Understanding Taxes and Investments

What is the primary purpose of taxes in an economy?

• To increase the wealth of the government officials

• To fund public services and infrastructure

• To discourage people from working

• To reduce the population

Which of the following is a type of direct tax?

• Sales tax

• Income tax

• Value-added tax (VAT)

• Excise duty

What is the formula for calculating simple interest?

Which of the following is considered a tax deduction?

• Lottery winnings

• Charitable donations

• Salary income

• Capital gains

What is the main difference between a tax credit and a tax deduction?

• A tax credit reduces taxable income, while a tax deduction reduces tax liability

• A tax credit reduces tax liability, while a tax deduction reduces taxable income

• Both reduce taxable income

• Both reduce tax liability

Which of the following is an example of a progressive tax?

• Sales tax

• Flat tax

• Income tax

• Excise tax

What is the future value of an investment of $1000 at an annual interest rate of 5% compounded annually for 3 years?

• $1157.63

• $1050.00

• $1100.00

• $1150.00

Which of the following is a characteristic of a regressive tax?

• Higher income earners pay a higher percentage of their income

• Lower income earners pay a higher percentage of their income

• All income earners pay the same percentage of their income

• It only applies to luxury goods

What is the main purpose of a 401(k) plan?

• To provide health insurance

• To save for retirement

• To pay for education

• To buy a house

Which of the following is an example of a capital gain?

• Interest earned on a savings account

• Profit from selling a stock

• Salary income

• Rental income