Lesson 4.5.2

4.5.2 Taxation Quiz: Pearson Edexcel Economics, Unit 4

20 questions

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Lesson 4.5.2, Taxation: 20 multiple choice questions for the Pearson Edexcel Economics (9EC0), Unit 4: Theme 4: A global perspective, written with Revision Ninja.

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The 20 questions

  1. In a progressive tax system, what happens to the average tax rate as income rises?

    • It remains constant
    • It becomes zero
    • It falls
    • It rises

  2. In a regressive tax system, what happens to the average tax rate as income rises?

    • It equals zero
    • It remains constant
    • It rises
    • It falls

  3. In a proportional tax system, what happens to the average tax rate as income rises?

    • It fluctuates
    • It rises
    • It falls
    • It remains constant

  4. A household earning £10,000 pays £3,000 tax, while one earning £40,000 pays £8,000. Name this tax type.

    • Regressive tax
    • Progressive tax
    • Proportional tax
    • Ad valorem tax

  5. How is the incentive to work usually affected by an increase in marginal income tax rates?

    • It increases
    • It decreases
    • It doubles
    • It stays unchanged

  6. Which economic relationship is illustrated by the Laffer curve?

    • Inflation and unemployment
    • Tax rates and revenue
    • Income and consumption
    • Interest rates and investment

  7. According to the Laffer curve, what happens to total tax revenue if tax rates become excessively high?

    • It falls
    • It rises
    • It remains constant
    • It reaches infinity

  8. What effect does an increase in progressive direct taxes typically have on income inequality?

    • It eliminates inequality
    • It has no effect
    • It reduces inequality
    • It increases inequality

  9. What is the immediate effect of an increase in indirect taxes on the general price level?

    • It rises
    • It falls
    • It remains unchanged
    • It becomes volatile

  10. How is foreign direct investment usually affected by a reduction in national corporation tax rates?

    • It stops completely
    • It decreases
    • It increases
    • It stays unchanged

  11. What is the primary effect of an increase in direct taxation on aggregate demand?

    • It increases demand
    • It has no effect
    • It doubles demand
    • It decreases demand

  12. What is a major distributional concern when shifting from direct taxation to indirect taxation?

    • Higher worker incentives
    • Reduced price levels
    • Increased income inequality
    • Increased fiscal surplus

  13. Which of these taxes is generally considered regressive?

    • Value added tax
    • Inheritance tax
    • Income tax
    • Capital gains tax

  14. Which of these is an example of an indirect tax?

    • Income tax
    • Inheritance tax
    • Corporation tax
    • Value added tax

  15. Tax is 20% up to £12,000 and 40% above. For £30,000 income, what is the average tax rate?

    • 40%
    • 30%
    • 32%
    • 20%

  16. What is the primary effect of reducing indirect taxes on basic food on consumers?

    • Lower purchasing power
    • Lower real income
    • Higher real income
    • Higher nominal wages

  17. Which household variable is directly reduced by an increase in income tax?

    • Gross income
    • Disposable income
    • Wealth stock
    • Transfer payments

  18. Why does a rise in direct income taxes typically reduce import spending?

    • Lower disposable income
    • Lower export subsidies
    • Higher import tariffs
    • Stronger exchange rate

  19. Why can income tax reduce inequality more effectively than VAT?

    • It is proportional
    • It is progressive
    • It is regressive
    • It is indirect

  20. Which curve illustrates the relationship between tax rates and total tax revenue?

    • The Kuznets curve
    • The Laffer curve
    • The Phillips curve
    • The Lorenz curve

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