Quiz on Taxes, Tax Incidence, Macroeconomic Aims, and Fiscal Policy

A government increases its revenue by higher direct taxation of both personal incomes and company

profits.

What is most likely to be the reason for this increase?

• to control spending on specific consumer goods

• to encourage business investment

• to provide public and merit goods

• to reduce pollution from industrial production

Income tax in a country gives all individuals an initial tax-free income allowance. Any income above

this allowance is taxed at increasing rates as the incomes of individuals rise.

Which change to this income tax will be regressive?

• decreasing the lowest rate of tax

• decreasing the tax-free income allowance

• increasing the tax-free income allowance

• increasing the top rate of tax

A government decides to boost the economy through the use of a budget deficit.

Which target should it adopt to achieve this aim?

• Direct taxation should exceed indirect taxation.

• Export earnings should exceed import expenditure.

• Government savings should exceed government investment.

• Government spending should exceed government revenue.

A government decides to use a fiscal policy measure.

What is an example of this?

• increasing the exchange rate

• reducing the power of trade unions

• reducing the rate of corporation tax

• setting a low interest rate

A country wishes to encourage economic growth.

Which policy measure is most likely to achieve this aim?

• increasing interest rates

• increasing spending on education

• reducing the maximum permitted hours of work

• reducing spending on infrastructure

What is the most likely consequence of increased unemployment?

• higher output

• higher government budget deficit

• higher self-esteem

• higher inflation

The table shows a government’s receipts from taxation.

What is the total amount of revenue raised by indirect taxes?

• $300 m

• $350 m

• $385 m

• $435 m

What are two aims that a government normally pursues when managing the performance of the

whole economy?

• to encourage an increase in production and to prevent high inflation

• to ensure no one is unemployed and to reduce exports

• to give everyone equal incomes and to increase government revenue

• to protect the environment and to reduce interest rates

A government decides to increase tax revenues from consumer expenditure.

Which tax will it increase?

• capital gains tax

• death duties

• profits tax

• value added tax

The table shows tax paid at different income levels in an economy.

Which description of the tax system used is correct?

• continually progressive

• progressive then regressive

• proportional

• regressive then progressive