Deck 1: The Economic Approach

Question 1

Since 1960, the share of federal spending allocated to national defense

A) declined sharply, while the share allocated to health care increased substantially.
B) rose sharply, while the share allocated to health care declined substantially.
C) was relatively constant, while the share allocated to health care declined modestly.
D) declined modestly, while the share allocated to health care was relatively constant.

Answer 1

declined sharply, while the share allocated to health care increased substantially.

Question 2

Total government spending (federal, state, and local) sums to approximately

A) 10 percent of the U.S. economy.
B) 20 percent of the U.S. economy.
C) 40 percent of the U.S. economy.
D) 50 percent of the U.S. economy.

Answer 2

40 percent of the U.S. economy.

Question 3

Real (adjusted for inflation) federal spending per person in the United States

A) has increased by approximately 10 percent per decade during the last 225 years.
B) increased more rapidly during the nineteenth century than during the twentieth century.
C) was approximately 75 times the level of 1916 in recent years.
D) increased rapidly during the first half of the twentieth century but has changed very little since 1950.

Answer 3

was approximately 75 times the level of 1916 in recent years.

Question 4

Which of the following is true about government spending?

A) Real federal spending per person was approximately 50 times higher in 1900 than 1800.
B) Real federal spending per person was approximately 75 times higher in the most recent fiscal year than 1916.
C) Real federal spending per person grew slowly under the Reagan Administration during the 1980s, but it increased rapidly under the Clinton administration in the 1990s.
D) In recent years, government expenditures at the state and local levels have been greater than government spending at the federal level.

Question 5

Compared to the situation prior to 1980, the top marginal personal income tax rate imposed on the rich is now substantially

A) lower and so is the share of the revenue collected from them.
B) higher and so is the share of the revenue collected from them.
C) lower, but the share of the revenue collected from them is now higher.
D) higher, but the share of the revenue collected from them is now lower.

Question 6

During the last four decades, the composition of federal spending has

A) been virtually unchanged, but federal spending as a share of GDP has declined substantially.
B) been virtually unchanged, but federal spending as a share of GDP has increased sharply.
C) shifted away from national defense and toward spending on income transfers and health care.
D) shifted away from health care and income transfers and toward spending on national defense.

Question 7

In 1960, more than half (52 percent) of federal expenditures were for national defense. Today national defense accounts for approximately

A) 60 percent of the federal budget.
B) 44 percent of the federal budget.
C) 29 percent of the federal budget.
D) 16 percent of the federal budget.

Question 8

Government expenditures for Social Security and unemployment benefits are examples of

A) government consumption.
B) government investment.
C) government purchases.
D) transfer payments.

Question 9

In 1960, spending on income transfers and health care accounted for 21.5 percent of the federal budget. Today these two items account for

A) less than 15 percent of the federal budget.
B) approximately 25 percent of the federal budget.
C) approximately 36 percent of the federal budget.
D) approximately 66 percent of the federal budget.

Question 10

During the last four decades, defense expenditures have

A) accounted for approximately one-half of federal expenditures.
B) accounted for less than 10 percent of federal expenditures.
C) been increasing as a share of federal expenditures.
D) been declining as a share of federal expenditures.

Question 11

Given the current structure of the Social Security and Medicare programs, the retirement of the baby boom generation during the years following 2012 will be most likely to

A) reduce government expenditures on health care and income transfers.
B) increase government expenditures on health care and income transfers.
C) result in large budget surpluses.
D) result in lower tax rates.

Question 12

Compared to the situation during the first 125 years of the United States (1790-1915), today total government expenditures are ____ share of the economy, and a greater proportion of those expenditures take place at the ____ level. (Fill in the blanks)

A) a smaller; federal
B) about the same; federal
C) a larger; federal
D) a larger; state and local

Question 13

During the first 125 years of the United States,

A) there were no constitutional constraints on the spending of the federal government.
B) real spending per person by the federal government rose by a factor of 60.
C) most of the government spending was undertaken at the state and local levels.
D) most of the government spending was undertaken at the federal level.

Question 14

Concerning government spending, which of the following is true?

A) In 1916, the per person real government expenditures were approximately 60 times greater than in 1800.
B) Prior to 1929, government expenditures at the state and local levels were substantially smaller than federal expenditures.
C) Real federal spending per person was approximately 75 times greater in the most recent fiscal year than in 1916.
D) All of the above are true.

Question 15

What percentage of the total government expenditures of the United States is undertaken at the federal level?

A) Approximately 20 percent.
B) Approximately 40 percent.
C) Approximately 60 percent.
D) Approximately 80 percent.

Question 16

Measured as a share of the economy, government spending

A) has been between 10 and 15 percent of the U.S. economy since 1930.
B) has been between 20 and 25 percent of the U.S. economy since 1930.
C) rose from less than 10 percent in 1929 to approximately 40 percent in the most recent fiscal year.
D) declined from more than 50 percent in 1929 to approximately 25 percent in the most recent fiscal year.

Question 17

How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government to finance a government program?

A) One dollar.
B) Less than one dollar because the administration of and compliance with the tax laws creates jobs for people.
C) More than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production.
D) More than a dollar because of the excess burden resulting from the elimination of productive exchanges by the taxes.
E) Both c and d are correct.

Question 18

Government expenditures as a share of the U.S. economy are

A) the largest in the world.
B) the smallest in the world.
C) smaller than most Western European countries but larger than a number of high-growth Asian economies.
D) larger than Canada, France, and the United Kingdom but slightly smaller than Germany and Italy.

Question 19

In the most recent fiscal year, federal expenditures on income transfers, health care, national defense, and interest on the national debt accounted for

A) less than 20 percent of federal spending.
B) about 40 percent of federal spending.
C) approximately 50 percent of federal spending.
D) more than 85 percent of federal spending.

Question 20

Measured as a share of the economy, government expenditures on ____ have declined during the last four decades.

A) health care
B) national defense
C) transfer payments
D) Social Security benefits

Question 21

Concerning federal spending, which of the following is true?

A) Real federal spending per person was approximately 50 times higher in 1900 than 1800.
B) Real federal spending per person grew more rapidly during the 19^th century than during the 20^th century.
C) Real federal spending per person was approximately 60 times greater in 1990 than in 1916.
D) Real federal spending per person has decreased significantly since 1964.

Question 22

Which of the following is true about federal spending?

A) In 2002, national defense accounted for more than half of federal spending.
B) Federal spending on national defense has increase rapidly during the last several decades.
C) Federal spending on health care programs such as Medicare and Medicaid has increased rapidly during the last several decades.
D) Federal spending in the aftermath of hurricane Katrina expanded over 50%.

Question 23

The private sector cost of tax revenues is equal to the

A) tax revenue collected by government from individuals in the economy.
B) income that could have been earned by government employees if they had worked in the private sector.
C) difference between government expenditures and tax revenues.
D) tax revenue plus the cost of tax compliance and the excess burden of taxation.

Question 24

How has the share of the personal income tax paid by the top 1 percent of earners and the bottom half of earners changed during the last four decades?

A) The top 1 percent now pay a larger share and the bottom half of earners pay a smaller share of the personal income tax.
B) The top 1 percent now pay a smaller share and the bottom half of earners pay a larger share of the personal income tax.
C) The share of the personal income tax paid by the top 1 percent increased between 1960 and 1980, but the share of the revenues collected from the top 1 percent has declined sharply since 1980.
D) The relative shares paid by the top 1 percent and the bottom half of earners have been virtually unchanged during the last four decades.

Question 25

The Earned Income Tax Credit provides a tax credit or rebate to

A) businesses that undertake investment expenditures.
B) taxpayers with incomes greater than $100,000.
C) persons with low incomes who are working.
D) single parent families when the parent stays home to take care of the children.

Question 26

From the viewpoint of the entire economy, the cost of government is

A) equal to the amount of taxes collected.
B) greater than the amount of taxes collected.
C) less than the amount of taxes collected.
D) equal to the level of government expenditures.

Question 27

The overall federal tax structure is

A) regressive because the average tax rate of those with low incomes is higher than the rate imposed on those with higher incomes.
B) progressive because the average tax rate of those with high incomes is greater than the rate imposed on those with lower incomes.
C) flat because the average tax rate is approximately constant across all income brackets.
D) progressive for income levels up to approximately $100,000 but regressive for income levels above this figure.

Question 28

What percentage of personal income tax revenue was collected from the top 1 percent of earners in 2013?

A) Less than 10 percent.
B) Approximately 15 percent.
C) Approximately 20 percent.
D) More than 35 percent.

Question 29

During the last 20 years, what has happened to the marginal tax rates imposed on high-income taxpayers and the personal income tax revenues collected from them?

A) Both the rates imposed and the revenues collected from the rich have increased.
B) Both the rates imposed and the revenues collected from the rich have declined.
C) The tax rates imposed on the rich have declined, but the revenues collected from them have increased.
D) The tax rates imposed on the rich have increased, but the revenues collected from them have declined.

Question 30

When the government borrows funds in order to pay for its current expenditures,

A) the government will have to repay the borrowed funds within five years.
B) the government can spend without having to increase taxes, either now or in the future.
C) future taxes will have to be higher in order to pay the interest on the borrowed funds.
D) the cost imposed on the private sector is virtually eliminated because taxes can remain constant.

Question 31

The share of the personal income tax paid by the bottom half of earners

A) rose to an all-time high in 2013.
B) was substantially higher in 2013 than during the 1960s and 1970s.
C) was substantially lower in 2013 than during the 1960s and 1970s.
D) has been relatively constant during the last four decades.

Question 32

In 1980, the top 1 percent of earners paid 19.1 percent of the federal personal income tax. By 2013, the share of this tax collected from the top 1 percent of earners

A) had declined to less than 15 percent.
B) was still slightly less than 20 percent.
C) had risen to approximately 25 percent.
D) had risen to over 35 percent.

Question 33

Which of the following provides the bulk of revenue for the federal government?

A) corporate income taxes and grants from state and local governments
B) personal income and payroll taxes
C) user charges and funds borrowed from the general public
D) corporate income and sales taxes

Question 34

The administrative, enforcement, and compliance costs of collecting taxes in the United States sum to

A) between 1 and 2 percent of the revenues collected.
B) between 5 and 6 percent of the revenues collected.
C) between 12 and 15 percent of the revenues collected.
D) more than half of the revenues collected.

Question 35

Which of the following most clearly distinguishes government from a private business?

A) Production of goods and services-private businesses produce things; governments do not.
B) The power to tax.
C) The hiring of law enforcement employees to protect property rights.
D) Selfishness-the owners and managers of private businesses are selfish; government officials are not.

Question 36

Which of the following is the largest source of revenue for the federal government?

A) Corporate income tax.
B) Payroll tax.
C) Personal income tax.
D) User charges.

Question 37

Compared to 1980, the top marginal federal income tax rate today is

A) substantially lower and the rate structure is less progressive than in 1980.
B) substantially lower and the rate structure is more progressive than in 1980.
C) substantially higher and the rate structure is less progressive than in 1980.
D) substantially higher and the rate structure is more progressive than in 1980.

Question 38

Which of the following is an example of a transfer payment?

A) wages and salaries paid to the employees of the Internal Revenue Service
B) purchase of automobiles by a local police department
C) agriculture subsidies paid to farmers
D) salaries paid to the college professors of state-operated universities

Question 39

Increased spending on which of the following items is most likely to increase the size of government during the years following 2016?

A) education
B) Social Security and Medicare
C) agricultural subsidies
D) transportation (roads and airports)

Question 40

A tax dollar collected from an individual or a business costs the private economy more than a dollar because

A) the administration and enforcement of the tax system is costly.
B) record keeping and the other elements of compliance cost are sizable.
C) the taxes will eliminate some productive exchanges (and cause people to undertake some counterproductive activities).
D) All of the above are correct.

Question 41

Economic theory indicates that, the size of government will be

A) unrelated to economic growth.
B) negatively related to economic growth at all possible sizes of government.
C) positively related to economic growth at all possible sizes of government.
D) positively related to economic growth at small levels of government but is negatively related to economic growth as government becomes larger and larger.

Question 42

As real incomes grow, what happens to federal tax revenues as a share of the economy?

Question 43

The share of Americans who pay no personal income tax

A) has been relatively constant at approximately 33 percent throughout 1975-2000.
B) was relatively constant near 33 percent between 1975 and 2000, but it has increased during the past decade, reaching nearly 60 percent of adult Americans in 2013.
C) was relatively constant near 33 percent between 1975 and 2000, but it has fallen during the past decade, receding to only 18 percent in 2013.
D) rose steadily from 18 percent in 1975 to nearly 50 percent of adult Americans in 2000, but it receded to less than 40 percent in 2013.

Question 44

The 18^th century Scottish philosopher Alexander Tytler argued that democracy

A) would survive indefinitely into the future once it was established.
B) was the only form of government that would be able to control excessive government spending financed by debt.
C) would tend to collapse from excessive debt once a majority of voters discovered they could vote themselves benefits at the expense of others.
D) would lead to persistent government surpluses because elected political officials would find the surpluses attractive relative to budget deficits.

Question 45

How has the structure of the personal income tax changed and the share of taxes paid by various income groups changed in recent decades?

Question 46

Economic analysis indicates that growth in the size of government as a share of the economy will

A) always reduce economic growth and reduce the living standards of the citizenry.
B) enhance economic growth and lead to higher income levels as it becomes larger and larger.
C) initially promote growth as the government focuses on core functions, but deter growth as government becomes larger and larger.
D) initially reduce economic growth, but eventually government will enhance growth as it becomes larger and larger.

Question 47

When the tax structure of a nation is progressive, as real incomes increase, the tax revenues of the government will

A) decline.
B) increase by the same proportion as the increase in real income.
C) increase by a larger proportion than the increase in real income.
D) remain unchanged unless legislative action is undertaken.

Question 48

In a democratic setting, debt financing is attractive to elected political officials because

A) it makes it possible for them to spend on current projects favored by their constituents without having to levy current taxes.
B) it drives up interest rates, which encourages saving.
C) it leads to higher taxes in the future, which will tend to slow economic growth.
D) it makes the cost of government more visible, which will help voters allocate government spending more efficiently.

Question 49

During the quarter of a century prior to 2000, between 66 percent and 71 percent of Americans age 18 and older paid personal income taxes. What happened to the share of adult Americans with a personal income tax liability between 2000 and 2013?

A) It rose to nearly 90 percent.
B) It rose to approximately 80 percent.
C) It was virtually constant at approximately 70 percent.
D) It fell to approximately 55 percent.

Question 50

Discuss how size of government can negatively affect economic growth.

Question 51

Expansion in the size of government relative to the market sector will eventually retard economic growth because

A) larger governments will be more involved in activities for which they are ill-suited.
B) the higher taxes to finance a bigger government will lead to larger and larger deadweight losses from taxation.
C) the incentive to engage in innovative activities and respond to change is weaker in government than in the market sector.
D) all of the above are correct.

Question 52

In recent years, what percentage of American families have derived income transfers from at least one government transfer program?

A) less than 20 percent
B) approximately 55 percent
C) approximately 62 percent
D) nearly 75 percent

Question 53

When the number of families with someone employed by the government is added to those receiving income from transfer programs, the share of American families receiving income from the government is

A) less than 20 percent
B) approximately 50 percent of the total
C) approximately 62 percent of the total
D) a little more than 75 percent of the total

Question 54

Measured as a share of GDP, the total government expenditures of the United States are

A) larger than any country in the world.
B) smaller than any country in the world.
C) smaller than the comparable figure for Japan and most Western European countries.
D) larger than the comparable figure for Japan and most Western European countries.

Question 55

How have the size and functions of government in the United States changed during the last century?

Question 56

As the size of government increases as a share of the economy,

A) the burden of deadweight losses of taxation generally diminishes.
B) the rate of return derived from projects undertaken by the government will tend to increase.
C) the government generally becomes more heavily involved in unproductive and even counterproductive activities.
D) the activities of government are generally limited to protective functions such as public safety , national defense, and provision of a limited set of public goods.

Question 57

What percentage of federal spending was financed by borrowing during 2009-2010?

A) approximately 10 percent
B) approximately 20 percent
C) approximately 40 percent
D) more than 50 percent

Question 58

Among the 23 long-standing members of the Organization for Economic Cooperation and Development (OECD), the highest rates of economic growth during recent decades have been achieved by

A) Western European countries.
B) the countries with the smallest government expenditures as a share of GDP.
C) the countries with the largest government expenditures as a share of GDP.
D) the countries with the most rapid growth of government expenditures as a share of GDP.

Question 59

OECD data for 1960 through 1999 indicates that a 10 percent increase in government expenditures as a percent of GDP

A) increases economic growth by about 5 percent.
B) increases economic growth by about 2 percent.
C) has no effect on economic growth.
D) reduces economic growth by about 1 percent.

Question 60

As government becomes larger and larger as a share of the economy, economic growth is likely to decline because

A) taxes are reduced to levels that are inconsistent with economic efficiency.
B) governments are involved in many activities for which they are ill-suited.
C) tax-transfer activities are reduced and sometimes virtually eliminated.
D) governments do not spend enough on the provision of key public goods like education.

Question 61

The expression, "There's no such thing as a free lunch," implies that

A) everyone has to pay for his own lunch.
B) the person consuming a good must always pay for it.
C) opportunity costs are incurred when resources are used to produce goods and services.
D) no one has time for a good lunch anymore.

Question 62

If people are self-interested, why does anyone give money to public radio?

Question 63

Homeowners can deduct interest payments on their mortgages from their federal income tax. If this deduction were removed, how would the housing market be affected?

Question 64

Which one of the following is a positive economic statement?

A) An increase in the minimum wage will reduce employment.
B) The minimum wage should be increased.
C) Social justice will be served by increasing the minimum wage.
D) Thoughtful people oppose an increase in the minimum wage.

Question 65

William observes that a car in 1925 sold for an average of $500 versus $20,000 for a 2005 model. He concludes that 2005 cars must be 40 times better than 1925 cars. What's wrong with this way of thinking?

Question 66

The basic difference between macroeconomics and microeconomics is that

A) macroeconomics is concerned with the forest (aggregate markets), while microeconomics is concerned with the individual trees (subcomponents).
B) macroeconomics is concerned with policy decisions, while microeconomics applies only to theory.
C) microeconomics is concerned with the forest (aggregate markets), while macroeconomics is concerned with the trees (subcomponents).
D) opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.

Question 67

Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives.

A) Farmers produce fewer bushels of wheat in response to an increase in the price of wheat.
B) People will buy more milk at a price of $2 per gallon than at $1 per gallon.
C) People will buy less gas if the price of gas increases by $.20 per gallon.
D) People will consume more beef if the price increases from $1 to $2 per pound.

Question 68

What do economists mean when they state that a good is scarce?

A) There is a shortage or insufficient supply of the good at the existing price.
B) It is impossible to expand the availability of the good beyond the current amount.
C) People will want to buy more of the good regardless of the price of the good.
D) The amount of the good that people would like exceeds the supply freely available from nature.

Question 69

There are no graphics questions for this chapter.​

Question 70

Economic choice and competitive behavior are the result of

A) basic human greed.
B) poverty.
C) private ownership of resources.
D) scarcity.

Question 71

While waiting in line to buy two tacos at 75 cents each, and a medium drink for 80 cents, Emma notices that the restaurant has a value meal containing three tacos and a medium drink all for $2.50. For Emma, the marginal cost of purchasing the third taco would be

A) zero.
B) 20 cents.
C) 75 cents.
D) 80 cents.

Question 72

Evaluate this statement: "People engaged in economizing behavior will always buy the lowest priced item they can find."

Question 73

Why would a radio station give money to listeners? Does this violate the economic way of thinking?

Question 74

Jacob and Mason go to a diner that sells burritos for $5 and tacos for $3. They agree to split the lunch bill evenly. Mason chooses a taco. The marginal cost to Jacob of ordering a burrito instead of a taco is

A) $1.
B) $2.
C) $2.50.
D) $3.

Question 75

When Mother Theresa won the Nobel Peace Prize, the monetary award was well in excess of $100,000. Did she accept the money? If so, what did she do with it?

Question 76

If economics is correct in its assumption that people are rational, why then would anyone choose to smoke cigarettes?

Question 77

A radio station gives "free money" to those listeners whose names are drawn and announced over the airwaves from postcards the listeners sent into the radio station. Is the money really free for the listener?

Question 78

Economic analysis assumes that

A) individuals act only out of selfish motives.
B) although individuals are at times selfish and at times unselfish, only their selfish actions may be predicted.
C) people are basically humanitarian, and their actions are, therefore, impossible to predict.
D) changes in the personal benefits and costs associated with a choice will exert a predictable influence on human behavior.

Question 79

Who is more likely to drive carelessly, Camila in her 1980 Ford with bad brakes or Samantha, who has a 2005 BMW with all the most recent safety options?

Question 80

Which one of the following states a central element of the economic way of thinking?

A) Scarce goods are priceless.
B) Incentives matter--human choice is influenced in predictable ways by changes in personal costs and benefits.
C) The realism of the assumptions is the best test of an economic theory.
D) When deciding how to allocate time, the concept of opportunity cost is meaningless.