Question 1

Which of the following always has an income effect?

Accepted Answer

Block grants, matching grants, and conditional grants always have an income effect. This is because they provide individuals or organizations with additional income or resources, which can affect their consumption and savings behaviors. Matching grants may have a particularly strong income effect, as they require individuals or organizations to contribute funds in order to access the grant money, effectively increasing their total income.

Question 2

Which of the following is NOT a limitation of the Tiebout model?

Accepted Answer

Financing is not a limitation of the Tiebout model, as the model does not specifically address the issue of financing. The Tiebout model instead focuses on the efficiency gains that can arise from competition among local governments in providing public goods and services. The other options listed (mobility, competition, and spillover) are all limitations of the model, as they can impact the extent to which individuals are able to sort themselves into communities that match their preferences.

Question 3

A state is spending $40 million on highway improvements.If the federal government promises to pay the state $0.25 for every $1 spent by the state on highway improvements,and if highway improvements are a normal good,the income effect induces the state to spend _________ on highway improvements; the substitution effect induces the state to spend _________ on highway improvements.

Accepted Answer

The income effect occurs when the purchasing power of the state changes due to the federal government's promise to pay for a portion of the expenses. In this case, the state has more money available for other projects and needs, which could induce them to spend more on highway improvements than they originally planned. Therefore, the income effect induces the state to spend more on highway improvements.

The substitution effect occurs when the relative prices of goods and services change. In this case, there is no change in the price of highway improvements, but the federal government's promise to pay for a portion of the expenses could be seen as a price reduction for the state. This would induce the state to substitute more highway improvements instead of other projects that were originally planned. Therefore, the substitution effect induces the state to spend more on highway improvements.

Question 4

The federal government gives a state a _________ grant,promising to pay the state $0.25 for every $1 the state spends on health care for senior citizens,which _______ the price of health care to the state by _________.

Accepted Answer

A partial matching grant decreases the effective price of health care to the state by 25% because the federal government covers 25% of the cost, reducing the state's share from $1 to $0.75.

Question 5

An implication of the Tiebout model is that comparable houses in a community with a relatively ________ level of taxes,given a level of public goods,will be worth _________.

Accepted Answer

The Tiebout model suggests that people "vote with their feet" by moving to communities that best fit their preferences for public goods and tax levels. A higher tax level, assuming the provision of public goods is the same, would make a house less attractive due to the higher ongoing costs of living there, potentially reducing its value.

Question 6

Suppose two individuals have identical incomes.One of them has a house worth $100,000 and the other has a house worth $200,000.The local government levies a tax of $500 on each of them,as it does on the homes of the rest of its residents.What kind of tax is this?

Accepted Answer

A lump-sum tax is a fixed amount of tax that individuals are required to pay, regardless of their income, wealth, or consumption. In this scenario, both individuals are required to pay the same tax amount ($500) despite the difference in the value of their homes, which indicates the tax is not based on property value, income, or specific benefits received, but is instead a fixed amount for all, characteristic of a lump-sum tax.

Question 7

Suppose the federal government wants a state to increase its spending on environmental cleanup from its current $4 million.The federal government _________ do this by offering a $3 million __________ grant.

Accepted Answer

The answer of Suppose the federal government wants a state...

Question 8

A city that is spending $1 million on policing receives a conditional grant of $500,000 to spend on policing.Assume policing is a normal good.The income effect ___________ spending on policing; the substitution effect ___________ spending on policing.

Accepted Answer

The income effect increases spending on policing because the grant effectively increases the city's income, allowing it to spend more on a normal good like policing. The substitution effect does not affect spending on policing in this context because the grant is conditional on being spent on policing, leaving no room for substitution between policing and other goods.

Question 9

Individuals who wish to live in a community with individuals richer than they are but without paying higher property taxes are hoping to receive the benefits of the:

Accepted Answer

The answer of Individuals who wish to live in a...

Question 10

A state is currently spending $40 million on highway improvements.If the federal government promises to pay the state $1 for every $1 spent by the state on highway improvements,it is offering a __________ grant that _________ increase total state spending on highway improvements.

Accepted Answer

A matching grant is a type of grant in which the funding agency (in this case, the federal government) agrees to match every dollar spent by the recipient (the state) with one of its own. Therefore, the federal government will increase the total state spending on highway improvements by $40 million, resulting in a total of $80 million being spent on highway improvements.

Question 11

Which of the following is consistent with the assumptions in the Tiebout model?

Accepted Answer

The answer of Which of the following is consistent with...

Question 12

A city that is currently spending $1 million on policing receives a one-for-one matching grant of up to $2.5 million to spend on policing.Assume policing is a normal good,as are other programs paid for by the city.The income effect ___________; the substitution effect ___________.

Accepted Answer

The income effect increases spending on non-policing programs because the grant effectively increases the city's budget, allowing more spending on all normal goods. The substitution effect increases spending on policing because the grant makes additional spending on policing relatively cheaper.

Question 13

Suppose the federal government pays $5 million into a state's general fund.That transfer can best be characterized as which of the following?

Accepted Answer

The transfer described is a block grant. Block grants are fixed amounts of money given to states for broad purposes such as healthcare, education, or social services, and are often based on a formula that takes into account various factors such as population size and need.

Question 14

Which of the following is an implication of the Tiebout model?

Accepted Answer

The Tiebout model suggests that individuals can sort themselves into communities that offer a mix of public goods and taxes that match their preferences. Therefore, local governments should provide public goods that are characterized by a strong tax-benefit linkage, meaning that individuals can clearly see the benefits they receive from paying taxes. This way, individuals can make informed choices about which community to live in based on their preferences for public goods and taxes.

Question 15

The Tiebout model implies that ________ should be financed at the local level,and ________ programs should be financed at the state and federal levels.

Accepted Answer

The Tiebout model suggests that goods and services that are consumed locally should be financed at the local level. Garbage collection is a good example of a service that is consumed almost entirely locally. On the other hand, some goods and services (such as welfare programs) are more effectively financed and administered at higher levels of government, such as the state or federal government. Education is more expensive than garbage collection and is better financed at the state and federal levels. Therefore, B is the correct answer.

Question 16

A state is spending $30 million on disability programs in schools.If the federal government promises to give that state $25 million to spend on disability programs in its schools,the federal government is offering a _________ grant that _________ state spending on disability programs in schools.

Accepted Answer

The grant is conditional because it is specified for disability programs in schools, and it may or may not increase state spending because the state could potentially reduce its own spending given the federal contribution, maintaining or slightly altering the overall spending level.

Question 17

The federal government gives a state $300 million that it must spend on highway improvements.If the state was already spending $400 million,then from the state's perspective,this ___________ grant is effectively ___________.

Accepted Answer

The federal government gives a state $300 million that it must spend on highway improvements. This means that the grant is conditional, as the state must use the money for a specific purpose. However, the state was already spending $400 million on highway improvements, so the grant is effectively unconditional from the state's perspective, as it does not need to increase its spending on highways in order to receive the grant.

Question 18

Suppose the federal government promises to pay a state $5 million to subsidize the loans of college students in that state.That transfer can best be characterized as:

Accepted Answer

A conditional block grant is a type of grant given by the federal government to a state with specific conditions attached, such as using the funds to subsidize college student loans.

Question 19

A city is spending $1 million on policing and receives a one-for-one matching grant of up to $2.5 million to spend on policing.Assume policing is a normal good.The income effect ___________ spending on policing; the substitution effect ___________ spending on policing.

Accepted Answer

The income effect increases spending on policing because the matching grant effectively increases the city's income or budget for policing, allowing them to spend more. The substitution effect also increases spending on policing because the grant makes spending on policing relatively more attractive compared to other uses of funds, assuming the grant can only be used for policing and not for other services.

Question 20

Suppose the federal government promises to pay a state $0.50 for every $1 the state spends on health insurance for uninsured children.That transfer can best be characterized as:

Accepted Answer

This transfer is a matching grant because the federal government is offering to match a portion of the state's spending on health insurance for uninsured children. Specifically, for every $1 the state spends, the federal government will contribute $0.50, leading to a total of $1.50 of funding.

Quiz 10: State and Local Government Expenditures

Which of the following always has an income effect?

Which of the following is NOT a limitation of the Tiebout model?

The federal government gives a state a _____ grant,promising to pay the state $0.25 for every $1 the state spends on health care for senior citizens,which _ the price of health care to the state by _______.

An implication of the Tiebout model is that comparable houses in a community with a relatively level of taxes,given a level of public goods,will be worth _.

Suppose two individuals have identical incomes.One of them has a house worth $100,000 and the other has a house worth $200,000.The local government levies a tax of $500 on each of them,as it does on the homes of the rest of its residents.What kind of tax is this?

Suppose the federal government wants a state to increase its spending on environmental cleanup from its current $4 million.The federal government _ do this by offering a $3 million __ grant.

A city that is spending $1 million on policing receives a conditional grant of $500,000 to spend on policing.Assume policing is a normal good.The income effect _ spending on policing; the substitution effect _ spending on policing.

Individuals who wish to live in a community with individuals richer than they are but without paying higher property taxes are hoping to receive the benefits of the:

A state is currently spending $40 million on highway improvements.If the federal government promises to pay the state $1 for every $1 spent by the state on highway improvements,it is offering a __ grant that _ increase total state spending on highway improvements.

Which of the following is consistent with the assumptions in the Tiebout model?

A city that is currently spending $1 million on policing receives a one-for-one matching grant of up to $2.5 million to spend on policing.Assume policing is a normal good,as are other programs paid for by the city.The income effect _; the substitution effect _.

Suppose the federal government pays $5 million into a state's general fund.That transfer can best be characterized as which of the following?

Which of the following is an implication of the Tiebout model?

The Tiebout model implies that should be financed at the local level,and programs should be financed at the state and federal levels.

A state is spending $30 million on disability programs in schools.If the federal government promises to give that state $25 million to spend on disability programs in its schools,the federal government is offering a _ grant that _ state spending on disability programs in schools.

The federal government gives a state $300 million that it must spend on highway improvements.If the state was already spending $400 million,then from the state's perspective,this _ grant is effectively _.

Suppose the federal government promises to pay a state $5 million to subsidize the loans of college students in that state.That transfer can best be characterized as:

A city is spending $1 million on policing and receives a one-for-one matching grant of up to $2.5 million to spend on policing.Assume policing is a normal good.The income effect _ spending on policing; the substitution effect _ spending on policing.

Suppose the federal government promises to pay a state $0.50 for every $1 the state spends on health insurance for uninsured children.That transfer can best be characterized as: