MULTIPLE CHOICE QUESTIONS TESTBANK –

CHAPTER 15
Go to memorandum

Answer the following questions by selecting the appropriate answer from the list below.

Question 1
Which of the following is not a legitimate area of intervention by government in a mixed economy?

A. Regulation of the pricing behaviour of monopoly industries.

B. Regulation of price increases that result from changes in patterns of demand and supply in
competitive markets.
C. Stabilisation of the economy during periods of cyclical instability.
D. Redistribution of purchasing power via progressive taxation and transfers.
E. The provision of funds for public goods such as parks and street lights.

Question 2
Which of the following is least likely to be associated with market failure, and is consequently least
likely to require any form of state regulation or intervention?
A. Hake fishing off the west coast of South Africa.
B. The provision of education services in government schools.
C. The provision of education services in private schools.
D. The market for fast foods.
E. The provision of lifeguards on Durban’s beaches.

Question 3
Which of the following is likely to lead to an increase in inflation?
A. An increase in taxes.
B. Monetary and credit policies that reduce private consumption.
C. More efficient public activities.
D. An increase in money-financed spending by government.
E. None of the above.

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Question 4
If government spending is higher than current government revenue, this is known as:
A. a deficit on the current account of the balance of payments.
B. the budget deficit.
C. the public debt.
D. money financing.
E. good fiscal management.

Question 5
The South African personal income tax system is:
A. regressive.
B. a flat-rate tax.
C. proportional.
D. progressive.
E. indirect.

Question 6
A tax such as VAT would generally be viewed as:

A. progressive, because the consumption expenditure of the rich is greater than that of the
poor.
B. regressive, because low-income households spend a greater proportion of their income on
goods that attract VAT.
C. proportional, because the VAT rate is constant across goods that attract VAT.
D. progressive, because most goods consumed by poor households are zero rated.
E. regressive, because the VAT burden increases as household income rises.

Question 7
Which of the following would be classed as an expansionary fiscal policy?
A. An increase in the quantity of money.
B. A reduction in the number of goods exempted from VAT.
C. An increase in government taxation.
D. An increase in government expenditure.
E. An increase in the VAT rate.

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Question 8
Which one of the following statements is incorrect?

A. Central government forms part of general government.

B. Provincial government forms part of the public sector.
C. Local government forms part of general government.
D. Public corporations form part of general government.
E. Provincial government forms part of the public sector.

Question 9
Which one of the following statements is incorrect?

A. The City of Cape Town forms part of general government.

B. Transnet forms part of the public sector.
C. The City of Tshwane forms part of the public sector.
D. The government of Limpopo forms part of central government.
E. The Department of Labour forms part of central government.

Question 10
Which one of the following statements is incorrect?

A. Market economies cannot function without some government involvement.

B. Markets do not always produce efficient outcomes – markets sometimes fail.
C. Markets always produce equitable outcomes.
D. Market systems tend to experience business cycles, that is, cyclical upswings and
downswings in aggregate economic activity.
E. The transfer of ownership from a private enterprise to the government is called
nationalisation.

Question 11
Which one of the following is not part of fiscal policy?

A. The budget.
B. The level of taxation.
C. The composition of government expenditure.
D. The stock of money in the economy.
E. Borrowing by the government.

© VAN SCHAIK PUBLISHERS

Question 12
Which one of the following does not pertain to fiscal policy?

A. The minister of finance

B. The budget deficit
C. Private investment
D. Tax increases
E. Government spending cuts

Question 13
Which one of the following has not been a reason for increased government spending in South
Africa since 1960?

A. Population growth.
B. Urbanisation.
C. An increased focus on social spending.
D. The privatisation of Sasol.
E. The country’s involvement in wars in neighbouring countries.

Question 14
Which one of the following statements about the financing of government expenditure is incorrect?

A. The main source of government revenue is income from property.

B. Government expenditure may be financed by taxation.
C. Government expenditure may be financed by borrowing.
D. When government finances expenditure by borrowing from the central bank, it is called
inflationary financing.
E. Government borrowing increases the public debt.

Question 15
Which one of the following is not a criterion for a good tax?

A. Administrative simplicity
B. Neutrality
C. Equity
D. Distortability

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Question 16
Which one of the following statements is incorrect?

A. Tax avoidance is illegal.

B. Tax evasion is illegal.
C. Horizontal equity means that two taxpayers with the same income should pay the same
amount of tax.
D. Vertical equity means that rich people should pay more tax than poor people.
E. The benefit principle means that those who receive government services should pay for
those services.

Question 17
Which one of the following is an indirect tax?

A. Personal income tax

B. Value-added tax
C. Company tax
D. Estate duty
E. Capital gains tax

Question 18
Which one of the following is a direct tax?

A. Company tax
B. Customs duties
C. Excise duties on tobacco and alcohol
D. Fuel levy
E. Value-added tax

Question 19
Which one of the following statements is correct?

A. Personal income tax is a regressive tax.

B. Company tax is a proportional tax.
C. Company tax is a progressive tax.
D. Value-added tax is a proportional tax.
E. Personal income tax is a proportional tax.

© VAN SCHAIK PUBLISHERS

Question 20
Which one of the following statements pertaining to personal income tax is incorrect?

A. The rate at which each additional rand of income is taxed is called the marginal tax rate.
B. The ratio between the amount of tax paid and taxable income is called the average tax
rate.
C. The average tax rate is also called the effective tax rate.
D. Tax is levied on taxable income, not total income.
E. Personal income tax in South Africa is a proportional tax.

Question 21
Which one of the following statements is incorrect?

A. Capital gains tax is a completely separate tax.

B. Company tax is a proportional tax.
C. Company tax is levied on company profits.
D. Value-added tax is a greater burden to poor households than to rich households.
E. Value-added tax is a regressive tax.

© VAN SCHAIK PUBLISHERS

 MEMORANDUM
Go back to Multiple Choice Questions

Answer the following questions by selecting the appropriate answer from the list below.

Question 1
Which of the following is not a legitimate area of intervention by government in a mixed economy?

A. Regulation of the pricing behaviour of monopoly industries.

B. Regulation of price increases that result from changes in patterns of demand and supply in
competitive markets.
C. Stabilisation of the economy during periods of cyclical instability.
D. Redistribution of purchasing power via progressive taxation and transfers.
E. The provision of funds for public goods such as parks and street lights.

Question 2
Which of the following is least likely to be associated with market failure, and is consequently least
likely to require any form of state regulation or intervention?
A. Hake fishing off the west coast of South Africa.
B. The provision of education services in government schools.
C. The provision of education services in private schools.
D. The market for fast foods.
E. The provision of lifeguards on Durban’s beaches.

Question 3
Which of the following is likely to lead to an increase in inflation?
A. An increase in taxes.
B. Monetary and credit policies that reduce private consumption.
C. More efficient public activities.
D. An increase in money-financed spending by government.
E. None of the above.

Question 4
If government spending is higher than current government revenue, this is known as:
A. a deficit on the current account of the balance of payments.
B. the budget deficit.
C. the public debt.
D. money financing.
E. good fiscal management.

© VAN SCHAIK PUBLISHERS

Question 5
The South African personal income tax system is:
A. regressive.
B. a flat-rate tax.
C. proportional.
D. progressive.
E. indirect.

Question 6
A tax such as VAT would generally be viewed as:

A. progressive, because the consumption expenditure of the rich is greater than that of the
poor.
B. regressive, because low-income households spend a greater proportion of their income on
goods that attract VAT.
C. proportional, because the VAT rate is constant across goods that attract VAT.
D. progressive, because most goods consumed by poor households are zero rated.
E. regressive, because the VAT burden increases as household income rises.

Question 7
Which of the following would be classed as an expansionary fiscal policy?
A. An increase in the quantity of money.
B. A reduction in the number of goods exempted from VAT.
C. An increase in government taxation.
D. An increase in government expenditure.
E. An increase in the VAT rate.

Question 8
Which one of the following statements is incorrect?

A. Central government forms part of general government.

B. Provincial government forms part of the public sector.
C. Local government forms part of general government.
D. Public corporations form part of general government.
E. Provincial government forms part of the public sector.

© VAN SCHAIK PUBLISHERS

Question 9
Which one of the following statements is incorrect?

A. The City of Cape Town forms part of general government.

B. Transnet forms part of the public sector.
C. The City of Tshwane forms part of the public sector.
D. The government of Limpopo forms part of central government.
E. The Department of Labour forms part of central government.

Question 10
Which one of the following statements is incorrect?

A. Market economies cannot function without some government involvement.

B. Markets do not always produce efficient outcomes – markets sometimes fail.
C. Markets always produce equitable outcomes.
D. Market systems tend to experience business cycles, that is, cyclical upswings and
downswings in aggregate economic activity.
E. The transfer of ownership from a private enterprise to the government is called
nationalisation.

Question 11
Which one of the following is not part of fiscal policy?

A. The budget.
B. The level of taxation.
C. The composition of government expenditure.
D. The stock of money in the economy.
E. Borrowing by the government.

Question 12
Which one of the following does not pertain to fiscal policy?

A. The minister of finance

B. The budget deficit
C. Private investment
D. Tax increases
E. Government spending cuts

© VAN SCHAIK PUBLISHERS

Question 13
Which one of the following has not been a reason for increased government spending in South
Africa since 1960?

A. Population growth.
B. Urbanisation.
C. An increased focus on social spending.
D. The privatisation of Sasol.
E. The country’s involvement in wars in neighbouring countries.

Question 14
Which one of the following statements about the financing of government expenditure is incorrect?

A. The main source of government revenue is income from property.

B. Government expenditure may be financed by taxation.
C. Government expenditure may be financed by borrowing.
D. When government finances expenditure by borrowing from the central bank, it is called
inflationary financing.
E. Government borrowing increases the public debt.

Question 15
Which one of the following is not a criterion for a good tax?

A. Administrative simplicity
B. Neutrality
C. Equity
D. Distortability

Question 16
Which one of the following statements is incorrect?

A. Tax avoidance is illegal.

B. Tax evasion is illegal.
C. Horizontal equity means that two taxpayers with the same income should pay the same
amount of tax.
D. Vertical equity means that rich people should pay more tax than poor people.
E. The benefit principle means that those who receive government services should pay for
those services.

© VAN SCHAIK PUBLISHERS

Question 17
Which one of the following is an indirect tax?

A. Personal income tax

B. Value-added tax
C. Company tax
D. Estate duty
E. Capital gains tax

Question 18
Which one of the following is a direct tax?

A. Company tax
B. Customs duties
C. Excise duties on tobacco and alcohol
D. Fuel levy
E. Value-added tax

Question 19
Which one of the following statements is correct?

A. Personal income tax is a regressive tax.

B. Company tax is a proportional tax.
C. Company tax is a progressive tax.
D. Value-added tax is a proportional tax.
E. Personal income tax is a proportional tax.

Question 20
Which one of the following statements pertaining to personal income tax is incorrect?

A. The rate at which each additional rand of income is taxed is called the marginal tax rate.
B. The ratio between the amount of tax paid and taxable income is called the average tax
rate.
C. The average tax rate is also called the effective tax rate.
D. Tax is levied on taxable income, not total income.
E. Personal income tax in South Africa is a proportional tax.

© VAN SCHAIK PUBLISHERS

Question 21
Which one of the following statements is incorrect?

A. Capital gains tax is a completely separate tax.

B. Company tax is a proportional tax.
C. Company tax is levied on company profits.
D. Value-added tax is a greater burden to poor households than to rich households.
E. Value-added tax is a regressive tax.

© VAN SCHAIK PUBLISHERS