Deck 1: Why Study Public Finance

Question 1

Suppose Ali values a slice of pizza at $1.50,but the pizza shop is unwilling to sell a slice of pizza for less than $1.00.These values imply that it is efficient for the shop to sell a slice of pizza to Ali for any price:

A) greater than or equal to $1.50.
B) greater than or equal to $1.00 and less than or equal to $1.50.
C) less than or equal to $1.00.
D) less than or equal to $1.00 and greater than or equal to $1.50.

Answer 1

greater than or equal to $1.00 and less than or equal to $1.50.

Question 2

Government intervenes in a market economy to:

A) create externalities.
B) prevent competition.
C) enhance economic efficiency.
D) achieve perfect income equality.

Answer 2

enhance economic efficiency.

Question 3

As a result of the Affordable Care Act passed in 2010:

A) insurance companies are allowed to discriminate against those with medical conditions that are too expensive to treat.
B) individuals who cannot afford health insurance have all been enrolled in Medicaid.
C) individuals who can afford health insurance must purchase it or pay a penalty.
D) the government is no longer attempting to control the costs of providing medical care.

Answer 3

individuals who can afford health insurance must purchase it or pay a penalty.

Question 4

Both the federal and state governments collect fees for each gallon of gasoline sold.This is an example of which type of government intervention?

A) restriction of private sale or purchase
B) taxation
C) subsidy
D) public provision

Question 5

Public schools in the United States are operated by the government.This is an example of:

A) public financing of private provision.
B) restriction or mandate of private sale or purchase.
C) a subsidy.
D) public provision.

Question 6

The goal of public finance is to:

A) understand the proper role of corporations in the economy.
B) understand the proper role of the government in the economy.
C) determine the best way to increase government's role in the economy.
D) determine the best way to decrease government's role in the economy.

Question 7

The Medicare insurance program in the United States reimburses hospitals and doctors for providing health care services to the elderly.This is an example of:

A) public financing of private provision.
B) restriction or mandate of private sale or purchase.
C) a tax.
D) a subsidy.

Question 8

Suppose the government proposes a program that will transfer income from one group to another.The goal of this government intervention in the marketplace is best characterized as:

A) redistribution.
B) increasing market efficiency.
C) correcting a market failure.
D) achieving competitive equilibrium.

Question 9

Suppose a consumer values a certain 19-inch television set at $150,and the seller is unwilling to sell the set for less than $200.These values imply that:

A) it is efficient for the seller to charge a price of $0.
B) it is efficient for the seller to charge any price greater than $0 and less than $150.
C) it is efficient for the seller to charge any price greater than or equal to $150 and less than or equal to $200.
D) it is not efficient for a transaction to take place.

Question 10

Veterans receive health benefits directly through hospitals owned and operated by the Veterans Health Administration.This is an example of:

A) public financing of private provision.
B) restriction or mandate of private sale or purchase.
C) a subsidy.
D) public provision.

Question 11

If the competitive equilibrium does not lead to the efficiency-maximizing outcome,then government intervention:

A) will increase efficiency.
B) will reduce efficiency.
C) may increase or decrease efficiency.
D) will not affect efficiency.

Question 12

Which type of government intervention can be used to lower the price for private sales or purchases of underproduced goods?

A) public financing of private provision
B) restrictions or mandates of private sale or purchase
C) taxes
D) subsidies

Question 13

The goal of public economics,or public finance,is to answer which question?

A) How might the government intervene in the economy and what are the likely effects?
B) Why do profit-maximizing firms attempt to set marginal revenue equal to marginal cost?
C) How are the terms of trade determined when countries choose to engage in international trade?
D) What are the goals and tools of macroeconomic policy?

Question 14

Suppose a student values a textbook at $50,and the publisher is unwilling to sell the textbook at a price lower than $30.What price will lead to an efficient transaction between the student and publisher?

A) a price of $0
B) any price greater than $0 and less than $30
C) any price greater than or equal to $30 and less than or equal to $50
D) any price greater than $50

Question 15

Suppose you hear someone argue that the proper role of government is to increase the size of the pie.Which justification for government intervention in the economy is this person referring to?

A) increasing equality in the economy
B) promoting social justice
C) improving efficiency
D) preventing competition

Question 16

An intervention in which government establishes a federally funded health care service for everyone and pays doctors and medical practitioners directly is called:

A) private provision with public financing.
B) restriction or mandate of private sale or purchase.
C) subsidy.
D) public provision.

Question 17

Suppose Juan values a slice of pizza at $1.50,but the pizza shop is unwilling to sell a slice of pizza for less than $2.00.These values imply that:

A) it is efficient for the shop to sell a slice of pizza to Juan for $1.50.
B) it is efficient for the shop to sell a slice of pizza Juan for $2.00.
C) the shop needs to produce more efficiently in order to lower the price.
D) it is not efficient for the shop to sell a slice of pizza to Juan.

Question 18

Suppose government proposes taxing Peter to pay Paul.The goal of this intervention could be best characterized as an attempt to achieve:

A) redistribution.
B) efficiency.
C) market failure.
D) competitive equilibrium.

Question 19

Suppose the government taxes the rich to distribute money to the poor.Which of the following is an example of an efficiency loss?

A) Rich people take home less of the money from their jobs because of the tax.
B) Rich people don't work as hard because of the tax.
C) Poor people are better off because of the redistribution.
D) Poor people work just as hard because they still need to make ends meet.

Question 20

The equity-efficiency trade-off means that the result of obtaining __________ in equality is also to obtain __________ in the so-called size of the pie.

A) no change; a decrease
B) no change; an increase
C) a decrease; a decrease
D) an increase; a decrease

Question 21

The current federal debt of the United States is ______ of the gross domestic product.

A) less than 15%
B) approximately 30%
C) approximately 60%
D) over 100%

Question 22

By 2010,approximately ________ of the nonelderly United States population did not have health insurance.

A) 5%
B) 15%
C) 18%
D) 25%

Question 23

Which of the following is the government agency that uses empirical economics to achieve its mission of providing Congress with objective,nonpartisan analyses necessary for economic and budget decisions?

A) National Bureau of Economic Research
B) Office of Management and Budget
C) Antitrust Division of the Department of Justice
D) Congressional Budget Office

Question 24

If government revenues exceed government spending,the difference is called the:

A) cash flow deficit.
B) cash flow surplus.
C) debt.
D) budget.

Question 25

Suppose that because the government increases the minimum wage,employees who were earning the minimum wage get a pay increase.This is an example of a(n):

A) intended,direct effect.
B) intended,indirect effect.
C) unintended,direct effect.
D) unintended,indirect effect.

Question 26

The government has passed many school accountability measures that reward schools if their students score highly on standardized tests.Suppose schools respond by manipulating the set of test-takers to increase average scores.This outcome is an example of a(n):

A) intended effect.
B) direct effect.
C) indirect effect.
D) desired outcome.

Question 27

Which of the following might be an indirect unintended effect of providing income support to those without jobs?

A) Those without jobs are made better off.
B) Those without jobs are made worse off.
C) People without jobs now search for and acquire jobs.
D) People without jobs no longer search for and acquire jobs.

Question 28

Which of the following changes were introduced with the passage of the Affordable Care Act?

A) increased government regulation of insurance markets and reduced reliance on private health insurance providers
B) introduction of new subsidies for the purchase of health insurance and expanded private health insurance through state exchanges
C) elimination of subsidies for the purchase of health insurance and new requirements that low-income individuals bear the full burden of insurance costs
D) expanded coverage by government and reduced reliance on private health insurance providers

Question 29

Which of the following is generally TRUE regarding proposed solutions to problems in the educational system in the United States?

A) Liberals advocate increased competition among schools,while conservatives advocate higher teacher pay and increasing resources given to disadvantaged schools.
B) Liberals advocate higher teacher pay and increased resources given to disadvantaged schools,while conservatives advocate increased competition among schools.
C) Both liberals and conservatives advocate increased competition among schools.
D) Both liberals and conservatives advocate higher teacher pay and increased resources given to disadvantaged schools.

Question 30

Suppose the government wishes to provide college tuition aid to one of the following groups of high school students.In which target group would the possible extent of indirect effects be most limited?

A) students with relatively low Scholastic Aptitude Test scores
B) students whose fathers have died recently
C) students who earn less than $2,000 per year
D) students who live in low-income neighborhoods

Question 31

How governments should intervene is a _________ question,and why governments intervene in the way they do is a __________ question.

A) normative; normative
B) positive; negative
C) normative; positive
D) positive; normative

Question 32

National defense is a classic example of what economists call:

A) a public good.
B) entitlement spending.
C) social insurance.
D) a private service.

Question 33

Suppose that because the government increases the minimum wage,employers choose to hire fewer workers.This is an example of:

A) an intended effect.
B) a direct effect.
C) an indirect effect.
D) a desired outcome.

Question 34

Social Security is the single largest government expenditure program; however,the system is projected to have insufficient funds to pay promised retiree benefits in less than 30 years.What is the main solution that liberals suggest to cope with this problem?

A) raising the necessary resources through higher payroll taxes or some other means
B) encouraging individuals to save for their own retirement
C) encouraging inflow of young immigrants
D) enacting policies that bring higher birth rates

Question 35

Which of the following might be a direct effect of providing free health care for those without insurance?

A) Those who were without private health insurance are now better off.
B) Those with private health insurance may drop their coverage.
C) Those without health insurance may purchase private health insurance.
D) Those eligible for free health insurance are not aware of the benefit.

Question 36

Which of the following correctly depicts the changes in the sources of federal,state,and local receipts in the past 50 years?

A) Income taxes are now a larger share of federal receipts.
B) Property taxes are now a larger share of state and local receipts.
C) Corporate and excise taxes are now a smaller share of federal receipts.
D) Sales taxes constitute the exact same share of state and local receipts.

Question 37

Does taxing the wealthy to give benefits to the poor increase social welfare? Explain.

Question 38

The government offers unemployment benefits to workers who have lost their jobs and not yet found new ones.Which of the following is an example of an indirect unintended effect of the government intervention?

A) Recipients reduce their job search activities.
B) Recipients can still afford to pay health insurance premiums.
C) Recipients are at less risk for falling into poverty.
D) Potential recipients choose not to file for benefits.

Question 39

The government has passed many school accountability measures that reward schools if their students score highly on standardized tests.Suppose schools respond by more efficiently teaching their students.This outcome is an example of a(n):

A) intended,direct effect.
B) intended,indirect effect.
C) unintended,direct effect.
D) unintended,indirect effect.

Question 40

The accumulation of past deficits over time is measured by the:

A) cash flow deficit.
B) cash flow surplus.
C) debt.
D) budget.

Question 41

What are the fundamental issues that the supporters and opponents of Affordable Care Act (ACA)cannot agree on? Explain.

Question 42

Suppose the White House could appoint the lead officials at the Congressional Budget Office (CBO).Do you think this change could affect the level of budget deficits? Explain.

Question 43

Are all of the indirect effects of government intervention in the economy unintended effects? Explain.

Question 44

Suppose someone says that a relatively small percentage of Americans own a large percentage of total assets and that therefore the government should redistribute wealth to those less fortunate.Which part of that statement is normative and which part is positive,if any? Explain.