Deck 16: The Public Sector

Question 1

Which of the following categories accounted for the largest percentage of total federal government expenditures in recent years?

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

Answer 1

A

Question 2

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

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.

Answer 2

A

Question 3

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

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

Answer 3

B

Question 4

Which of the following is the largest source of revenue for the federal government?

A) corporate income tax
B) payroll tax
C) personal income tax
D) user charges

Question 5

Income security expenditures include

A) Medicare, Social Security, and unemployment compensation.
B) Social Security and disability benefits, but not Medicare.
C) unemployment compensation, disability benefits, and Medicare, but not Social Security.
D) transfer payments to the disadvantaged, but not transfer payments to the elderly.

Question 6

Government expenditures are different from the government national income account (G) in that:

A) government expenditures includes transfer payments while G does not.
B) government expenditures are net of tax revenue while G is not.
C) G includes transfer payments while government expenditures does not.
D) G includes spending for defense, highways, and education while government expenditures does not.

Question 7

Total government spending (federal, state, and local) sums to approximately:

A) 10 percent of the U.S. economy.
B) 20 percent of the U.S. economy.
C) 40 percent of the U.S. economy.
D) one-half of the U.S. economy.

Question 8

The burden of taxation in the United States

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 9

Which of the following lists tax revenue sources from greatest to least?

A) individual income taxes, social insurance taxes, corporate income taxes, excise and other taxes
B) corporate income taxes, social insurance taxes, individual income taxes, excise and other taxes
C) individual income taxes, corporate income taxes, social insurance taxes, excise and other taxes
D) social insurance taxes, excise and other taxes, individual income taxes, corporate income taxes

Question 10

Since 1929, total government taxes as a percentage of GDP:

A) climbed from 10 percent to about 30 percent.
B) remained close to 30 percent.
C) climbed from 30 percent to about 50 percent.
D) climbed from 15 percent to about 50 percent.

Question 11

Which of the following countries devote the smallest percentage of its GDP to taxes?

A) Norway
B) Sweden
C) France
D) United States

Question 12

Measured as a share of the economy, total government expenditures:

A) have been between 10 and 15 percent of the U.S. economy since 1930.
B) have been between 20 and 25 percent of the U.S. economy since 1930.
C) rose from less than 10 percent in 1929 to about 35 percent currently.
D) declined from more than 50 percent in 1929 to approximately 25 percent currently.

Question 13

Which of the following statements best describes government expenditure patterns?

A) The government's share of total economic activity has generally decreased since 1950.
B) Most of the growth in government expenditures as a percentage of GDP is due to rapidly growing federal government transfer programs.
C) Government expenditure as a share of GDP has fluctuated wildly depending on which political party is in control.
D) Most of the growth in government expenditures as a percentage of GDP is due to rapidly growing national defense programs.

Question 14

Describe the two basic philosophies of taxation fairness.

Question 15

At the federal level, the single most important tax, accounting for slightly less than half of revenue, is the:

A) corporate income tax.
B) personal income tax.
C) sales tax.
D) property tax.

Question 16

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?

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 17

Government expenditures as a share of the U.S. economy are:

A) the largest in the world.
B) the smallest in the world.
C) smaller than most Western European countries.
D) larger than Canada, France, and the United Kingdom but slightly smaller than Germany and Italy.

Question 18

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

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 19

Describe the major sources of tax revenue and expenditures for the federal government.

Question 20

Which of the following statements best answers the question of how burdensome overall taxation is in the United States?

A) An excise tax is a sales tax on a particular good or service.
B) The largest source of revenue for the federal government is individual income taxes.
C) Countries that tax more heavily are expected to provide more public services.
D) By international standards, U.S. citizens are among the most lightly taxed people in the industrialized world.

Question 21

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 progressive, then:

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 have tax bills that are different sizes.
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 22

A tax where the percentage of income paid in taxes is the same regardless of the size of the income is a:

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

Question 23

If a person is concerned that an additional $1,000 income will move him/her into a new tax bracket, that person is worried about the:

A) proportional rate.
B) regressive tax rate.
C) marginal tax rate.
D) flat tax rate.

Question 24

A tax is regressive if it collects a:

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 25

Which of the following is a regressive tax?

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 26

Exhibit 16-3 Income for two persons $$\begin{array} { | l | r | } \hline \text { Name } & \text { Income } \\\hline \text { Meredith } & \$ 124,000 \\\text { Hillary } & \$ 45,000 \\\hline\end{array}$$ In Exhibit 16-3, if the income tax system is currently proportional, we know that:

A) Meredith would probably prefer a progressive income tax system while Hillary would probably prefer a regressive income tax system.
B) Meredith and Hillary would both probably prefer a regressive income tax system.
C) Meredith and Hillary would both probably prefer a progressive income tax system.
D) Meredith would probably prefer a regressive income tax system while Hillary would probably prefer a progressive income tax system.

Question 27

If a person is taxed $100 on an income of $1,000, taxed $180 on an income of $2,000, and taxed $220 on an income of $3,000, this person is paying a:

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

Question 28

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:

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 29

"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?

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

Question 30

The benefits-received principle of taxation is most evident in:

A) progressive tax rates.
B) excise taxes on gasoline.
C) the personal income tax.
D) the corporate income tax.

Question 31

When the tax structure of a nation is progressive, as incomes increase, the tax rate:

A) declines.
B) remains the same.
C) increases.
D) is proportional.

Question 32

Suppose George's income is $10,000 and he pays a tax of $1,000, but Laura's income is $50,000 and she pays a tax of $4,000. Such a tax is:

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

Question 33

"It would be an undue hardship to require people whose income is below $15,000 per year to pay income taxes." This statement reflects which of the following principles for a tax?

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

Question 34

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:

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

Question 35

If a person is taxed $100 on an income of $1,000, taxed $200 on an income of $2,000, and taxed $300 on an income of $3,000, this person is paying a(n):

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

Question 36

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):

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

Question 37

A tax that is structured so that people pay the same percentage of their income in taxes is called a(n):

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

Question 38

Which of the following statements is not  correct regarding taxes?

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 39

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

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

Question 40

Consider two people, Sandy Ross, who earns $25,000, and Gary Belcher, who earns $50,000. If the flat-tax rate is 20 percent, then:

A) the government collects a total of $20,000.
B) Gary pays twice the tax amount Sandy pays.
C) Gary pays three times the tax amount Sandy pays.
D) Gary and Sandy pay exactly the same tax amount.

Question 41

According to the shortsightedness effect, politicians tend to favor projects with:

A) short-run benefits and short-run costs.
B) short-run benefits and long-run costs.
C) long-run benefits and short-run costs.
D) long-run benefits and long-run costs.

Question 42

Who is recognized as the founder of public choice theory?

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

Question 43

Which of the following statements is true ?

A) Sales, excise, and flat-rate taxes violate the ability-to-pay principle of taxation fairness because each results in a smaller dollar burden on the poor than the rich.
B) Government failure may occur if voters are rationally ignorant.
C) Special-interest group political pressure results only from programs for which benefits outweigh costs.
D) Majority-rule voting and benefit-cost analysis result in the same projects being undertaken.

Question 44

The choice of a voter to remain uninformed because the marginal cost of obtaining information is greater than the marginal benefit from obtaining knowledge is called:

A) irrational ignorance.
B) rational ignorance.
C) collective interest.
D) choice.

Question 45

Exhibit 16-4 Marginal tax rate lines

In Exhibit 16-4, line C represents a(n):

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

Question 46

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

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

Question 47

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

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 48

Which of the following offers theories to explain why the government, like the private sector, may also "fail"?

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

Question 49

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

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

Question 50

People who often create benefits for the minority and impose the cost on the majority are called:

A) fair-interest groups.
B) encounter groups.
C) laissez-faire groups.
D) special-interest groups.

Question 51

Jan has an income of $30,000 and pays $4,500 in taxes. When Jan's income rises to $40,000, her tax bill rises to $6,500. What is Jan's marginal tax rate?

A) 5 percent.
B) 15 percent.
C) 16.25 percent.
D) 20 percent.

Question 52

What are the public choice theory arguments against government involvement in the economy?

Question 53

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?

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 54

According to public choice theory, which of the following is not a likely reason that government policy might benefit only a narrow interest group?

A) If the benefits to the narrow interest group are relatively large, they have an incentive to invest a lot of money and effort in lobbying government.
B) If the costs of this policy are spread out among the general population, and are a very small burden for anyone person, then those paying the costs have little incentive to organize opposition.
C) The additional rewards of a policy to the general population outweigh the additional costs that are imposed on a narrow interest group.
D) Politicians follow their own self-interest and seek to maximize their reelection chances rather than promoting the best interests of society.

Question 55

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

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.