Appendix 4: Answers to Reinforcement Quizzes
Answers to Reinforcement Quiz ñ Section IV
1. Which is a progressive tax?
a. state use tax
b. U.S. income tax
c. federal excise tax
d. personal property tax
Answer: (b). The U.S. income tax is the only one of the four examples in
which the rate of taxation rises with income, thus making it progressive.
2. Why is federal property not taxed?
Answer: It would violate the efficiency principle. There would be an
administrative cost of assessing and collecting the tax, simply to pass
money from one government account to another.
3. Which is not a tax expenditure?
a. inflation-based adjustment to real property tax rates
b. deduction for interest on home mortgage loans
c. credit for costs associated with adoption
d. deduction for installation of energy-efficient windows
Answer: (a). A tax expenditure is an exemption, credit or other reduction
in tax liability that is enacted to promote certain desirable activities. An
inflation adjustment is the only one of the four options that does not
promote a specific activity.
4. Which is a significant source of revenue for local governments?
a. excise taxes
b. estate taxes
c. use taxes
d. property taxes
Answer: (d). Of the four options presented, property taxes are generally
the most significant revenue source for local governments.
5. Which is not a relative advantage of income taxes?
a. They respond to changing economic conditions.
b. They are based on expert assessments.
c. They are administered at relatively low cost.
d. Compliance rates tend to be high.
Answer: (b). Options (a), (c) and (d) are relative advantages of income
taxes. Assessments are associated more with personal property and real
property taxes.
Online version, for personal use only AGA Study Guide 1, 2016 Edition

Appendix 4: Answers to Reinforcement Quizzes
6. What poses the greatest challenge in a real property tax system?
a. assessment and reporting
b. appraisal and assessment
c. accounting and assessment
d. reporting and appraisal
Answer: (b). The greatest challenge in a real property tax system is
appraisal and assessment. The property must be appraised to determine
market value; it must be reappraised periodically; the appropriate
assessment ratio (percentage) must be applied. Then, the tax rate is
applied to assessed value. This process is technically challenging and
politically sensitive. (NOTE: The challenge is the appraisal, not the
assessment. The assessment is easy. The other challenge is the
collection of the tax.)
7. What type of tax is least likely to be applied to office furniture owned by a
business?
a. personal property
b. real property
c. use
Answer: (b). Office furniture is not real property. Theoretically, the other
taxes could be applied to office furniture used by a business.
8. Steve just bought a home and is calculating his future property tax bill.
The town levies a tax rate of 18 mills and his home is valued at $160,000.
What will be his annual tax bill?
Answer: $2,880. The formula is $160,000/1000 x 18.
9. Which of the following is not
a consumption tax?
a. estate
b. sales
c. excise
d. VAT
Answer: (a). The other three options are all forms of consumption tax.
10.Which statement is most
true of shared revenues?
a. They are a form of intergovernmental funding.
b. They are based on local ordinances.
c. They are discretionary and based on competition and peer review.
d. They transfer resources from local governments to state and
federal governments.
Online version, for personal use only AGA Study Guide 1, 2016 Edition

Appendix 4: Answers to Reinforcement Quizzes
Answer: (a). Option (b) is incorrect because a local ordinance, alone, will
not result in shared revenues between different governments. Option (c)
describes project grants, not shared revenues. Option (d) is incorrect
because the typical flow of resources is from higher level governments to
local governments.
11.In recent years there has been a trend toward ìdevolutionî of government,
in which the federal government allows state and local governments more
control over execution of programs. Which of the following is most likely
associated with devolution?
a.
decrease in block grants
b. increase in block grants
c.
increase in project grants (sometimes called discretionary grants)
Answer: (b). Block grants transfer resources to state and local
governments, and allow maximum local discretion in how the resources
are applied. Option (a) is the opposite of option (b) and thus incorrect.
Option (c) is incorrect because project grants have strict provisions on the
purpose, time, and amount of expenditures.
12.What is most true about formula grants?
a.
They provide funding for narrowly-defined purposes for a limited
period of time.
b. They include categorical grants, but not block grants.
c.
Program guidelines determine the amount to be transferred from
grantor to grantee if basic eligibility requirements are satisfied.
d. They are restricted to grants for health care and public safety...











































































































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AGA CGFM Study Guide 1: Governmental Environment