Question 1

Which of the following represents the basic principle of public choice theory?

Accepted Answer

A)  Politicians act consistently in the public's interest. 
B)  Politicians follow their own self-interest and seek to maximize their reelection chances, rather than promote the best interests of society. 
C)  Politicians act in the public interest once they are elected, but follow their own self-interest and seek to maximize their reelection chances during a political campaign. 
D)  Politicians have an incentive to be cost-conscious and creative because they face the same type of profit motive as producers. 
A)  Politicians act consistently in the public's interest. 
B)  Politicians follow their own self-interest and seek to maximize their reelection chances, rather than promote the best interests of society. 
C)  Politicians act in the public interest once they are elected, but follow their own self-interest and seek to maximize their reelection chances during a political campaign. 
D)  Politicians have an incentive to be cost-conscious and creative because they face the same type of profit motive as producers.

Question 2

A tax is regressive if it collects a:

Accepted Answer

A)  larger amount as income rises. 
B)  constant amount as income rises. 
C)  smaller fraction of income as income falls. 
D)  smaller fraction of income as income rises. 
A)  larger amount as income rises. 
B)  constant amount as income rises. 
C)  smaller fraction of income as income falls. 
D)  smaller fraction of income as income rises.

Question 3

Suppose fairness is defined as those with the highest incomes can afford to pay a greater proportion of their income in taxes. Then which of the following taxation systems would be consistent with this notion of fairness?

Accepted Answer

A)  A true flax tax. 
B)  A flat sales tax on consumption purchases. 
C)  A progressive tax on income. 
D)  A fixed federal tax of $5,000 that everyone pays regardless of income status. 
A)  A true flax tax. 
B)  A flat sales tax on consumption purchases. 
C)  A progressive tax on income. 
D)  A fixed federal tax of $5,000 that everyone pays regardless of income status.

Question 4

Total U.S. government expenditures as a percentage of GDP were largest during which of the following periods of time?

Accepted Answer

A)  The Great Depression 
B)  World War II 
C)  The Vietnam War 
D)  The Energy Crisis of the mid- and late-1970s 
A)  The Great Depression 
B)  World War II 
C)  The Vietnam War 
D)  The Energy Crisis of the mid- and late-1970s

Question 5

The study of the decision-making process of government is the study of:

Accepted Answer

A)  Keynesian economics. 
B)  public choice theory. 
C)  rational expectations theory. 
D)  social economics. 
A)  Keynesian economics. 
B)  public choice theory. 
C)  rational expectations theory. 
D)  social economics.

Question 6

The burden of taxation in the United States

Accepted Answer

A)  from federal government taxes is smaller than the burden from state and local government taxes. 
B)  has increased since 1929. 
C)  has decreased since 1929. 
D)  from state and local government taxes has increased, while the burden from federal taxes has decreased. 
A)  from federal government taxes is smaller than the burden from state and local government taxes. 
B)  has increased since 1929. 
C)  has decreased since 1929. 
D)  from state and local government taxes has increased, while the burden from federal taxes has decreased.

Question 7

Exhibit 16-1 Income for two persons $$\begin{array} { | l | r | } 
\hline \text { Name } & \text { Income } \
\hline \text { Elaine } & \$ 100,000 \
\text { Daniel } & \$ 40,000 \
\hline
\end{array}$$ In Exhibit 16-1, if the income tax system is proportional, then:

Accepted Answer

A)  Elaine and Daniel will face the same tax rate and will have tax bills the same size. 
B)  Elaine and Daniel will face the same tax rate but Elaine's tax bill will be larger. 
C)  Elaine will face a higher tax rate and will have a larger tax bill than Daniel. 
D)  Elaine will face a lower tax rate and will have a smaller tax bill than Daniel. 
A)  Elaine and Daniel will face the same tax rate and will have tax bills the same size. 
B)  Elaine and Daniel will face the same tax rate but Elaine's tax bill will be larger. 
C)  Elaine will face a higher tax rate and will have a larger tax bill than Daniel. 
D)  Elaine will face a lower tax rate and will have a smaller tax bill than Daniel.

Question 8

Majority-rule voting, special-interest group effects, rational voter ignorance, bureaucratic inefficiency, and the shortsightedness effect

Accepted Answer

A)  reflect irrational behavior by the general population. 
B)  are public choice theories that explain why the public sector might fail to achieve efficient policies. 
C)  explain why democratic societies need elected officials. 
D)  are the causes of efficient public policy decisions. 
A)  reflect irrational behavior by the general population. 
B)  are public choice theories that explain why the public sector might fail to achieve efficient policies. 
C)  explain why democratic societies need elected officials. 
D)  are the causes of efficient public policy decisions.

Question 9

Which of the following statements is not  correct regarding taxes?

Accepted Answer

A)  The largest source of state and local governments tax revenue is sales and excise taxes. 
B)  The largest source of federal government tax revenue is individual income taxes. 
C)  A sales tax on food is a regressive tax. 
D)  A proportional tax is equal to a fixed dollar amount. 
A)  The largest source of state and local governments tax revenue is sales and excise taxes. 
B)  The largest source of federal government tax revenue is individual income taxes. 
C)  A sales tax on food is a regressive tax. 
D)  A proportional tax is equal to a fixed dollar amount.

Question 10

"He who pays a tax should receive the benefit from the expenditure financed by the tax." This statement reflects which of the following principles for a tax?

Accepted Answer

A)  fairness of contribution 
B)  ability-to-pay 
C)  benefits-received 
D)  efficiency 
A)  fairness of contribution 
B)  ability-to-pay 
C)  benefits-received 
D)  efficiency

Question 11

After 1970, the share of federal spending allocated to national defense:

Accepted Answer

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

Question 12

Gina Smith and Mariel Jones are both running for the same seat on the town council. Pat Johnson is voting in the town council election. Pat decides to read each candidates one-paragraph statement, but did not attend the town debate to listen to the candidates explain their positions in detail. Which of the following best describes Pat's actions?

Accepted Answer

A)  Pat displays the special-interest group effect; he figures the extra cost to him of any pet projects of either candidate will be small so he is not concerned. 
B)  Pat displays the shortsightedness effect; the long-run benefits of policies will exceed the short-run costs. 
C)  Pat is a victim of bureaucratic inefficiency; the candidates failed to provide sufficient information about their positions. 
D)  Pat displays rational voter ignorance; the perceived extra effort to be better informed exceeds the marginal benefit of knowing more about the candidates. 
A)  Pat displays the special-interest group effect; he figures the extra cost to him of any pet projects of either candidate will be small so he is not concerned. 
B)  Pat displays the shortsightedness effect; the long-run benefits of policies will exceed the short-run costs. 
C)  Pat is a victim of bureaucratic inefficiency; the candidates failed to provide sufficient information about their positions. 
D)  Pat displays rational voter ignorance; the perceived extra effort to be better informed exceeds the marginal benefit of knowing more about the candidates.

Question 13

If a tax rate falls as a person's income rises, the tax is a:

Accepted Answer

A)  proportional tax. 
B)  progressive tax. 
C)  regressive tax. 
D)  poll tax. 
A)  proportional tax. 
B)  progressive tax. 
C)  regressive tax. 
D)  poll tax.

Question 14

Who is recognized as the founder of public choice theory?

Accepted Answer

A)  James Buchanan. 
B)  Steve Forbes. 
C)  Joseph Pechman. 
D)  Adam Smith. 
A)  James Buchanan. 
B)  Steve Forbes. 
C)  Joseph Pechman. 
D)  Adam Smith.

Question 15

Sharon pays a tax of $4,000 on her income of $40,000, while Brad pays a tax of $1,000 on his income of $20,000. This tax is:

Accepted Answer

A)  regressive. 
B)  progressive. 
C)  proportional. 
D)  a flat tax. 
A)  regressive. 
B)  progressive. 
C)  proportional. 
D)  a flat tax.

Question 16

Comparing total taxes as a percentage of GDP in the United States to Western European countries, such as the France, Norway, and Sweden,

Accepted Answer

A)  U.S. taxation is smaller. 
B)  U.S. taxation is about the same. 
C)  U.S. taxation is slightly larger. 
D)  U.S. taxation is substantially larger. 
A)  U.S. taxation is smaller. 
B)  U.S. taxation is about the same. 
C)  U.S. taxation is slightly larger. 
D)  U.S. taxation is substantially larger.

Question 17

Which of the following is a regressive tax?

Accepted Answer

A)  a state tax of 5 percent of income 
B)  a local sales tax of 5 percent 
C)  the federal individual income tax 
D)  a federal flat tax of 30 percent 
A)  a state tax of 5 percent of income 
B)  a local sales tax of 5 percent 
C)  the federal individual income tax 
D)  a federal flat tax of 30 percent

Question 18

Voters may choose to remain uninformed about an issue because of:

Accepted Answer

A)  the special-interest effect. 
B)  rational ignorance. 
C)  bureaucratic inefficiency. 
D)  the shortsightedness effect. 
A)  the special-interest effect. 
B)  rational ignorance. 
C)  bureaucratic inefficiency. 
D)  the shortsightedness effect.

Question 19

A tax system in which the tax rate on everyone's first $10,000 of income is 10 percent, the tax rate on everyone's second $10,000 of income is 15 percent, and the tax rate on all income over $20,000 is 25 percent is a(n):

Accepted Answer

A)  proportional tax. 
B)  equitable tax. 
C)  progressive tax. 
D)  unit tax. 
A)  proportional tax. 
B)  equitable tax. 
C)  progressive tax. 
D)  unit tax.

Question 20

Exhibit 16-4 Marginal tax rate lines
 
In Exhibit 16-4, line C represents a(n):

Accepted Answer

A)  regressive tax. 
B)  progressive tax. 
C)  proportional tax. 
D)  ability-to-pay tax. 
A)  regressive tax. 
B)  progressive tax. 
C)  proportional tax. 
D)  ability-to-pay tax.

Exam 16: The Public Sector

Which of the following represents the basic principle of public choice theory?

A tax is regressive if it collects a:

Suppose fairness is defined as those with the highest incomes can afford to pay a greater proportion of their income in taxes. Then which of the following taxation systems would be consistent with this notion of fairness?

Total U.S. government expenditures as a percentage of GDP were largest during which of the following periods of time?

The study of the decision-making process of government is the study of:

The burden of taxation in the United States

Exhibit 16-1 Income for two persons Name Income Elaine \ 100,000 Daniel \ 40,000 In Exhibit 16-1, if the income tax system is proportional, then:

Majority-rule voting, special-interest group effects, rational voter ignorance, bureaucratic inefficiency, and the shortsightedness effect

Which of the following statements is not correct regarding taxes?

"He who pays a tax should receive the benefit from the expenditure financed by the tax." This statement reflects which of the following principles for a tax?

After 1970, the share of federal spending allocated to national defense:

If a tax rate falls as a person's income rises, the tax is a:

Who is recognized as the founder of public choice theory?

Sharon pays a tax of $4,000 on her income of $40,000, while Brad pays a tax of $1,000 on his income of $20,000. This tax is:

Comparing total taxes as a percentage of GDP in the United States to Western European countries, such as the France, Norway, and Sweden,

Which of the following is a regressive tax?

Voters may choose to remain uninformed about an issue because of:

A tax system in which the tax rate on everyone's first $10,000 of income is 10 percent, the tax rate on everyone's second $10,000 of income is 15 percent, and the tax rate on all income over $20,000 is 25 percent is a(n):

Exhibit 16-4 Marginal tax rate lines In Exhibit 16-4, line C represents a(n):

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

Federal Deficits Surpluses and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Filters