Deck 9: Public Finance and Public Choice

Question 1

In recent years, more than one quarter of federal government spending went to Social Security and income security programs.

Answer 1

True

Question 2

A flat tax would increase the possibilities of abuses and misrepresentations that go with tax deductions.

Answer 2

False

Question 3

If a flat tax plan allowed individuals to deduct a standard allowance of $15,000 and the flat tax rate was 10 percent, an individual earning $12,000 a year would not pay any income taxes.

Answer 3

True

Question 4

Most flat tax proposals call for exempting income to a certain minimum level.

Question 5

Vertical equity is the concept that people with different levels of income should be treated differently.

Question 6

The benefits received principle means those with the least ability to pay should be the ones to receive the benefits.

Question 7

A flat tax plan with a standard deduction of $25,000 in income and a tax rate of 20% would require an individual earning $100,000 to pay $15,000 in income taxes.

Question 8

The motivation for an individual citizen to spend the necessary time and effort to resist an interest group is minimal, even if she had a guarantee that this resistance would be effective.

Question 9

When decisions are made by majority rule, the individual consumption-payment link is broken.

Question 10

The idea of rational ignorance implies that people are fully informed about their market purchases but uninformed about political issues.

Question 11

When you add payroll taxes and Medicare, the tax system becomes more progressive than when we solely consider the federal income tax.

Question 12

If a flat tax plan allowed individuals to deduct a standard allowance of $20,000 and the flat tax rate was 20 percent, an individual earning $100,000 would pay an average tax rate of 20%.

Question 13

In a proportional tax system each individual would pay the same percentage of his or her income in taxes.

Question 14

Taxes for the most part are efficient because they retain incentives and align the values that buyers and sellers place on goods and services.

Question 15

Government expenditures as a percentage of GDP in the U.S. increased from 1950 to 1975 but decreased sharply during the recession that began in 2008.

Question 16

In a proportional tax system each individual would pay the same dollar amount in taxes.

Question 17

Payroll taxes are actually regressive taxes.

Question 18

The median voter model predicts a strong tendency for both candidates to choose a position away from the middle of distribution.

Question 19

The self-interest assumption is central to the analysis of behavior in both private and public sectors.

Question 20

The U.S. federal government relies more heavily on sales taxes, excise taxes, and customs duties than nearly any other government in the world.

Question 21

​Exhibit 9-1
A flat tax plan allows individuals to deduct a standard allowance of $25,000 from their wages. Assume that the flat tax rate is 12%.
Refer to Exhibit 9-1. How much income tax would you have to pay if you were earning $50,000 a year?

A)​zero
B)​$1,200
C)​$3,000
D)​$6,000

Question 22

The U.S. federal government relies more heavily on ____ than any other government.

A)​excise taxes
B)​sales taxes
C)​customs duties
D)​income-based taxes

Question 23

Which of the following is generally considered the most regressive type of tax?

A)​gift tax
B)​federal income tax
C)​excise tax
D)​payroll tax

Question 24

​Exhibit 9-1
A flat tax plan allows individuals to deduct a standard allowance of $25,000 from their wages. Assume that the flat tax rate is 12%.
Refer to Exhibit 9-1. Above $25,000 in wages, the average tax rate:

A)​would remain flat with an increase in income.
B)​would increase with an increase in income.
C)​would decrease with an increase in income.
D)​none of the above

Question 25

Which of the following accounted for the highest percentage of federal government spending in 2013?

A)​net interest on the national debt
B)​income security
C)​national defense
D)​education and health

Question 26

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

A)​Social Security tax
B)​federal income tax
C)​excise tax
D)​payroll tax

Question 27

If Jim earns $300,000 this year and pays $75,000 in taxes and Sharon earns $80,000 this year and pays $20,000 in taxes, this tax system would appear to be

A)​progressive.
B)​proportional.
C)​regressive.
D)​none of the above

Question 28

A regressive tax:

A)​is designed to take a larger percentage of higher incomes as compared to lower incomes.
B)​is designed in such a way that as a person's income rises, the amount of tax as a proportion of income rises.
C)​takes a greater proportion of the income of lower-income groups than of higher-income groups.
D)​is considered to be the most equitable type of tax.

Question 29

The ability to pay principle suggests that:

A)​traditional exemptions should be removed since they are more frequently used by people with ability to pay more taxes.
B)​people with different levels of income should be treated in the same manner.
C)​individuals receiving the benefits should be those who pay for them.
D)​those with the greatest ability to pay taxes should pay more than those with the least ability to pay taxes.

Question 30

A progressive tax:

A)​is designed to take a larger percentage of higher incomes as compared to lower incomes.
B)​takes a greater proportion of the income of lower-income groups than of higher-income groups.
C)​is designed so that everybody would be charged the same percentage of their income.
D)​is designed to take a smaller percentage of higher incomes as compared to lower incomes.

Question 31

​Exhibit 9-1
A flat tax plan allows individuals to deduct a standard allowance of $25,000 from their wages. Assume that the flat tax rate is 12%.
Refer to Exhibit 9-1. If you were earning $100,000 a year, your average tax rate would be:

A)​15 percent.
B)​12 percent.
C)​9 percent.
D)​6 percent.

Question 32

A flat tax:

A)​is designed so that everybody would pay the same number of dollars in taxes.
B)​is designed in such a way that as a person's income rises, the tax rate falls.
C)​is designed so that everybody would be charged the same percentage of their income.
D)​is designed to take a smaller percentage of higher incomes as compared to lower incomes.

Question 33

Which of the following accounts for the largest percentage of federal taxes?

A)​gift taxes
B)​social security tax
C)​individual income taxes
D)​corporate income taxes

Question 34

Which of the following is potentially an option to save Social Security?

A)​Increasing the payroll tax rate
B)​Increasing the age required for full-time benefits.
C)​Implementing means testing
D)​all of the above

Question 35

If Stephen earns $100,000 this year and pays $20,000 in taxes and Chris earns $50,000 this year and pays $5,000 in taxes, this tax system would appear to be

A)​progressive.
B)​proportional.
C)​regressive.
D)​none of the above

Question 36

​Exhibit 9-1
A flat tax plan allows individuals to deduct a standard allowance of $25,000 from their wages. Assume that the flat tax rate is 12%.
Refer to Exhibit 9-1. How much income tax would you have to pay if you were earning $100,000 a year?

A)​$9,000
B)​$6,000
C)​$3,000
D)​$1,200

Question 37

Which of the following accounted for the highest percentage of state and local spending?

A)​education and health care
B)​police and fire protection
C)​highways
D)​social security

Question 38

Which of the following is not an option that could be used to save Social Security?

A)​Decreasing the age required for full-time benefits.
B)​Implementing means testing
C)​Allowing individuals to opt out of the Social Security system
D)​Increasing the return to Social Security funds

Question 39

​Exhibit 9-1
A flat tax plan allows individuals to deduct a standard allowance of $25,000 from their wages. Assume that the flat tax rate is 12%.
Refer to Exhibit 9-1. If you were earning $50,000 a year, your average tax rate would be:

A)​12 percent.
B)​15 percent.
C)​6 percent.
D)​9 percent.

Question 40

​Exhibit 9-1
A flat tax plan allows individuals to deduct a standard allowance of $25,000 from their wages. Assume that the flat tax rate is 12%.
Refer to Exhibit 9-1. How much income tax would you have to pay if you were earning $20,000 a year?

A)​$2,400
B)​$1,200
C)​$3,000
D)​zero

Question 41

A special interest issue is one that:

A)​provides large private benefits and large social benefits.
B)​provides small private benefits and large social benefits.
C)​provides large benefits to each of a small number of people and small costs to each of a large number of people.
D)​provides small benefits to each of a small number of people and large costs to each of a large number of people.

Question 42

Does the benefits received principle work well for all public goods?

Question 43

Voters will gather information on voting alternatives:

A)​when the cost of acquiring such information is exorbitantly high.
B)​as long as the marginal benefit to them of acquiring additional information exceeds the marginal cost to them.
C)​as long as the marginal benefit to them of the information is less than the marginal cost to them of gathering the information.
D)​because the welfare of the community is always perceived to be more important than the welfare of the individual.

Question 44

Which of the following statements best summarizes the essence of public choice analysis?

A)​Public choice analysis applies economic principles to political science issues.
B)​Public choice analysis applies political science principles to traditionally economic issues.
C)​Public choice analysis assumes that government leaders are primarily motivated by what is best for the community, unlike private interest groups.
D)​none of the above

Question 45

The administrative burden of taxation relates to the

A)​the disincentive for individuals and businesses to work generate income.
B)​individuals' cost of preparing tax returns and the government's cost of enforcing tax laws.
C)​the opportunity cost of social programs.
D)​the net interest that must be paid on the national debt.

Question 46

Which of the following would be considered special interest group?

A)​National Rifle Association
B)​Greenpeace
C)​the U.S.sugar industry
D)​all of the above

Question 47

Rational voter ignorance can lead politicians to:

A)​favor programs with immediate and clear benefits and unclear and deferred costs.
B)​fail to take all the benefits and costs of a program fully into account in deciding on which policies to favor.
C)​do a poor job of overseeing the actions of public sector bureaus.
D)​all of the above

Question 48

The benefits received principle suggests that:

A)​traditional exemptions should be removed since they benefit people with ability to pay more taxes.
B)​people with different levels of income should be treated in the same manner.
C)​individuals receiving the benefits should be those who pay for them.
D)​those with the greatest ability to pay taxes should pay more than those with the least ability to pay taxes.

Question 49

What are the advantages of a flat tax system?

Question 50

The process by which a legislator votes in favor of the legislation of other lawmakers in order to gain support for her own legislation is known as:

A)​pork barrel legislation.
B)​logrolling.
C)​the median vote model.
D)​none of the above

Question 51

The benefits received principle would not work well in which of the following cases?

A)​gasoline tax
B)​national defense
C)​taxing those people who use a private good
D)​admission fees to a national park

Question 52

Would a tax on prescriptions drugs be more likely to be progressive or regressive? Why?

Question 53

A special interest issue is best described as:

A)​one in which both sides utilize paid lobbyists to represent them.
B)​one which one party strongly supports and the other party strongly opposes.
C)​one in which a large number will each suffer small costs and a small number will each receive large benefits.
D)​one decided in a special session of the legislature.

Question 54

Public choice theory applies ____ principles to politics.

A)​altruistic
B)​ceteris paribus
C)​economic
D)​the fallacy of composition

Question 55

The view that those whose preferences represent the middle position on an issue will tend to determine the outcome of an election is called:

A)​rent seeking.
B)​the median voter model.
C)​the special interest effect.
D)​the cyclical majority problem.

Question 56

If Mike earns $80,000 this year and pays $16,000 in taxes and David earns $50,000 this year and pays $11,000 in taxes, this tax system would appear to be

A)​progressive.
B)​proportional.
C)​regressive.
D)​none of the above

Question 57

The median voter model implies that:

A)​most voters will have about the same preferences for goods and services provided through government.
B)​a candidate may adopt more extreme views when seeking her party's nomination than during the general election.
C)​political voting will be as economically efficient as voting with dollars in competitive markets.
D)​none of the above

Question 58

Public choice theory assumes that each voter will tend to favor the political candidate who offers:

A)​programs with the largest social benefits.
B)​equality of government-provided benefits across all citizens.
C)​programs that will yield the greatest personal benefits net of personal cost.
D)​a plan requiring the least amount of tax dollars, regardless of the level of benefits provided.

Question 59

Public choice theory assumes that voters, politicians, and other political participants are largely motivated by:

A)​personal self-interest.
B)​altruism.
C)​a desire to promote the general welfare.
D)​a desire to promote allocative economic efficiency.

Question 60

Tax collected based on a taxpayer's spending is known as:

A)​excise tax.
B)​consumption tax.
C)​gift tax.
D)​income tax.

Question 61

What is the ability to pay principle? Does the U.S. federal income tax follow this principle or not? Explain your answer.

Question 62

Why might voters tend to be relatively uninformed about political issues?