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STAYER ECO 450 Week 10 Quiz 8 Ch 15 and 16

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STAYER ECO 450 Week 10 Quiz 8 Ch 15 and 16

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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.