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Chapter 13 - Taxes


True/False
Indicate whether the statement is true or false.
 

 1. 
The marginal tax rate is the change in taxes when taxable income change one unit.
 

 2. 
The term tf002-1.jpg is the faction of labor income the worker gets to keep.
 

 3. 
An increase in the marginal tax on labor income, increases the supply of labor.
 

 4. 
A decrease in the marginal tax on asset income, reduces investment short run and the capital stock and GDP in the long run.
 

 5. 
An increase in the marginal tax rate on labor income reduces overall market activity, as gauged by GDP.
 

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 6. 
The US Federal government gains revenue from:
a.
individual income taxes.
b.
social insurance taxes.
c.
excise taxes.
d.
all of the above.
 

 7. 
The US Federal government gains revenue from:
a.
property taxes.
b.
social insurance taxes.
c.
UN grants.
d.
all of the above.
 

 8. 
The US Federal government gains revenue from:
a.
property taxes.
b.
sales taxes.
c.
individual income taxes.
d.
all of the above.
 

 9. 
The US Federal government gains revenue from:
a.
revenue from money creation.
b.
social insurance taxes.
c.
sales taxes.
d.
all of the above.
 

 10. 
The US Federal government gains revenue from:
a.
property taxes.
b.
excise taxes and customs.
c.
UN grants.
d.
all of the above.
 

 11. 
The US state and local governments gains revenue from:
a.
property taxes.
b.
income taxes.
c.
sales taxes.
d.
all of the above.
 

 12. 
The US state and local governments gains revenue from:
a.
property taxes.
b.
income taxes.
c.
sales taxes.
d.
all of the above.
 

 13. 
The US state and local governments gains revenue from:
a.
property taxes.
b.
customs.
c.
revenue from money creation.
d.
all of the above.
 

 14. 
The US state and local governments gains revenue from:
a.
revenue from money creation.
b.
customs.
c.
sales taxes.
d.
all of the above.
 

 15. 
The US state and local governments gains revenue from:
a.
customs.
b.
federal grants.
c.
revenue from money creation.
d.
all of the above.
 

 16. 
The US state and local governments gains revenue from:
a.
revenue from money creation.
b.
customs.
c.
income taxes.
d.
all of the above.
 

 17. 
The marginal income tax rate is:
a.
taxes divided by income.
b.
the change in taxes when income changes one dollar.
c.
income divide by taxes.
d.
the change in income when taxes change one dollar.
 

 18. 
The average income tax rate is:
a.
income taxes divided by income.
b.
the change in income taxes when income changes one dollar.
c.
income divide by income taxes.
d.
the change in income when income taxes change one dollar.
 

 19. 
The average marginal income tax rate is:
a.
the marginal tax rate of the average household.
b.
the average tax rate of the marginal household.
c.
the change in income taxes divided by income.
d.
all of the above.
 

 20. 
A graduate-rate tax structure is one:
a.
whose marginal rate increases as income increases.
b.
that has a flat rate.
c.
whose average rate equals the marginal rate.
d.
whose marginal rate decreases as income increases.
 

 21. 
A flat-rate tax structure is one:
a.
whose marginal rate increases as income increases.
b.
that has graduated rates.
c.
whose average rate equals the marginal rate.
d.
whose marginal rate decreases as income increases.
 

 22. 
One less the marginal tax on wages, mc022-1.jpg is:
a.
the fraction of wage income paid in taxes.
b.
the fraction of wage income the worker gets to keep.
c.
the fraction of income the government receives.
d.
the average marginal tax rate.
 

 23. 
The after tax real wage is:
a.
mc023-1.jpg
b.
mc023-2.jpg
c.
mc023-3.jpg
d.
mc023-4.jpg
 

 24. 
If government purchases are constant, then an increase in the marginal income tax rate,mc024-1.jpgw, leads to:
a.
a positive income effect.
b.
a negative income effect.
c.
no income effect.
d.
a marginal income effect.
 

 25. 
If the marginal tax rate on income, mc025-1.jpg, changes but government purchases don’t then the government could have:
a.
lowered some other lower marginal rate wage tax like the social security payroll tax.
b.
the increased revenue due to the higher marginal tax rate is all used for real transfers.
c.
raised some income tax deductions.
d.
all of the above.
 

 26. 
If the marginal tax rate on income, mc026-1.jpg, changes but government purchases don’t then the government could have:
a.
lowered some other lower marginal rate wage tax like the social security payroll tax.
b.
reduced real transfers.
c.
reduced some income tax deductions.
d.
all of the above.
 

 27. 
If the marginal tax rate on income, mc027-1.jpg, changes but government purchases don’t then the government could have:
a.
raised some other lower marginal rate wage tax.
b.
used all the increased revenue due to the higher marginal tax rate for real transfers.
c.
reduced some income tax deductions.
d.
all of the above.
 

 28. 
If the marginal tax rate on income, mc028-1.jpg, changes but government purchases don’t then the government could have:
a.
raised some other lower marginal rate wage tax.
b.
lowered real transfers.
c.
raised some income tax deductions.
d.
all of the above.
 

 29. 
If the real marginal tax rate, mc029-1.jpg, increases in the market clearing model then:
a.
the supply of labor decreases.
b.
the demand for capital decreases.
c.
real output, Y, declines.
d.
all of the above.
 

 30. 
If the real marginal tax rate, mc030-1.jpg, increases in the market clearing model then:
a.
the supply of labor decreases.
b.
the demand for capital increases.
c.
real output, Y, rises.
d.
all of the above.
 

 31. 
If the real marginal tax rate, mc031-1.jpg, increases in the market clearing model then:
a.
the supply of labor increases.
b.
the demand for capital increases.
c.
real output, Y, declines.
d.
all of the above.
 

 32. 
If the real marginal tax rate, mc032-1.jpg, increases in the market clearing model then:
a.
the supply of labor increases.
b.
the demand for capital decreases.
c.
real output, Y, rises.
d.
all of the above.
 

 33. 
The after tax real interest rate is:
a.
mc033-1.jpg
b.
mc033-2.jpg
c.
mc033-3.jpg
d.
mc033-4.jpg
 

 34. 
In the short run if the tax rate on asset income,mc034-1.jpg , rises, then in the market clearing model:
a.
household current consumption will rise compared to future consumption.
b.
current investment will fall.
c.
the after tax real interest rate falls.
d.
all of the above.
 

 35. 
In the short run if the tax rate on asset income, mc035-1.jpg, rises, then in the market clearing model:
a.
household current consumption will rise compared to future consumption.
b.
current investment will rise.
c.
the after tax real interest rate rises.
d.
all of the above.
 

 36. 
In the short run if the tax rate on asset income,mc036-1.jpg, rises, then in the market clearing model:
a.
household current consumption will fall compared to future consumption.
b.
current investment will fall.
c.
the after tax real interest rate rises.
d.
all of the above.
 

 37. 
In the short run if the tax rate on asset income,mc037-1.jpg, rises, then in the market clearing model:
a.
household current consumption will fall compared to future consumption.
b.
current investment will rise.
c.
the after tax real interest rate falls.
d.
all of the above.
 

 38. 
In the long run an increase in the marginal tax rate on asset income, mc038-1.jpg, in the market clearing model:
a.
increases the stock of capital and real GDP.
b.
increases the stock of capital and decreases real GDP.
c.
decreases the stock of capital and real GDP.
d.
decreases the stock of capital and increases real GDP.
 

 39. 
In the long run an increase in the marginal tax rate on asset income, mc039-1.jpg, in the market clearing model:
a.
decreases GDP.
b.
decrease the capital stock.
c.
lowers consumption.
d.
all of the above.
 

 40. 
In the long run an increase in the marginal tax rate on asset income, mc040-1.jpg in the market clearing model:
a.
increases GDP.
b.
decrease the capital stock.
c.
raises consumption.
d.
all of the above.
 

 41. 
In the long run an increase in the marginal tax rate on asset income, mc041-1.jpg, in the market clearing model:
a.
decreases GDP.
b.
increase the capital stock.
c.
raises consumption.
d.
all of the above.
 

 42. 
With an increase in government purchases financed by an increase in the marginal tax rate on labor income, the change in labor supply depends on whether the:
a.
negative substitution effect is bigger than the positive income effect.
b.
negative substitution effect is bigger than the negative income effect.
c.
positive substitution effect is bigger than the negative income effect.
d.
positive substitution effect is bigger than the positive income effect.
 

 43. 
An increase in government purchases financed by an increase in the marginal tax rate on labor income, increases the quantity of labor supplied, if the:
a.
negative substitution effect is bigger than the positive income effect.
b.
negative substitution effect is smaller than the positive income effect.
c.
positive substitution effect is bigger than the negative income effect.
d.
positive substitution effect is smaller than the negative income effect.
 

 44. 
An increase in government purchases financed by an increase in the marginal tax rate on labor income, decreases the quantity of labor supplied, if the:
a.
negative substitution effect is bigger than the positive income effect.
b.
negative substitution effect is smaller than the positive income effect.
c.
positive substitution effect is bigger than the negative income effect.
d.
positive substitution effect is smaller than the negative income effect.
 

 45. 
If there is an decrease in government purchases along with a decrease in the marginal tax rate on labor income, then:
a.
the income effect would be toward a decrease in labor supply.
b.
the overall effect on labor supply is uncertain.
c.
the substitution effect would be towards an increase in labor supply.
d.
all of the above.
 

 46. 
If there is an decrease in government purchases along with a decrease in the marginal tax rate on labor income, then:
a.
the income effect would be toward a decrease in labor supply.
b.
the overall effect on labor supply is negative.
c.
the substitution effect would be towards an decrease in labor supply.
d.
all of the above.
 

 47. 
If there is an decrease in government purchases along with a decrease in the marginal tax rate on labor income, then:
a.
the income effect would be toward an increase in labor supply.
b.
the overall effect on labor supply is positive.
c.
the substitution effect would be towards an increase in labor supply.
d.
all of the above.
 

 48. 
If there is an decrease in government purchases along with a decrease in the marginal tax rate on labor income, then:
a.
the income effect would be toward an increase in labor supply.
b.
the overall effect on labor supply is uncertain.
c.
the substitution effect would be towards a decrease in labor supply.
d.
all of the above.
 

 49. 
If the marginal tax on labor income,mc049-1.jpg, rises then the tax receipts of the government:
a.
rise.
b.
fall.
c.
stay the say.
d.
may rise, fall or stay the same.
 

 50. 
If transfer payments are related to characteristics of households like income, then an increase in the marginal tax on labor income, mc050-1.jpg,:
a.
will have smaller effects in the market clearing model.
b.
will have stronger effects in the market clearing model.
c.
will have the same effects in the market clearing model.
d.
will have no effects in the market clearing model.
 

 51. 
A decrease in the marginal tax rate on asset income, mc051-1.jpg, in the short run in the market clearing model:
a.
does not change the stock of capital.
b.
does not change real GDP.
c.
does not change the market clearing rental price of capital.
d.
all of the above.
 

 52. 
A decrease in the marginal tax rate on asset income, mc052-1.jpg, in the short run in the market clearing model:
a.
does not change the stock of capital.
b.
decreases real GDP.
c.
reduces the market clearing rental price of capital.
d.
all of the above.
 

 53. 
A decrease in the marginal tax rate on asset income, mc053-1.jpg, in the short run in the market clearing model:
a.
raises the stock of capital.
b.
increases real GDP.
c.
does not change the market clearing rental price of capital.
d.
all of the above.
 

 54. 
A decrease in the marginal tax rate on asset income, mc054-1.jpg, in the short run in the market clearing model:
a.
raises the stock of capital.
b.
does not change real GDP.
c.
reduces the market clearing rental price of capital.
d.
all of the above.
 

 55. 
A decrease in the marginal tax rate on asset income, mc055-1.jpg, in the short run in the market clearing model:
a.
raises change the stock of capital.
b.
increases real GDP.
c.
increases gross investment.
d.
all of the above.
 

Short Answer
 

 56. 
What are the effects of an increase in the marginal tax rate on labor income in the market clearing model?
 

 57. 
What does sa057-1.jpg tell us and what are the real after tax returns on assets and labor if income from them are taxed?
 

 58. 
What are the short run effects of an increase in the marginal tax rate on assets income in the market clearing model?
 

 59. 
What are the long run effects of an increase in the marginal tax rate on asset income in the market clearing model?
 

 60. 
Under what conditions in the market clearing model will the quantity of labor supplied increase when government purchases are increased and financed by an increase in the marginal tax rate on labor income?
 



 
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