2.04_EC72 H. Marketing Applications Review

The basis of a market economy is

• private enterprise.

• democracy.

• the two-party system.

• the dollar.

The role of government in a market economy is to

• increase personal incomes.

• provide as much regulation as possible.

• spend the money it receives in tax revenue.

• generate sales.

The circular flow of income model is a simplified depiction of

• the government taxing businesses and individuals.

• businesses paying dividends to shareholders.

• investors earning and losing money in the stock market.

• money flowing through a market economy.

Which of the following is an example of a “leakage” in the circular flow of income model:

• A business buying goods from another business

• A business retaining earnings to pay off debt

• An individual buying retail goods from a business

• A business paying its employees’ salaries

In the United States, payroll taxes are used as

• salaries for Congress members.

• interest on the debt.

• trust funds.

• general funds.

Which of the following is an example of an expenditure for which a state/local government uses tax revenue:

• Church services

• Education

• National defense

• Personal loans

When tax revenue is not enough to cover government expenditures, the government must

• file for bankruptcy.

• print more currency.

• reduce defense spending.

• borrow funds.

A business’s profits are subject to __________ taxes.

• property

• income

• payroll

• self-employment

Which of the following is a tax on employment:

• Payroll tax

• Excise tax

• Property tax

• Sales tax

Which of the following is a true statement regarding an employer’s tax obligations:

• Employers may “opt out” of paying payroll taxes.

• Employers pay taxes only for full-time employees.

• Employers pay the same amount in taxes for each employee.

• Employers pay a matching amount of employees’ Social Security and Medicare taxes.