessa should be taxed less. b. Vanessa should be taxed more, and Tyrone should be taxed less. c. No action is needed because the tax system is currently optimal. d. It is not possible to determine how to make the tax system optimal.

c. No action is needed because the tax system is currently optimal.

Which is a retirement savings account specifically designed for the self-employed under which up to a set amount can be saved each year on a tax-free basis? a. defined contribution pension plan b. Roth IRA c. SEP-IRA d. 401(k) account

c. SEP-IRA

Which statement describes the major advantage of incorporation? a. Incorporation solves the agency problem. b. Income tax rates are significantly lower. c. The owners of the firm cannot be held personally responsible for the obligations of the firm. d. Expenses can be deducted from income.

c. The owners of the firm cannot be held personally responsible for the obligations of the firm.

A sales tax is a tax on _____; a payroll tax is a tax on _____. a. capital gains; income b. consumption; consumption c. consumption; income d. income; income

c. consumption; income

If a person responds to a tax on wages by working more, then the: a. substitution effect exceeds the income effect b. substitution effect induces the individual to work more. c. income effect exceeds the substitution effect. d. income effect exactly offsets the substitution effect.

c. income effect exceeds the substitution effect.

The Earned Income Tax Credit subsidizes the wages of: a. all families with children. b. hourly workers only. c. low-income earners. d. high-income earners.

c. low-income earners.

Suppose that among a group of uninsured people, the only ones who want to buy health insurance are the ones who happen to enjoy jumping out of perfectly good airplanes. This is an example of: a. adverse selection. b. rent seeking. c. moral hazard. d. X-inefficiency.

c. moral hazard.

A return that exceeds a firm's payouts to its factors of production is a(n): a. dividend. b. capital gain. c. pure profit. d. accounting profit.

c. pure profit.

When a market is in equilibrium and that good or service is then taxed, the: a. deadweight loss is greater when the tax is levied on consumers than when it is levied on producers. b. deadweight loss is greater when the tax is levied on producers than when it is levied on consumers. c. social marginal benefit of consumption exceeds the social marginal cost of production .d. social marginal cost of production exceeds the social marginal benefit of consumption.

c. social marginal benefit of consumption exceeds the social marginal cost of production

Which of the following best describes liquidity constraints? a. limits on how easily assets can be used for immediate cash needs b. geographic and political barriers that limit a person's ability to invest overseas c. government restrictions on minimum levels of saving d. a barrier to credit availability that limits a person's ability to borrow

d. a barrier to credit availability that limits a person's ability to borrow

Which term refers to the difference between a firm's revenues and its reported costs of production? a. dividend b. pure profit c. economic profit d. accounting profit

d. accounting profit

Which definition best describes tax shelters? a. homeless shelters paid for by voluntary donations on one's tax form b. special sections of the tax code that favor special interests that wish to minimize their tax burden c. tax-exempt regions of the country d. activities whose sole reason for existence is to minimize one's tax burden

d. activities whose sole reason for existence is to minimize one's tax burden

Tax _____ is legal; tax _____ is illegal. a. avoidance; compliance b. compliance; avoidance c. evasion; avoidance d. avoidance; evasion

d. avoidance; evasion

The reasons for government involvement in social insurance include all of the following EXCEPT: a. a potential adverse selection problem stemming from asymmetric information. b. a potential savings in decision-making and administrative costs. c. the paternalistic belief that some individuals will not engage in necessary planning. d. the adverse effect such involvement has on the distribution of income.

d. the adverse effect such involvement has on the distribution of income.

Which of the following best describes risk aversion? a. insurance premiums set equal to the insurer's expected payout b. adverse actions taken by individuals or producers in response to insurance against adverse outcomes c. the fact that insured individuals know more about their risk level than does the insurer d. the extent to which individuals are more impacted by a negative change in income than by a positive change in income of the same magnitude

d. the extent to which individuals are more impacted by a negative change in income than by a positive change in income of the same magnitude

Which of the following is a tax-preferred retirement savings vehicle primarily for low- and middle-income taxpayers in which the taxpayers make pretax contributions and are then taxed on future withdrawals? a. defined contribution pension plan b. defined benefit pension plan c. 401(k) account d. traditional Individual Retirement Account (IRA)

d. traditional Individual Retirement Account (IRA)

A consumption tax levied on the increase in the value of a good at each stage of production is called a(n): a. expenditure tax. b. cash-flow tax. c. flat tax. d. value-added tax.

d. value-added tax