ECO 450 Week 10 Quiz - Strayer
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Quiz 8 Chapter 15 and 16
Chapter 15
Taxation
of Corporate Income
True/False Questions
1. The corporate
income tax in the United States is levied only on economic profits.
2. Imputed
interest from retained earnings are not deducted when computing taxable
corporate income.
3. In general,
the shorter the depreciation period allowed for tax purposes, the higher the
tax burden on corporations.
4. Accelerated
depreciation allows a firm to deduct more than the actual economic depreciation
from its income each year.
5. Inflation
causes an understatement of true depreciation cost.
6. If a
corporation maximizes profits, an ad valorem tax on its profits will result in
a reduction in output in the short run.
7. Assuming that
the corporate income tax is not shifted to consumers in the short run, the
long-run effect will be a reduction in the return to investment in both the
corporate and noncorporate sector.
8. The excess
burden of the corporate income tax stems from a misallocation of investment
between the corporate and noncorporate sectors when the supply of savings is
perfectly inelastic.
9. When the
supply of savings is not perfectly inelastic, the corporate income tax can be
shifted to workers.
10. In the long
run the corporate income tax has no effect on the price of products produced by
corporations.
11. The corporate
income tax in the United States is levied on the sum of economic and normal
profits.
12. The corporate
income tax is levied only on retained earnings with dividends paid out exempt
from taxation.
13. Because the
corporate income tax base includes dividends, those dividends are taxed twice
if they are also included in the personal income tax base.
14. Because the
opportunity cost of a corporate equity is not tax deductible, the corporate
income tax encourages borrowing, which allows interest cost to be deducted from
corporate income.
15. If the
corporate income tax is not shifted in the short run, then in the long run it
will reduce the return to capital in the corporate sector only.
16. Depreciation is based on historic cost.
17. During periods of inflation historic cost overstates
replacement cost.
18. Corporate dividends are paid from post-tax income.
Multiple
Choice Questions
1. The tax base
for the corporate income tax in the United States is:
a. the
sum of normal and economic profits of corporations.
b. economic
profits of corporations.
c. normal
profits of corporations.
d. retained
earnings of corporations.
2. Accelerated
depreciation allows corporations to:
a. earn
more interest on their capital costs.
b. reduce
capital costs to zero.
c. reduce
labor costs.
d. increase
the time period over which assets are depreciated.
3. If
corporations maximize profits, the short-run incidence of a tax on its profits
will be borne by:
a. consumers.
b. all
investors.
c. corporate
shareholders.
d. workers.
4. Assuming that
corporations maximize profits and investors seek to maximize the return to
their investments, the long-run impact of a corporate income tax is to:
a. reduce
the incomes of corporate shareholders only.
b. reduce
the incomes of workers only.
c. reduce
the incomes of all investors.
d. increase
the price of both corporate and noncorporate goods.
5. Assuming that
the supply of savings is perfectly inelastic, the corporate income tax prevents
the attainment of efficiency by:
a. reducing
annual savings.
b. reducing
annual investment.
c. reducing
wages.
d. causing
a misallocation of investment between the corporate and noncorporate sectors
6. Assuming that
corporations maximize profits and investors maximize the return from their
investment, a corporate income tax is likely to:
a. increase
the price of corporate goods.
b. decrease
the price of noncorporate goods.
c. both
(a) and (b)
d. have
no effect on output prices.
7. Inflation
affects corporate income by:
a. understating
depreciation and inventory costs.
b. overstating
capital gains.
c. both
(a) and (b)
d. always
increasing taxes.
8. Assuming that
corporations maximize profits, that investors maximize the return to their
investments, and that the supply of savings is not perfectly inelastic, in the
long run a corporate income tax will:
a. not
prevent investment markets from achieving efficiency.
b. reduce
investment.
c. reduce
wages.
d. both
(b) and (c)
9. Which of the
following is true about the economic effects of the corporate income tax?
a. Its
incidence is likely to be borne entirely by workers.
b. Its
incidence is likely to be borne only by shareholders of corporations.
c. Its
incidence is likely to be borne only by consumers of corporate products.
d. Its
incidence is likely to be shared by owners of capital, workers, and consumers
of corporate products.
10. According to
the Harberger model of the incidence of the corporate income tax, the tax:
a. reduces
the return to capital in the corporate sector of the economy only.
b. reduces
the return to capital in all uses.
c. has
no effect on the return to capital.
d. increases
the return to capital.
11. If
corporations maximize profit, a corporate income tax:
a. has
no affect on the profit-maximizing output in the short run.
b. reduces
the profit, maximizing output in the short run.
c. increase
the profit, maximizing output in the short run.
d. increases
the supply of corporate output in the short run.
12. Under the
corporation income tax in the United States,
a. interest
on borrowed money cannot be deducted from the tax base.
b. only
economic profits are taxed.
c. only
normal profit is taxed.
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