Chapter 22: Fiscal Policy and Monetary Policy

1. The government is going to reduce the basic allowances for the salaries tax starting from the next fiscal year. To make sure that the public understand the changes, the government is going to put some advertisements in newspapers to explain the changes.

The above measure is in line with the _______________ principle of taxation put forward by Adam Smith.

• A. equity

• B. convenience

• C. economy

• D. certainty

2. Which of the following diagrams illustrate a proportional tax?

• A. (1) and (3) only

• B. (1) and (4) only

• C. (2) and (3) only

• D. (2) and (4) only

3. In October 2018, the Environment Bureau announced that the bill on municipal solid waste charging (都巿固體廢物收費) would be introduced into the Legislative Council in November. If the bill is passed, residents will have to put waste into designated garbage bags, available in nine sizes, before disposal and an average of 11 cents per litre will be charged.

The charge described above is an example of _______________.

(1) a direct tax

(2) an indirect tax

(3) a progressive tax

(4) a regressive tax

• A. (1) and (3) only

• B. (1) and (4) only

• C. (2) and (3) only

• D. (2) and (4) only

4. Refer to the table below.

When the tax system changes from tax system A to tax system B,

• A. more people will fall into the tax net.

• B. people’s working incentive will increase.

• C. the government’s financial status will improve.

• D. the income gap between the rich and the poor will be reduced.

5. Suppose the government plans to cool down the overheated economy by adjusting the tax systems, but does not want to worsen the problem of income inequality. Which of the following adjustments would be LEAST suitable?

• A. raising the profits tax rate

• B. raising the property tax rate

• C. introducing a general sales tax

• D. raising the standard tax rate of the salaries tax

6. Which of the following is/are (an) example(s) of direct taxes in Hong Kong?

(1) property tax

(2) salaries tax

(3) bets and sweeps tax (博彩及彩票稅)

• A. (3) only

• B. (1) and (2) only

• C. (1) and (3) only

• D. (1), (2) and (3)

7. Which of the following incomes are subject to taxation according to Hong Kong’s tax system?

(1) inheritance (遺產)

(2) capital gains from selling shares

(3) salary of a self-employed worker

(4) commissions received by a securities broker

• A. (1) and (2) only

• B. (3) and (4) only

• C. (1), (3) and (4) only

• D. (2), (3) and (4) only

8. The diagram below shows the growth trend of the GDP and the government expenditure of an economy over a certain period.

From the above diagram, we can conclude that during the period,

• A. the size of the public sector has increased.

• B. the GDP has been decreasing while the government expenditure has been increasing.

• C. the share of society’s resources controlled by the public sector has decreased.

• D. the ratio of government expenditure to GDP has decreased.

9. A deficit budget means

• A. the government’s planned revenue is larger than its planned expenditure.

• B. the government’s planned revenue is smaller than its planned expenditure.

• C. the government’s actual revenue is larger than its actual expenditure.

• D. the government’s actual revenue is smaller than its actual expenditure.

10. If the government aims at boosting the economy during recession, it can consider

• A. introducing a general sales tax.

• B. reducing the personal allowance of the salaries tax.

• C. increasing investment in infrastructure.

• D. building fewer public housing units.