Deck 16: Efficiency Vsequality: The Big Trade-Off

Question 1

Growth in spending by all levels of government in the United States over the past half-century:

A)has kept pace with neither tax revenues nor real GDP.
B)has kept pace, except for an occasional wartime surge, with both tax revenues and real GDP.
C)has kept pace, except for an occasional wartime surge, with both tax revenues and nominal GDP.
D)has surged at a rate that has significantly exceeded the rate of growth of nominal GDP.
E)has surged at a rate that has significantly exceeded the rate of growth of tax receipts.

Answer 1

has kept pace, except for an occasional wartime surge, with both tax revenues and nominal GDP.

Question 2

Which of the following are the main areas of international issues for the economy?

A)Reducing trade barriers.
B)Conducting assistance programs.
C)Coordinating macroeconomic policies.
D)Protecting the global environment.
E)All of the above.

Answer 2

All of the above.

Question 3

Which of the following is an appropriate economic goal for government in a mixed economy?

A)Improving economic efficiency.
B)Reducing economic inequality.
C)Stabilizing the economy through macroeconomic policies.
D)Conducting international economic policy.
E)All of the above.

Answer 3

All of the above.

Question 4

Broadly defined, public choice theory is the branch of economics that studies:

A)monetary policies pursued by the Federal Reserve.
B)the way that governments make decisions.
C)the consumer decision-making process.
D)the effect of externalities on public welfare.
E)the ways that statistics can be used to analyze economic data.

Question 5

If government use of resources becomes more efficient, then:

A)a rational society will necessarily spend more resources on the public sector.
B)a rational society will necessarily spend fewer resources on the public sector.
C)society necessarily moves from inside the production possibility frontier out toward that frontier.
D)a rational society necessarily chooses more of both public and private goods.
E)none of the above.

Question 6

By 2007, the combined cost of all levels of government in the United States had risen from approximately 11% of GDP in 1930 to:

A)50% of GDP.
B)33% of GDP.
C)25% of GDP.
D)15% of GDP.
E)10% of GDP.

Question 7

Use the following to answer questions :
Figure 16-1
Which point in Figure 16-1 could represent an income distribution under a laissez-faire economy?

A)E
B)F
C)G
D)D
E)All of the above.

Question 8

Because the United States is organized around a "one person, one vote" rule, the impact of the political structure on economic performance and decision making is:

A)an essential and growing field of scholarly research.
B)difficult to determine, in general, but nonetheless susceptible to productive research.
C)based in part on the question of whether or not that structure is capable of doing what ought to be done, however that is defined.
D)producing results that suggest that some objectives and some political structures are incompatible.
E)all of the above.

Question 9

Use the following to answer questions :
Figure 16-1
What type of event could move the economy from point E to G in Figure 16-1?

A)A tax which redistributes income from rich to poor.
B)Massive highway construction
C)Tax on rich which subsidizes income support programs.
D)A and B
E)A and C

Question 10

Laissez-faire policies in the United States gave way to some regulatory activity in part in response to problems with:

A)hazards in the workplace.
B)hazards facing consumers.
C)information that kept buyers from knowing completely the value of their purchases.
D)discrimination in the workplace.
E)all of the above.

Question 11

On average over the past half-century, tax receipts in the United States have:

A)grown at a rate that was significantly slower than expenditure.
B)grown at a rate that was nearly the same as expenditure.
C)grown at a rate that matched the rate of growth of real GDP.
D)grown at a rate that matched the rate of growth of nominal GDP.
E)held remarkably stable despite taxpayer protests to the contrary.

Question 12

Governments are playing an increasing role in representing their countries internationally.This is because:

A)the importance of international trade and finance have increased as communications and transportation have improved.
B)rich nations refuse to send aid to poor countries.
C)countries are trying increasingly to shelter their own domestic fiscal and monetary policies from the rest of the world.
D)environmental concerns have encouraged consumers to buy only goods produced domestically.
E)none of the above.

Question 13

Which of the following are conditions that bind the invisible hand?

A)All goods must be produced efficiently by perfectly competitive firms.
B)All goods must be private goods.
C)No externalities like pollution.
D)Consumers and firms must be fully informed about the prices and goods they buy and sell.
E)All of the above.

Question 14

Government transfer payments are basically defined as:

A)those which require service on the part of the recipient.
B)those for which the recipient gives no concurrent service in return.
C)receipts which do not increase the total purchasing power of all recipients.
D)intergovernmental flows that do not affect individuals directly.
E)that part of government expenditures on goods and services not financed by taxes.

Question 15

Use the following to answer questions :
Figure 16-1
What type of event could move the economy from E to D in Figure 16-1?

A)Inefficient dictator takes over government.
B)Nuclear war.
C)New income taxes on A.
D)A and B
E)None of the above.

Question 16

In recent years, the Federal Trade Commission has investigated the airline industry on charges of price fixing.This involves the government in:

A)protecting the consumer against external costs of production.
B)providing a public good for society.
C)smoothing the effects of the business cycle over time.
D)protecting the consumer against unfair monopoly practices.
E)protecting the supplier against consumer misinformation about pricing policies.

Question 17

Which of the following can be used by the government to influence the private economy?

A)Taxes on goods and services.
B)Expenditures on certain goods and services.
C)Regulations that direct people to perform or refrain from certain activities.
D)All of the above.
E)None of the above.

Question 18

Use the following to answer questions :
Figure 16-1
What type of government activity would move the economy from E to F in Figure 16-1?

A)Nuclear war.
B)High taxes.
C)Public health spending.
D)Building of highways.
E)C and D.

Question 19

Regulation in the United States began to be imposed as it became clear that laissez-faire policies were being undermined by:

A)pockets of poverty that were exploited by the more advantaged.
B)wide swings in the business cycle marked by frequent banking crises.
C)widespread discrimination on the basis of sex, race, and other factors.
D)flagrant abuse of the environment.
E)all of the above.

Question 20

Regulatory activity in the United States:

A)started almost immediately after the passage of a Constitutional amendment empowering the government to secure the public interest.
B)started in 1913 with the advent of the regulatory arm of the Federal Reserve System.
C)started in 1887 with the control of the banking system by the Federal Reserve.
D)started in 1887 with the creation of the Interstate Commerce Commission.
E)peaked during the Reagan administration after declining somewhat under President Carter.

Question 21

The largest item of expenditure by the federal government is:

A)aid to families with dependent children.
B)foreign aid.
C)social security.
D)revenue sharing.
E)national defense.

Question 22

An example of a transfer payment is:

A)a check to a hospital for payment of a bill owed by a senior citizen covered by Medicare.
B)a mail carrier's wages.
C)payment to Boeing Aircraft for an intercontinental bomber.
D)the lunch provided for a cleaning person.
E)none of the above.

Question 23

Which of the following taxes, as structured in the United States, is the best example of ability-to-pay taxation?

A)The federal excise tax on cigarettes.
B)The federal corporate income tax.
C)A state imposed highway user tax.
D)A proportional state sales tax.
E)The federal personal income tax.

Question 24

As people's incomes rise, a progressive tax is best described as taking:

A)an increasing amount of tax.
B)the same amount of tax.
C)the same percent of income as tax
D)an increasing percent of income as tax.
E)a decreasing percent of income as tax.

Question 25

The largest single source of total tax receipts of the federal government is:

A)personal income taxation
B)death and gift taxation.
C)corporation income taxation.
D)sales taxation.
E)social security taxation.

Question 26

State and local taxes in the United States tend to be:

A)regressive, on the whole.
B)proportional, on the whole.
C)progressive, on the whole.
D)based almost exclusively on ability to pay.
E)based almost exclusively on individual benefit.

Question 27

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

A)Excise taxes.
B)General sales taxes.
C)Inheritance taxes.
D)Tariffs.
E)None of the above.

Question 28

Tax incidence is the analysis of:

A)how progressive a tax is.
B)how distorting a tax is.
C)who ultimately pays the tax.
D)how a tax is collected.
E)tax expenditures.

Question 29

Which of the following would be considered indirect taxes?

A)Gasoline tax.
B)Social security.
C)Federal income tax.
D)State income tax.
E)Gift tax.

Question 30

The two biggest items in the federal budget are:

A)Congress and the judiciary.
B)national defense and agriculture.
C)agriculture and conservation.
D)national defense and social security.
E)none of the above.

Question 31

The principal source of local government revenue is:

A)property taxation.
B)sales taxation.
C)income and payroll taxation.
D)aid from the federal government.
E)none of the above.

Question 32

Value-added taxes are:

A)collected only at the sale of the final product.
B)income taxes.
C)corporate taxes.
D)based upon an ability-to-pay principle.
E)collected at each stage of the production process.

Question 33

An example of a government transfer payment is

A)the cost of a submarine purchased by the government.
B)a mail carrier's wage.
C)payments to General Electric to develop nuclear energy.
D)the salary of a Department of State employee.
E)unemployment insurance compensation.

Question 34

Double-taxation in the U.S.tax system generally refers to:

A)the fact that both employers and employees pay a payroll tax.
B)the taxation as regular income of dividends paid to stockholders out of profits upon which taxes have already been paid.
C)the occasional imposition of a tax surcharge on the personal income tax paid by Americans to their federal government.
D)the doubling of the corporate profits tax rate as corporations' incomes climb above $100,000.
E)none of the above.

Question 35

An example of a regressive tax is:

A)the personal income tax.
B)a general sales tax.
C)the graduated corporation income tax.
D)the inheritance tax.
E)none of the above.

Question 36

When we speak of the incidence of a tax, we are:

A)referring to the group upon whom it is directly levied.
B)asking whether that tax is progressive or regressive in nature.
C)measuring the extent to which the tax tends to reduce incentives in the group that pays it.
D)referring to the group that receives the burden of the tax bill, regardless of whether or not it actually makes the money payment to the government.
E)measuring the extent to which the tax brings in a steady amount of money to the government in both prosperity and depression.

Question 37

The best technical description of a progressive tax is a:

A)tax which takes more money from the rich than from the poor.
B)tax likely to discourage incentive.
C)more equitable tax than a regressive one.
D)tax which takes a higher proportion of extra dollars received as income rises.
E)tax which falls directly on those in the high income brackets.

Question 38

Many people disagree about the degree of equity built into the current tax system.This is because of the problem of evaluating:

A)tax expenditures.
B)tax shifting or incidence.
C)benefit taxes.
D)withholding practices.
E)the distributional effects of government spending.

Question 39

A general sales tax is:

A)a progressive tax because it applies to luxuries as well as necessities
B)a progressive tax because wealthy people spend more than poor people.
C)a regressive tax because wealthy people spend a smaller percentage of their total income on taxed commodities.
D)a regressive tax because more money is collected from a poor person than from a rich one.
E)a proportional tax because everybody pays the same tax percentage on each purchase.

Question 40

The largest item in local government budgets in the aggregate is:

A)police and fire protection.
B)welfare expenditures.
C)education.
D)roads and highways.
E)none of the above.

Question 41

Before World War I, the combined federal, state, and local government expenditures or taxation amounted to little more than one-tenth of the entire US national income.

Question 42

The Invisible Hand has several limitations.

Question 43

A shift from progressive direct taxes to a federal sales or value-added tax would probably encourage investment more than consumption.

Question 44

Government expenditure in the United States measured as a percentage of GDP is larger than it is in France.

Question 45

Prior to World War I, aggregate local government expenditures were larger than federal government expenditures.

Question 46

The efficiency function of government is motivated primarily by a concern that the what and how questions are being incorrectly answered by the marketplace.

Question 47

When monopolies or oligopolies collude to fix prices, government can apply anti-trust policies or regulation.

Question 48

The efficiency concern of government is motivated primarily as an attempt to help the market answer the for whom question of allocation.

Question 49

Statistical studies show that the incidence of our income-tax structure is regressive at low levels of income.

Question 50

Government intervention is necessary to control breakdowns in the market mechanism.

Question 51

Early capitalism was prone to financial panics and bouts of inflation and depression.

Question 52

Before the twentieth century, local government was by far the most important of the three levels of government.

Question 53

Laissez-faire policies lapsed in response, at least in part, to exaggerated business cycle swings in the aggregate economy.

Question 54

Some redistribution of income is accomplished by the way in which the government allocates the burden of the taxes it levies.

Question 55

Income redistribution is usually accomplished through taxation and spending policies.

Question 56

The cost of government at all levels has grown in the United States since 1913.

Question 57

Governments can function to reallocate resources more equitably, but are powerless to effect greater efficiency.

Question 58

"Fiscal policy" is the economist's name for tax and expenditure policies in general.

Question 59

The cost of all levels of government in the United States has grown more than 400-fold since 1913.

Question 60

Welfare payments are an example of a redistributional government policy.

Question 61

Of the three levels of government, state government has generally been the least important in terms of total expenditure.

Question 62

Increased public services always entail the shift of resources from the private to the public sector.

Question 63

It always pays to get more income, even it this shifts you to a higher tax bracket, in the sense that you will definitely have more after-tax income than before.

Question 64

Any tax whose burden depends on the outcome of an economic decision can be expected to create an economic distortion.

Question 65

Fiscal policy is another name for the government's attempt to balance the budget.

Question 66

A sales tax on a consumer good on which the wealthy spend a higher proportion of their income than the poor would be progressive.

Question 67

Analysis of the incidence of a tax is really an analysis of its progressivity.

Question 68

Progressive income taxes tend, through redistribution of income, to expand purchasing power.

Question 69

A major criticism of the general property tax is that it violates principles of horizontal equity.

Question 70

Excise taxes are, in general, regarded as regressive, and one levied on fur coats would be no exception.

Question 71

Education is the biggest single item in the budget of local government.

Question 72

The U.S.Social Security tax is designed to be progressive.

Question 73

Transfer payments hardly ever create inefficiencies because they simply transfer money from the hands of one set of people and deliver into the hands of another set of people.

Question 74

The U.S.federal income tax is designed to be progressive.

Question 75

A general sales tax would probably be regressive if it were applied proportionately to all expenditures.

Question 76

The corporate income tax is a classic example of benefit taxation.

Question 77

Inefficient government can cause an economy to operate below its production possibility frontier.

Question 78

State and local governments spend more each year on public education than they do for police and fire protection.

Question 79

The working poor are regressively taxed, but since more expenditure goes to them, the net tax burden after transfers may actually be progressive.