Question 1

A Lorenz curve summarizes the information provided by a Gini coefficient.

Accepted Answer

A) True 
 B)False

Question 2

Rational ignorance

Accepted Answer

A)  explains why consumers ignore sunk costs when they vote. 
B)  explains the Arrow impossibility theorem. 
C)  refers to attempts by special interests to use government action to make themselves better off at the expense of others. 
D)  helps to explain why rent seeking by special interest groups occurs. 
A)  explains why consumers ignore sunk costs when they vote. 
B)  explains the Arrow impossibility theorem. 
C)  refers to attempts by special interests to use government action to make themselves better off at the expense of others. 
D)  helps to explain why rent seeking by special interest groups occurs.

Question 3

Suppose the government imposes an 8 percent sales tax on clothing items and the tax is levied on sellers. Who pays for the tax in this situation? (Assume that the demand curve is downward sloping and that the supply curve is upward sloping.)

Accepted Answer

A)  The tax is borne entirely by the sellers. 
B)  The sellers will pass on the entire sales tax to consumers and therefore the consumers bear the tax. 
C)  The tax will be borne partly by consumers and partly by sellers. 
D)  It is not possible to answer the question without information on price elasticities. 
A)  The tax is borne entirely by the sellers. 
B)  The sellers will pass on the entire sales tax to consumers and therefore the consumers bear the tax. 
C)  The tax will be borne partly by consumers and partly by sellers. 
D)  It is not possible to answer the question without information on price elasticities.

Question 4

Absolute poverty measures vary from country to country. For example, in 2013, the poverty line in the United States for a family of four with two children was an annual income of $23,550 but economists often use a much lower threshold income of $1 per day when calculating the rate of poverty in poor countries. How is this absolute poverty measured?

Accepted Answer

A)  by comparing the percentage of households living below the poverty line to the total population 
B)  by comparing a household's income to the income required to maintain the average standard of living in a society at a particular time 
C)  by comparing the amount of goods and services that a household's income can purchase to an objective measure of the amount of income needed to sustain a certain predetermined standard of living 
D)  by comparing the amount of goods and services that a household's income can purchase in one country to the amount of goods and services that a household's income can purchase in another country of comparable living standard 
A)  by comparing the percentage of households living below the poverty line to the total population 
B)  by comparing a household's income to the income required to maintain the average standard of living in a society at a particular time 
C)  by comparing the amount of goods and services that a household's income can purchase to an objective measure of the amount of income needed to sustain a certain predetermined standard of living 
D)  by comparing the amount of goods and services that a household's income can purchase in one country to the amount of goods and services that a household's income can purchase in another country of comparable living standard

Question 5

What is logrolling?

Accepted Answer

A)  a situation where a policymaker votes to approve a bill in exchange for favorable votes from his colleagues on other bills 
B)  a situation where policymakers transfer resources from those voters who are unlikely to have a huge impact on the political outcome to those who contribute to political campaigns 
C)  a situation where a policymaker accepts bribes to prevent proposed legislation from coming to a vote 
D)  a situation where a policymaker gets the government to fund a non-essential project benefiting her family members 
A)  a situation where a policymaker votes to approve a bill in exchange for favorable votes from his colleagues on other bills 
B)  a situation where policymakers transfer resources from those voters who are unlikely to have a huge impact on the political outcome to those who contribute to political campaigns 
C)  a situation where a policymaker accepts bribes to prevent proposed legislation from coming to a vote 
D)  a situation where a policymaker gets the government to fund a non-essential project benefiting her family members

Question 6

In the United States, the federal income tax is an example of a

Accepted Answer

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

Question 7

Last year, Anthony Millanti earned exactly $30,000 of taxable income. Assume that the income tax system used to determine Anthony's tax liability is progressive. The table below lists the tax brackets and the marginal tax rates that apply to each bracket.
a. Draw a new table that lists the amounts of income tax that Anthony is obligated to pay for each tax bracket, and the total tax he owes the government. (Assume that there are no allowable tax deductions, tax credits, personal exemptions or any other deductions that Anthony can use to reduce his tax liability).
b. Determine Anthony's average tax rate.

Accepted Answer

a.
 @#IMG-DLM& b. The average tax rate i

Question 8

In 2012, which type of tax raised the most revenue for the U.S. federal government? Which type of tax raised the most revenue for state and local governments?

Accepted Answer

In 2012, individual income tax

Question 9

The Gini coefficient for the United States in 1980 was 0.403. In 2011, the coefficient was equal to 0.477. This means that

Accepted Answer

A)  per capita income in the United States rose from 1980 to 2011. 
B)  there was a decrease in the amount of government transfer payments from 1980 to 2011. 
C)  cuts in federal income tax rates in the early 1980s and 2001 helped to reduce income inequality. 
D)  income inequality increased from 1980 to 2011. 
A)  per capita income in the United States rose from 1980 to 2011. 
B)  there was a decrease in the amount of government transfer payments from 1980 to 2011. 
C)  cuts in federal income tax rates in the early 1980s and 2001 helped to reduce income inequality. 
D)  income inequality increased from 1980 to 2011.

Question 10

From 1970 to 2006, the poverty rate in East Asia rose slightly, but the level of poverty in sub-Saharan Africa fell dramatically.

Accepted Answer

A) True 
 B)False

Question 11

Holding all other factors constant, income earned from capital is more unequally distributed than income earned from labor.

Accepted Answer

A) True 
 B)False

Question 12

If you pay $2,000 in taxes on an income of $20,000, and a tax of $2,700 on an income of $30,000, then over this range of income the tax is

Accepted Answer

A)  regressive. 
B)  proportional. 
C)  progressive. 
D)  There is insufficient information to answer the question. 
A)  regressive. 
B)  proportional. 
C)  progressive. 
D)  There is insufficient information to answer the question.

Question 13

Between 1970 and 2006, the poverty rate in East Asia declined dramatically from about 60 percent to less than 2 percent, while the poverty rate in Sub-Saharan Africa decreased from 40 percent to only 32 percent. The main reason for this is that

Accepted Answer

A)  the population growth rate decreased in East Asia and increased in Sub-Saharan Africa. 
B)  governments in East Asia increased transfer payments to poor families over this period of time. The governments of Sub-Saharan Africa had practically no transfer payment programs from 1970 to 2006. 
C)  the countries of East Asia have progressive income tax systems. The countries of Sub-Saharan Africa all have regressive income tax systems. 
D)  East Asia experienced higher economic growth than Sub-Saharan Africa. 
A)  the population growth rate decreased in East Asia and increased in Sub-Saharan Africa. 
B)  governments in East Asia increased transfer payments to poor families over this period of time. The governments of Sub-Saharan Africa had practically no transfer payment programs from 1970 to 2006. 
C)  the countries of East Asia have progressive income tax systems. The countries of Sub-Saharan Africa all have regressive income tax systems. 
D)  East Asia experienced higher economic growth than Sub-Saharan Africa.

Question 14

As a group, people with high incomes are likely to have

Accepted Answer

A)  greater-than-average family inheritances and greater-than-average SAT scores. 
B)  greater-than-average holdings of stocks and bonds and lower-than-average productivity. 
C)  greater-than-average productivity and greater-than-average amounts of capital. 
D)  a stable marriage and no children. 
A)  greater-than-average family inheritances and greater-than-average SAT scores. 
B)  greater-than-average holdings of stocks and bonds and lower-than-average productivity. 
C)  greater-than-average productivity and greater-than-average amounts of capital. 
D)  a stable marriage and no children.

Question 15

Table 18-1
   Suppose $1 billion is available in the budget and Congress is considering allocating the funds to one of the following three alternatives: 1) Subsidies for education, 2) Research on Alzheimer's or 3) Increased border security. Table 18-1 shows three voters' rankings of the alternatives.
-Refer to Table 18-1. Suppose a series of votes are taken in which each pair of alternatives is considered in turn. The first pair considered is between subsidies for education and research on Alzheimer's. The second pair considered is between Alzheimer's research and increased border security. The third pair considered is between education subsidies and increased border security. In this case, the collective preferences of the voters

Accepted Answer

A)  turn out to be transitive and will yield a consistent outcome. 
B)  turn out to be transitive but will not result in a consistent outcome. 
C)  turn out not to be transitive and will not result in a consistent outcome. 
D)  turn out not to be transitive but will yield a consistent outcome. 
A)  turn out to be transitive and will yield a consistent outcome. 
B)  turn out to be transitive but will not result in a consistent outcome. 
C)  turn out not to be transitive and will not result in a consistent outcome. 
D)  turn out not to be transitive but will yield a consistent outcome.

Question 16

The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called

Accepted Answer

A)  the mean (or average) voter theorem. 
B)  the voting paradox. 
C)  the Arrow impossibility theorem. 
D)  the median voter theorem. 
A)  the mean (or average) voter theorem. 
B)  the voting paradox. 
C)  the Arrow impossibility theorem. 
D)  the median voter theorem.

Question 17

What is the voting paradox?

Accepted Answer

A)  the observation that less than 60 percent of those eligible to vote actually vote 
B)  the observation that majority voting may not always result in consistent choices 
C)  the idea that wealthy corporations are able to sway politicians to act in ways contrary to the desires of the majority 
D)  People are aware that their votes will not change the political outcome since these outcomes are predetermined by a group of influential politicians. 
A)  the observation that less than 60 percent of those eligible to vote actually vote 
B)  the observation that majority voting may not always result in consistent choices 
C)  the idea that wealthy corporations are able to sway politicians to act in ways contrary to the desires of the majority 
D)  People are aware that their votes will not change the political outcome since these outcomes are predetermined by a group of influential politicians.

Question 18

According to public choice theory, policymakers

Accepted Answer

A)  place the interests of the public above their own self-interest. 
B)  are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest. 
C)  act in ways to maximize economic efficiency. 
D)  act in ways to bring about an equitable distribution of society's wealth. 
A)  place the interests of the public above their own self-interest. 
B)  are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest. 
C)  act in ways to maximize economic efficiency. 
D)  act in ways to bring about an equitable distribution of society's wealth.

Question 19

Table 18-1
   Suppose $1 billion is available in the budget and Congress is considering allocating the funds to one of the following three alternatives: 1) Subsidies for education, 2) Research on Alzheimer's or 3) Increased border security. Table 18-1 shows three voters' rankings of the alternatives.
-Suppose $1 billion is available in the budget and Congress is considering allocating the funds to one of the following three alternatives: a. subsidies for education
B. research on Alzheimer's
C. increased border security
If voters prefer a to b and b to c, then if preferences are transitive,

Accepted Answer

A)  they should prefer a to c. 
B)  they should prefer c to a. 
C)  they should be indifferent between a and c. 
D)  it is not always possible to rank voters' preferences between a and c. 
A)  they should prefer a to c. 
B)  they should prefer c to a. 
C)  they should be indifferent between a and c. 
D)  it is not always possible to rank voters' preferences between a and c.

Question 20

Rent-seeking behavior, unlike profit-maximizing behavior in competitive markets, wastes society's scarce resources.

Accepted Answer

A) True 
 B)False

Exam 18: Public Choice, Taxes, and the Distribution of Income

A Lorenz curve summarizes the information provided by a Gini coefficient.

Rational ignorance

Suppose the government imposes an 8 percent sales tax on clothing items and the tax is levied on sellers. Who pays for the tax in this situation? (Assume that the demand curve is downward sloping and that the supply curve is upward sloping.)

What is logrolling?

In the United States, the federal income tax is an example of a

In 2012, which type of tax raised the most revenue for the U.S. federal government? Which type of tax raised the most revenue for state and local governments?

The Gini coefficient for the United States in 1980 was 0.403. In 2011, the coefficient was equal to 0.477. This means that

From 1970 to 2006, the poverty rate in East Asia rose slightly, but the level of poverty in sub-Saharan Africa fell dramatically.

Holding all other factors constant, income earned from capital is more unequally distributed than income earned from labor.

If you pay $2,000 in taxes on an income of $20,000, and a tax of $2,700 on an income of $30,000, then over this range of income the tax is

Between 1970 and 2006, the poverty rate in East Asia declined dramatically from about 60 percent to less than 2 percent, while the poverty rate in Sub-Saharan Africa decreased from 40 percent to only 32 percent. The main reason for this is that

As a group, people with high incomes are likely to have

The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called

What is the voting paradox?

According to public choice theory, policymakers

Rent-seeking behavior, unlike profit-maximizing behavior in competitive markets, wastes society's scarce resources.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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