Define the following terms and explain their importance to the study of economics:
a. regressive tax
b. proportional tax
c. progressive tax
d. direct tax
e. indirect tax
a. A regressive tax is one in which the average tax rate falls as income rises. A regressive tax violates the vertical equity principle of taxes.
b. A proportional tax is one in which the average tax rate is the same at all income levels. The payroll tax has the appearance of being a proportional tax, although in reality it is regressive. A flat-rate income tax is a proportional tax if there are no loopholes or exemptions.
c. A progressive tax is one in which the average tax rate paid by an individual rises as income rises. Progressive taxation is an important element of vertical equity in taxes.
d. A direct tax is levied directly on people or corporate entities. Direct taxes include the personal income tax, corporate profits taxes, and inheritance taxes. The incidence of a direct tax generally cannot be shifted.
e. Indirect taxes are levied on an economic activity. Examples of indirect taxes include excise taxes and sales taxes. The incidence of indirect taxes is often shifted from the producer, or seller of a good or service, to the consumer.
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When Mother Teresa used her $190,000 Nobel Peace Prize to construct a leprosarium, she was
A) behaving irrationally. B) behaving selfishly. C) not behaving in a truly voluntary way. D) pursuing her self interest. E) violating the fundamental laws of economics.
Keynesians:
a. accept the countercyclical policy of doing nothing, that is, allowing market forces to work. b. believe that the level of aggregate demand in the 1930s was sufficient to generate full employment. c. accept the fact that policymakers should eliminate inflation first before focusing on unemployment. d. focus on increasing aggregate demand in order to stimulate the economy. e. were prepared for the events that beset our economy in the 1970s and 1980s.
Refer to the information provided in Figure 31.1 below to answer the question(s) that follow.
Figure 31.1Refer to Figure 31.1. Economic growth is represented by
A. a movement from point D to point A. B. a movement from point A to point C. C. a movement from point D to point C. D. all of the above
Does the text suggest that the falling prices in solar power generation come from economies of scale?
What will be an ideal response?