Chapter 18 Personal Taxation and Behavior
Multiple Choice
1. Social savings is
A) just another way of defining security.
B) the sum of government and private savings.
C) government savings only.
D) defined by higher rates of interest for the government.
Ans: b
2. An example of a tax-preferred savings account would be
A) an IRA.
B) an interest bearing savings account.
C) a noninterest bearing checking account.
D) cash.
Ans: a
3. The Laffer curve is
A) never referred to in modern day discussions of public finance.
B) a curve that describes the relationship between tax rates and tax revenues.
C) used to describe the relationship between consumption and hours worked.
D) a curve that refers to the endowment of time.
Ans: b
4. An intertemporal budget constraint
A) requires an endowment point.
B) requires time to remain constant.
C) has no endowment point.
D) requires time to move in a loop.
Ans: a
5. An income effect
A) is measured as the change in prices over time.
B) is not possible when people are unemployed.
C) requires interest rates to remain constant.
D) is the change in the quantity demand due to the fact that real income changes when prices change.
Ans: a
6. To accurately draw a labor supply curve, there should be a relationship between and
.
A) the wage rate; utility
, B) total expenditures; the wage rate
C) the wage rate; hours worked
D) taxes; utility
Ans: c
7. An decrease in the interest rate will cause the intertemporal budget constraint to
through the endowment point.
A) pivot clockwise
B) pivot counter-clockwise
C) shift clockwise
D) shift counter-clockwise
Ans: b
8. On the Laffer curve, an increase in tax rates causes tax revenue to increase if the starting point is
A) to the right of the top.
B) exactly at the top.
C) to the left of the top.
D) to the farthest point to the right.
Ans: c
9. The consumption bundle that is available, if there are no exchanges with the market, is known as the
A) federal system.
B) endowment point.
C) Ramsey Rule.
D) Gross Replacement Rate.
Ans: b
10. An individual’s consumption and saving behavior during a given year, as a result of a planning
process that considers his or her lifetime economic situations, is known as the
A) lifetime model.
B) consumption model.
C) life-cycle model.
D) income model.
Ans: c
11. Full loss offset allows individuals to
A) claim children as dependents.
B) deduct mortgage interest from taxes.
C) deduct savings interest from taxes.
D) deduct capital losses from taxable income.
Ans: d
12. In the leisure-income model, taxing income causes
A) the budget constraint to kink.
B) males to work to change their work habits dramatically.
Multiple Choice
1. Social savings is
A) just another way of defining security.
B) the sum of government and private savings.
C) government savings only.
D) defined by higher rates of interest for the government.
Ans: b
2. An example of a tax-preferred savings account would be
A) an IRA.
B) an interest bearing savings account.
C) a noninterest bearing checking account.
D) cash.
Ans: a
3. The Laffer curve is
A) never referred to in modern day discussions of public finance.
B) a curve that describes the relationship between tax rates and tax revenues.
C) used to describe the relationship between consumption and hours worked.
D) a curve that refers to the endowment of time.
Ans: b
4. An intertemporal budget constraint
A) requires an endowment point.
B) requires time to remain constant.
C) has no endowment point.
D) requires time to move in a loop.
Ans: a
5. An income effect
A) is measured as the change in prices over time.
B) is not possible when people are unemployed.
C) requires interest rates to remain constant.
D) is the change in the quantity demand due to the fact that real income changes when prices change.
Ans: a
6. To accurately draw a labor supply curve, there should be a relationship between and
.
A) the wage rate; utility
, B) total expenditures; the wage rate
C) the wage rate; hours worked
D) taxes; utility
Ans: c
7. An decrease in the interest rate will cause the intertemporal budget constraint to
through the endowment point.
A) pivot clockwise
B) pivot counter-clockwise
C) shift clockwise
D) shift counter-clockwise
Ans: b
8. On the Laffer curve, an increase in tax rates causes tax revenue to increase if the starting point is
A) to the right of the top.
B) exactly at the top.
C) to the left of the top.
D) to the farthest point to the right.
Ans: c
9. The consumption bundle that is available, if there are no exchanges with the market, is known as the
A) federal system.
B) endowment point.
C) Ramsey Rule.
D) Gross Replacement Rate.
Ans: b
10. An individual’s consumption and saving behavior during a given year, as a result of a planning
process that considers his or her lifetime economic situations, is known as the
A) lifetime model.
B) consumption model.
C) life-cycle model.
D) income model.
Ans: c
11. Full loss offset allows individuals to
A) claim children as dependents.
B) deduct mortgage interest from taxes.
C) deduct savings interest from taxes.
D) deduct capital losses from taxable income.
Ans: d
12. In the leisure-income model, taxing income causes
A) the budget constraint to kink.
B) males to work to change their work habits dramatically.
