1. Suppose that you own $4000 in income taxes but manage to reduce that amount by $2000 because you paid college tuition that year. The subtraction of $2000 is a(n):
a. tax credit
b. standard deduction
c. itemized deduction
d. withholding
2. Suppose two people live in a society that has a 25% income tax. In period 1, there was no tax deduction; Lillian gave $6,000 to charity; and Susie gave $4,000 to charity. In period 2, the government makes charitable donations tax deductible, and Lillian gives $8,000 and Susie gives $7,000 to charity. The marginal impact of the tax break is ____and the inframarginal impact of the tax break is ____.
a. $2,500; $5,000
b. $5,000; $2,500
c. $15,000; $3,750
d. $3,750; $15,000
3. Which of the following statements about marriage tax is true?
a. It is impossible to have a system with no marriage tax.
b. It is possible to achieve progressivity, across-family horizontal equity, and across-marriage horizontal equity at once.
c. The only way to satisfy both across-family horizontal equity and across-marriage horizontal equity would be to have a proportional tax.
d. None of the above answers is correct,
4. Which approach should the government use if the increase in charity per dollar of tax break is smaller than 1 minus the reduction in charity per dollar of government spending?
a. Tax Subsidies
b. Direct Spending
c. Tax subsidies and direct spending are equivalent
d. It is uncertain
5. Which of the following statements about Haig-Simons comprehensive in come definition is true?
a. Haig-Simons definition only includes individual’s total consumption during the year.
b. Haig-Simons definition improves vertical equity, not horizontal equity.
c. Haig-Simons definition improves horizontal equity, not vertical equity.
d. Haig-Simons definition improves both vertical equity and horizontal equity.
6. In general, which of the following statements about the marginal deadweight loss of a tax is true?
a. The marginal DWL decrease as the tax rate increases
b. The marginal DWL increase as the tax rate increases
c. The marginal DWL decreases, then increases, as the tax rate increases
d. The marginal DWL increase, the decrease, as the tax rate increases.
7. Which of the following related to the deadweight loss and efficient tax systems is NOT true?
a. Preexisting distortions in a market are key determinants of the efficiency of a new tax.
b. the more governments load taxed on one source, the faster deadweight loss rise
c. There can be large efficiency costs to moving from a progressive to a proportional tax system.
d. Governments should not raise and lower taxes as they need money but should instead set a long-run tax rate.
8. Suppose that there only two commodities in an economy. Under the commodity tax system, the marginal deadweight loss of an additional dollar of taxes on good A is 1—and the marginal deadweight loss of an additional dollar of taxes on good B is 150. The marginal revenue of tax on good A is 40 and the marginal revenue of tax on good B is 50. Which of the following should be done to make the commodity tax system optimal?
a. The government should reduce taxation of good A.
b. The government should reduce taxation of good B.
c. The tax system is already optimal.
d. More economic information is necessary to answer the question.