Deck 20: Special Topics

Question 1

Concerning government spending, which of the following is true?

A) In 1916, the per person real government expenditures were approximately 60 times greater than in 1800.
B) Prior to 1929, government expenditures at the state and local levels were substantially smaller than federal expenditures.
C) Real federal spending per person was approximately 75 times greater in the most recent fiscal year than in 1916.
D) All of the above are true.

Answer 1

Real federal spending per person was approximately 75 times greater in the most recent fiscal year than in 1916.

Question 2

In 1960, spending on income transfers and health care accounted for 21.5 percent of the federal budget. Today these two items account for

A) less than 15 percent of the federal budget.
B) approximately 25 percent of the federal budget.
C) approximately 36 percent of the federal budget.
D) approximately 66 percent of the federal budget.

Answer 2

approximately 66 percent of the federal budget.

Question 3

Compared to the situation prior to 1980, the top marginal personal income tax rate imposed on the rich is now substantially

A) lower and so is the share of the revenue collected from them.
B) higher and so is the share of the revenue collected from them.
C) lower, but the share of the revenue collected from them is now higher.
D) higher, but the share of the revenue collected from them is now lower.

Answer 3

lower, but the share of the revenue collected from them is now higher.

Question 4

Given the current structure of the Social Security and Medicare programs, the retirement of the baby boom generation during the years following 2012 will be most likely to

A) reduce government expenditures on health care and income transfers.
B) increase government expenditures on health care and income transfers.
C) result in large budget surpluses.
D) result in lower tax rates.

Question 5

During the first 125 years of the United States,

A) there were no constitutional constraints on the spending of the federal government.
B) real spending per person by the federal government rose by a factor of 60.
C) most of the government spending was undertaken at the state and local levels.
D) most of the government spending was undertaken at the federal level.

Question 6

What percentage of the total government expenditures of the United States is undertaken at the federal level?

A) Approximately 20 percent.
B) Approximately 40 percent.
C) Approximately 60 percent.
D) Approximately 80 percent.

Question 7

Real (adjusted for inflation) federal spending per person in the United States

A) has increased by approximately 10 percent per decade during the last 225 years.
B) increased more rapidly during the nineteenth century than during the twentieth century.
C) was approximately 75 times the level of 1916 in recent years.
D) increased rapidly during the first half of the twentieth century but has changed very little since 1950.

Question 8

During the last four decades, the composition of federal spending has

A) been virtually unchanged, but federal spending as a share of GDP has declined substantially.
B) been virtually unchanged, but federal spending as a share of GDP has increased sharply.
C) shifted away from national defense and toward spending on income transfers and health care.
D) shifted away from health care and income transfers and toward spending on national defense.

Question 9

In 1960, more than half (52 percent) of federal expenditures were for national defense. Today national defense accounts for approximately

A) 60 percent of the federal budget.
B) 44 percent of the federal budget.
C) 29 percent of the federal budget.
D) 16 percent of the federal budget.

Question 10

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) 50 percent of the U.S. economy.

Question 11

Measured as a share of the economy, government spending

A) has been between 10 and 15 percent of the U.S. economy since 1930.
B) has been between 20 and 25 percent of the U.S. economy since 1930.
C) rose from less than 10 percent in 1929 to approximately 40 percent in the most recent fiscal year.
D) declined from more than 50 percent in 1929 to approximately 25 percent in the most recent fiscal year.

Question 12

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 but larger than a number of high-growth Asian economies.
D) larger than Canada, France, and the United Kingdom but slightly smaller than Germany and Italy.

Question 13

Since 1960, the share of federal spending allocated to national defense

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

Question 14

Government expenditures for Social Security and unemployment benefits are examples of

A) government consumption.
B) government investment.
C) government purchases.
D) transfer payments.

Question 15

Compared to the situation during the first 125 years of the United States (1790-1915), today total government expenditures are ____ share of the economy, and a greater proportion of those expenditures take place at the ____ level. (Fill in the blanks)

A) a smaller; federal
B) about the same; federal
C) a larger; federal
D) a larger; state and local

Question 16

During the last four decades, defense expenditures have

A) accounted for approximately one-half of federal expenditures.
B) accounted for less than 10 percent of federal expenditures.
C) been increasing as a share of federal expenditures.
D) been declining as a share of federal expenditures.

Question 17

Which of the following is true about government spending?

A) Real federal spending per person was approximately 50 times higher in 1900 than 1800.
B) Real federal spending per person was approximately 75 times higher in the most recent fiscal year than 1916.
C) Real federal spending per person grew slowly under the Reagan Administration during the 1980s, but it increased rapidly under the Clinton administration in the 1990s.
D) In recent years, government expenditures at the state and local levels have been greater than government spending at the federal level.

Question 18

How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government to finance a government program?

A) One dollar.
B) Less than one dollar because the administration of and compliance with the tax laws creates jobs for people.
C) More than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production.
D) More than a dollar because of the excess burden resulting from the elimination of productive exchanges by the taxes.
E) Both c and d are correct.

Question 19

Measured as a share of the economy, government expenditures on ____ have declined during the last four decades.

A) health care
B) national defense
C) transfer payments
D) Social Security benefits

Question 20

In the most recent fiscal year, federal expenditures on income transfers, health care, national defense, and interest on the national debt accounted for

A) less than 20 percent of federal spending.
B) about 40 percent of federal spending.
C) approximately 50 percent of federal spending.
D) more than 85 percent of federal spending.

Question 21

When the government borrows funds in order to pay for its current expenditures,

A) the government will have to repay the borrowed funds within five years.
B) the government can spend without having to increase taxes, either now or in the future.
C) future taxes will have to be higher in order to pay the interest on the borrowed funds.
D) the cost imposed on the private sector is virtually eliminated because taxes can remain constant.

Question 22

Which of the following is an example of a transfer payment?

A) wages and salaries paid to the employees of the Internal Revenue Service
B) purchase of automobiles by a local police department
C) agriculture subsidies paid to farmers
D) salaries paid to the college professors of state-operated universities

Question 23

Increased spending on which of the following items is most likely to increase the size of government during the years following 2016?

A) education
B) Social Security and Medicare
C) agricultural subsidies
D) transportation (roads and airports)

Question 24

What percentage of personal income tax revenue was collected from the top 1 percent of earners in 2013?

A) Less than 10 percent.
B) Approximately 15 percent.
C) Approximately 20 percent.
D) More than 35 percent.

Question 25

From the viewpoint of the entire economy, the cost of government is

A) equal to the amount of taxes collected.
B) greater than the amount of taxes collected.
C) less than the amount of taxes collected.
D) equal to the level of government expenditures.

Question 26

Which of the following is true about federal spending?

A) In 2002, national defense accounted for more than half of federal spending.
B) Federal spending on national defense has increase rapidly during the last several decades.
C) Federal spending on health care programs such as Medicare and Medicaid has increased rapidly during the last several decades.
D) Federal spending in the aftermath of hurricane Katrina expanded over 50%.

Question 27

In 1980, the top 1 percent of earners paid 19.1 percent of the federal personal income tax. By 2013, the share of this tax collected from the top 1 percent of earners

A) had declined to less than 15 percent.
B) was still slightly less than 20 percent.
C) had risen to approximately 25 percent.
D) had risen to over 35 percent.

Question 28

How has the share of the personal income tax paid by the top 1 percent of earners and the bottom half of earners changed during the last four decades?

A) The top 1 percent now pay a larger share and the bottom half of earners pay a smaller share of the personal income tax.
B) The top 1 percent now pay a smaller share and the bottom half of earners pay a larger share of the personal income tax.
C) The share of the personal income tax paid by the top 1 percent increased between 1960 and 1980, but the share of the revenues collected from the top 1 percent has declined sharply since 1980.
D) The relative shares paid by the top 1 percent and the bottom half of earners have been virtually unchanged during the last four decades.

Question 29

Compared to 1980, the top marginal federal income tax rate today is

A) substantially lower and the rate structure is less progressive than in 1980.
B) substantially lower and the rate structure is more progressive than in 1980.
C) substantially higher and the rate structure is less progressive than in 1980.
D) substantially higher and the rate structure is more progressive than in 1980.

Question 30

The overall federal tax structure is

A) regressive because the average tax rate of those with low incomes is higher than the rate imposed on those with higher incomes.
B) progressive because the average tax rate of those with high incomes is greater than the rate imposed on those with lower incomes.
C) flat because the average tax rate is approximately constant across all income brackets.
D) progressive for income levels up to approximately $100,000 but regressive for income levels above this figure.

Question 31

The Earned Income Tax Credit provides a tax credit or rebate to

A) businesses that undertake investment expenditures.
B) taxpayers with incomes greater than $100,000.
C) persons with low incomes who are working.
D) single parent families when the parent stays home to take care of the children.

Question 32

The share of the personal income tax paid by the bottom half of earners

A) rose to an all-time high in 2013.
B) was substantially higher in 2013 than during the 1960s and 1970s.
C) was substantially lower in 2013 than during the 1960s and 1970s.
D) has been relatively constant during the last four decades.

Question 33

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 34

Concerning federal spending, which of the following is true?

A) Real federal spending per person was approximately 50 times higher in 1900 than 1800.
B) Real federal spending per person grew more rapidly during the 19^th century than during the 20^th century.
C) Real federal spending per person was approximately 60 times greater in 1990 than in 1916.
D) Real federal spending per person has decreased significantly since 1964.

Question 35

A tax dollar collected from an individual or a business costs the private economy more than a dollar because

A) the administration and enforcement of the tax system is costly.
B) record keeping and the other elements of compliance cost are sizable.
C) the taxes will eliminate some productive exchanges (and cause people to undertake some counterproductive activities).
D) All of the above are correct.

Question 36

The administrative, enforcement, and compliance costs of collecting taxes in the United States sum to

A) between 1 and 2 percent of the revenues collected.
B) between 5 and 6 percent of the revenues collected.
C) between 12 and 15 percent of the revenues collected.
D) more than half of the revenues collected.

Question 37

Which of the following provides the bulk of revenue for the federal government?

A) corporate income taxes and grants from state and local governments
B) personal income and payroll taxes
C) user charges and funds borrowed from the general public
D) corporate income and sales taxes

Question 38

During the last 20 years, what has happened to the marginal tax rates imposed on high-income taxpayers and the personal income tax revenues collected from them?

A) Both the rates imposed and the revenues collected from the rich have increased.
B) Both the rates imposed and the revenues collected from the rich have declined.
C) The tax rates imposed on the rich have declined, but the revenues collected from them have increased.
D) The tax rates imposed on the rich have increased, but the revenues collected from them have declined.

Question 39

Which of the following most clearly distinguishes government from a private business?

A) Production of goods and services-private businesses produce things; governments do not.
B) The power to tax.
C) The hiring of law enforcement employees to protect property rights.
D) Selfishness-the owners and managers of private businesses are selfish; government officials are not.

Question 40

The private sector cost of tax revenues is equal to the

A) tax revenue collected by government from individuals in the economy.
B) income that could have been earned by government employees if they had worked in the private sector.
C) difference between government expenditures and tax revenues.
D) tax revenue plus the cost of tax compliance and the excess burden of taxation.

Question 41

When the tax structure of a nation is progressive, as real incomes increase, the tax revenues of the government will

A) decline.
B) increase by the same proportion as the increase in real income.
C) increase by a larger proportion than the increase in real income.
D) remain unchanged unless legislative action is undertaken.

Question 42

Economic theory indicates that, the size of government will be

A) unrelated to economic growth.
B) negatively related to economic growth at all possible sizes of government.
C) positively related to economic growth at all possible sizes of government.
D) positively related to economic growth at small levels of government but is negatively related to economic growth as government becomes larger and larger.

Question 43

As the size of government increases as a share of the economy,

A) the burden of deadweight losses of taxation generally diminishes.
B) the rate of return derived from projects undertaken by the government will tend to increase.
C) the government generally becomes more heavily involved in unproductive and even counterproductive activities.
D) the activities of government are generally limited to protective functions such as public safety , national defense, and provision of a limited set of public goods.

Question 44

How has the structure of the personal income tax changed and the share of taxes paid by various income groups changed in recent decades?

Question 45

In recent years, what percentage of American families have derived income transfers from at least one government transfer program?

A) less than 20 percent
B) approximately 55 percent
C) approximately 62 percent
D) nearly 75 percent

Question 46

When the number of families with someone employed by the government is added to those receiving income from transfer programs, the share of American families receiving income from the government is

A) less than 20 percent
B) approximately 50 percent of the total
C) approximately 62 percent of the total
D) a little more than 75 percent of the total

Question 47

As real incomes grow, what happens to federal tax revenues as a share of the economy?

Question 48

Measured as a share of GDP, the total government expenditures of the United States are

A) larger than any country in the world.
B) smaller than any country in the world.
C) smaller than the comparable figure for Japan and most Western European countries.
D) larger than the comparable figure for Japan and most Western European countries.

Question 49

In a democratic setting, debt financing is attractive to elected political officials because

A) it makes it possible for them to spend on current projects favored by their constituents without having to levy current taxes.
B) it drives up interest rates, which encourages saving.
C) it leads to higher taxes in the future, which will tend to slow economic growth.
D) it makes the cost of government more visible, which will help voters allocate government spending more efficiently.

Question 50

The 18^th century Scottish philosopher Alexander Tytler argued that democracy

A) would survive indefinitely into the future once it was established.
B) was the only form of government that would be able to control excessive government spending financed by debt.
C) would tend to collapse from excessive debt once a majority of voters discovered they could vote themselves benefits at the expense of others.
D) would lead to persistent government surpluses because elected political officials would find the surpluses attractive relative to budget deficits.

Question 51

OECD data for 1960 through 1999 indicates that a 10 percent increase in government expenditures as a percent of GDP

A) increases economic growth by about 5 percent.
B) increases economic growth by about 2 percent.
C) has no effect on economic growth.
D) reduces economic growth by about 1 percent.

Question 52

Expansion in the size of government relative to the market sector will eventually retard economic growth because

A) larger governments will be more involved in activities for which they are ill-suited.
B) the higher taxes to finance a bigger government will lead to larger and larger deadweight losses from taxation.
C) the incentive to engage in innovative activities and respond to change is weaker in government than in the market sector.
D) all of the above are correct.

Question 53

As government becomes larger and larger as a share of the economy, economic growth is likely to decline because

A) taxes are reduced to levels that are inconsistent with economic efficiency.
B) governments are involved in many activities for which they are ill-suited.
C) tax-transfer activities are reduced and sometimes virtually eliminated.
D) governments do not spend enough on the provision of key public goods like education.

Question 54

Discuss how size of government can negatively affect economic growth.

Question 55

During the quarter of a century prior to 2000, between 66 percent and 71 percent of Americans age 18 and older paid personal income taxes.  What happened to the share of adult Americans with a personal income tax liability between 2000 and 2013?

A) It rose to nearly 90 percent.
B) It rose to approximately 80 percent.
C) It was virtually constant at approximately 70 percent.
D) It fell to approximately 55 percent.

Question 56

How have the size and functions of government in the United States changed during the last century?

Question 57

Among the 23 long-standing members of the Organization for Economic Cooperation and Development (OECD), the highest rates of economic growth during recent decades have been achieved by

A) Western European countries.
B) the countries with the smallest government expenditures as a share of GDP.
C) the countries with the largest government expenditures as a share of GDP.
D) the countries with the most rapid growth of government expenditures as a share of GDP.

Question 58

What percentage of federal spending was financed by borrowing during 2009-2010?

A) approximately 10 percent
B) approximately 20 percent
C) approximately 40 percent
D) more than 50 percent

Question 59

Economic analysis indicates that growth in the size of government as a share of the economy will

A) always reduce economic growth and reduce the living standards of the citizenry.
B) enhance economic growth and lead to higher income levels as it becomes larger and larger.
C) initially promote growth as the government focuses on core functions, but deter growth as government becomes larger and larger.
D) initially reduce economic growth, but eventually government will enhance growth as it becomes larger and larger.

Question 60

The share of Americans who pay no personal income tax

A) has been relatively constant at approximately 33 percent throughout 1975-2000.
B) was relatively constant near 33 percent between 1975 and 2000, but it has increased during the past decade, reaching nearly 60 percent of adult Americans in 2013.
C) was relatively constant near 33 percent between 1975 and 2000, but it has fallen during the past decade, receding to only 18  percent in 2013.
D) rose steadily from 18 percent  in 1975 to nearly 50 percent of adult Americans in 2000, but it receded to less than 40 percent in 2013.

Question 61

Which of the following about Social Security is true?

A) All of the current revenues flowing into the Social Security system are needed for benefit payments to current retirees.
B) If the Social Security surplus was used to pay down the privately held federal debt, this would reduce future taxes and, thereby, make it easier to deal with the retirement of the baby boomers.
C) During the 1980s and 1990s, most of the social security surplus was used to reduce the national debt.
D) When the Social Security surplus is used to cover the current operating expenses of the federal government, it will make it easier for future taxpayers to provide promised Social Security benefits to baby boomers.

Question 62

In 2015, the number of workers per Social Security beneficiary was approximately ____; by the year 2030, this figure is expected to ____.

A) 5; increase to approximately 8
B) 2.8; fall to approximately 2.2
C) 2.2; increase to approximately 3.2
D) 8; fall to approximately 5

Question 63

The previous surplus of the Social Security system is expected to become a deficit because the

A) payroll tax rate is scheduled to decline at that time.
B) number of workers relative to the number of Social Security recipients will decline as the baby boom generation moves into the retirement phase of life.
C) stock market is not expected to perform nearly as well during the next two decades as was the case during the 1980s and 1990s.
D) growth rate of the U.S. economy is expected to slow during the next two decades.

Question 64

As the baby boom generation, born during 1946 through 1960, reaches retirement age during the 2011 through 2030 period, the number of workers per Social Security beneficiary is expected to

A) increase to five.
B) remain constant at approximately seven.
C) decline to approximately five.
D) decline to approximately two.

Question 65

The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients. This surplus is

A) being invested in foreign bonds, which will provide Americans with a source of income when the baby boom generation retires.
B) separated from other government revenue so politicians will not spend the money during the current period.
C) being channeled into earmarked private savings accounts.
D) invested in government bonds, the redemption of which will require an increase in taxes (or additional Treasury borrowing).

Question 66

Given the current tax rate structure and promised benefit levels, persons that are currently 40 years old or younger can expect to earn approximately what real rate of return on their Social Security contributions?

A) 0 percent
B) 2 percent
C) 10 to 12 percent
D) 15 to 20 percent

Question 67

The Social Security retirement program is financed by a 10.6 percent payroll tax that applies to earnings up to an income cutoff that is adjusted upward annually by the growth rate of nominal wages. As of 2016, the income cutoff was

A) $15,000.
B) $32,700.
C) $118,500.
D) $250,000.

Question 68

The payments made to the beneficiaries of the Social Security program are financed by

A) insurance premiums previously paid into the system by the beneficiaries.
B) current receipts derived from the Social Security payroll tax.
C) income derived from funds that were previously invested in stocks and bonds.
D) governmental savings accounts based on the amount of funds the recipient previously paid into the system.

Question 69

The current Social Security System surplus of revenues relative to expenditures is used to purchase

A) U.S. Treasury bonds.
B) bonds issued by domestic corporations.
C) U.S. stock.
D) U.S. and foreign stock.

Question 70

Demographic conditions

A) were much less favorable for the Social Security system in 1950 than is currently the case.
B) are currently unfavorable because the number of retirees is growing rapidly as the result of the high birth rate in the United States during 1930-1945.
C) will be less favorable for the Social Security system once the baby boom generation begins to retire.
D) don't affect the financial status of the Social Security system because it is based on the same principles as private insurance programs.

Question 71

The Social Security system of the United States is based on the pay-as-you-go principle. This indicates that funding of the benefits paid to current retirees comes primarily from

A) the income generated by the system's ownership of stock.
B) the tax payments of current workers.
C) the funds that current retirees paid into their personal savings accounts during their working years.
D) money created by the Federal Reserve system.

Question 72

By 2030, the number of workers per Social Security beneficiary will be approximately

A) two.
B) three.
C) four.
D) six.

Question 73

Which of the following best explains why the Social Security system will face financial difficulties in the future?

A) Too much Social Security revenue was invested in the private sector rather than in government bonds.
B) In the next two decades, the number of workers paying into the system will decline sharply relative to the number of retirees collecting benefits.
C) The federal government does not pay interest on the money it borrows from the Social Security system.
D) The funds in the Social Security trust fund were invested in high-risk ventures that failed to pay off.

Question 74

When the Social Security system enters its deficit years and the bonds held in the trust fund are drawn down,

A) overall taxes will be reduced as the trust funds are used to pay benefits to retirees.
B) the payroll taxes used to finance Social Security benefits can be reduced because the trust funds will be sufficient to pay the retirement benefits of the baby boom generation.
C) taxes will have to be raised (or additional funds will have to be borrowed) in order to redeem the bonds held in the trust fund.
D) income taxes will have to be reduced in order to keep the revenues and expenditures of the Social Security system in balance.

Question 75

When the Social Security surplus is used to cover the current operating expenses of the federal government, it will

A) make it easier for future taxpayers to provide promised Social Security benefits to baby boomers.
B) reduce the outstanding debt of the federal government.
C) make it possible for Congress and the president to spend more without raising current taxes or borrowing from the general public.
D) increase the credibility of the Social Security benefits promised to future retirees.

Question 76

The Social Security program is primarily a

A) compulsory retirement income program set up on sound insurance principles.
B) forced-savings program where workers save during their working years and receive the principal and interest on these savings at retirement.
C) program designed to tax current workers in order to provide benefits for current retirees.
D) voluntary savings program run by the government.

Question 77

The current Social Security system works to the disadvantage of blacks primarily because the

A) average annual earnings of blacks are generally lower than other groups.
B) average life expectancy of blacks is generally less than other groups.
C) Social Security tax rates imposed on blacks are higher than those imposed on other groups.
D) Social Security benefit formula is disadvantageous to blacks.

Question 78

Social Security, officially known as Old Age and Survivors Insurance (OASI),

A) collects funds from current workers and invests them in order to provide these workers with a stream of income during the retirement phase of life.
B) is based on the same principles as private insurance programs.
C) is an intergenerational income transfer program.
D) is a voluntary savings program run by the government.

Question 79

During the last two decades, most of the surplus generated by the Social Security system was

A) used to finance current government expenditures.
B) invested in government bonds that will make it possible for the federal government to pay future retirement benefits without an increase in federal taxes.
C) used to pay down the national debt.
D) invested in bonds offered by foreign governments and businesses that will provide a stream of future income for the finance of retirement benefits.

Question 80

When the Social Security system begins running a deficit, the bonds in the trust fund will be drawn down. The funds to redeem these bonds will have to come from

A) higher taxes, spending reductions in other programs, or additional government borrowing.
B) the surplus funds deposited in governmental banking accounts.
C) equity capital being liquidated.
D) the sale of private equities and securities that the government has been purchasing with the funds.