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Question Bank - Economics

Government Policy: Direct taxes

Q1. If the marginal tax rate on individual incomes falls, we would expect, other things constant, individuals to

(Select one answer)

(a) * offer more hours of work and consume fewer hours of leisure
(b) * offer fewer hours or work and consume more hours of leisure
(c) * ultimately pay less in sales taxes
(d) * experience an overall increase in worker productivity

Source: McGraw Hill logo

Q2. According to the Laffer curve, as tax rates increase, tax revenues

(Select one answer)

(a) * rise continuously.
(b) * decrease continuously.
(c) * initially decrease and then increase.
(d) * initially increase and then decrease.

Source: Pearson logo

Q3. Economists identify a tax structure as being progressive if

(Select one answer)

(a) * the average tax rate increases as the level of taxable income increases
(b) * the marginal tax rate falls as taxable income rises
(c) * the average tax rate remains constant as the level of taxable income rises
(d) * the marginal tax rate remains constant as the level of taxable income rises

Source: McGraw Hill logo

Q4. The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion is

(Select one answer)

(a) * fiscal drag.
(b) * bracket creep.
(c) * the Laffer curve.
(d) * debt burden.

Source: Pearson logo

Q5. A progressive income tax means that those with a higher income pay

(Select one answer)

(a) * a lower percentage of their income in taxes than low-income people.
(b) * a higher percentage of their income in taxes than low-income people.
(c) * the same percentage of their income in taxes as low-income people.
(d) * all the taxes in the economy.

Source: Pearson logo

Q6. The total amount of tax you pay divided by your total income is the

(Select one answer)

(a) * marginal tax rate.
(b) * average tax rate.
(c) * total tax rate.
(d) * proportional tax rate.

Source: Pearson logo

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