Understanding Taxes and Interest Concepts

Which of the following best describes the difference between a standard deduction and itemized deductions on a federal income tax return?

• Standard deduction is a fixed amount set by the government, while itemized deductions are specific expenses you list individually.

• Standard deduction is only for business owners, while itemized deductions are for employees.

• Standard deduction is always higher than itemized deductions.

• Itemized deductions are only available to people over 65.

• Itemized deductions

• Standard deduction

• Both, whichever is first on the form

• Neither, deductions are not necessary

Which of the following is an example of an expense that can be itemized on a tax return?

• Grocery bills

• Mortgage interest

• Movie tickets

• Clothing purchases

• It increases taxable income.

• It reduces taxable income by $1,150 more than the standard deduction.

• It has no effect on taxable income.

• It is required by law.

The U.S. federal income tax system uses marginal tax rates. Which mathematical function best models the relationship between taxable income and tax owed?

• Exponential function

• Piecewise linear function

• Quadratic function

• Constant function

If the marginal tax rate increases at certain income thresholds, how does this affect the slope of the piecewise linear function representing tax owed?

• The slope decreases at each threshold.

• The slope remains constant throughout.

• The slope increases at each threshold.

• The function becomes quadratic.

• 10%

• 15%

• 20%

• 25%

Which of the following statements is true about marginal tax rates and piecewise linear functions?

• Marginal tax rates are unrelated to the slope of the function.

• Each segment of the piecewise function has a different slope corresponding to a different marginal tax rate.

• The function is always a straight line.

• The function is always increasing at the same rate.

When comparing two loans, why is it important to consider the annual percentage rate (APR) rather than just the interest rate?

• APR includes only the principal amount.

• APR includes both the interest rate and additional fees, giving a more accurate cost of borrowing.

• APR is always lower than the interest rate.

• APR is not used in real-world loans.

A credit card offers a 15% APR. What does this mean for the cardholder?

• The cardholder pays 15% interest only on the first month.

• The cardholder pays 15% interest per year on the outstanding balance, plus any fees.

• The cardholder pays 15% interest per day.

• The cardholder pays no interest if they pay the minimum payment.