Question 1

Discuss how size of government can negatively affect economic growth.

Accepted Answer

First,higher taxes and/or additional borrowing will impose an increasing burden of deadweight losses on an economy,as the size of government expands.Second,as government grows relative to the market sector,diminishing returns will reduce the rate of return derived from government activity.Third,the political process is much less dynamic than the market process.Compared to the market,there is less incentive to discover and undertake productive actions (and to refrain from counterproductive activities)in the government sector.Fourth,as government grows,it invariably becomes more heavily involved in the redistribution of income and regulatory activism.In turn,these activities will encourage wasteful rent-seeking.

Question 2

The overall federal tax structure is

Accepted Answer

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. 
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. B

Question 3

Which of the following is true?

Accepted Answer

A) Real federal spending per person was approximately 50 times higher in 1900 than 1800. 
B) Real federal spending per person was approximately 80 times higher in 2010 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. 
A) Real federal spending per person was approximately 50 times higher in 1900 than 1800. 
B) Real federal spending per person was approximately 80 times higher in 2010 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. B

Question 4

Between 1960 and 2010,the share of federal spending allocated to national defense

Accepted Answer

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. 
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 5

The 18ᵗʰ century Scottish philosopher Alexander Tytler argued that democracy

Accepted Answer

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. 
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 6

Measured as a share of the economy,government spending

Accepted Answer

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 over 35 percent in 2010. 
D) declined from more than 50 percent in 1929 to approximately 25 percent in 2010. 
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 over 35 percent in 2010. 
D) declined from more than 50 percent in 1929 to approximately 25 percent in 2010.

Question 7

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

Accepted Answer

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 
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 8

In 1960,spending on income transfers and health care accounted for 21.5 percent of the federal budget.In 2010,these two items accounted for

Accepted Answer

A) less than 15 percent of the federal budget. 
B) approximately 25 percent of the federal budget. 
C) approximately 32 percent of the federal budget. 
D) approximately 62 percent of the federal budget. 
A) less than 15 percent of the federal budget. 
B) approximately 25 percent of the federal budget. 
C) approximately 32 percent of the federal budget. 
D) approximately 62 percent of the federal budget.

Question 9

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

Accepted Answer

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. 
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 10

One dollar of tax revenue ends up costing citizens in the economy

Accepted Answer

A) less than one dollar. 
B) exactly one dollar. 
C) more than one dollar. 
D) nothing. 
A) less than one dollar. 
B) exactly one dollar. 
C) more than one dollar. 
D) nothing.

Question 11

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

Accepted Answer

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. 
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 12

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

Accepted Answer

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. 
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 13

Estimates from the U.S.Treasury Department suggest that the typical family in the highest income quintile pays approximately what percent of their total income in federal taxes?

Accepted Answer

A) 6 percent 
B) 25 percent 
C) 50 percent 
D) 76 percent 
A) 6 percent 
B) 25 percent 
C) 50 percent 
D) 76 percent

Question 14

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

Accepted Answer

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) in 2010 was approximately 80 times the level of 1916. 
D) increased rapidly during the first half of the twentieth century but has changed very little since 1950. 
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) in 2010 was approximately 80 times the level of 1916. 
D) increased rapidly during the first half of the twentieth century but has changed very little since 1950.

Question 15

Government expenditures for Social Security and unemployment benefits are examples of

Accepted Answer

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

Question 16

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

Accepted Answer

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. 
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 17

"I am in favor of increasing the corporate income tax.Businesses should shoulder a larger share of the tax burden." This statement is

Accepted Answer

A) essentially correct. 
B) false;businesses already shoulder most of the tax burden in the United States. 
C) false;economic analysis indicates that the individual should pay more taxes and businesses less. 
D) misleading;all taxes,including those levied on businesses,are paid by people. 
A) essentially correct. 
B) false;businesses already shoulder most of the tax burden in the United States. 
C) false;economic analysis indicates that the individual should pay more taxes and businesses less. 
D) misleading;all taxes,including those levied on businesses,are paid by people.

Question 18

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

Accepted Answer

A) approximately 20 percent 
B) approximately 40 percent 
C) approximately 60 percent 
D) approximately 80 percent 
A) approximately 20 percent 
B) approximately 40 percent 
C) approximately 60 percent 
D) approximately 80 percent

Question 19

Under the progressive income tax system in the United States,as real incomes rise,

Accepted Answer

A) a smaller share of income is taxed at higher rates. 
B) there is no change in the share of income taxed at higher rates. 
C) a larger share of income is taxed at higher rates. 
D) none of the above are true. 
A) a smaller share of income is taxed at higher rates. 
B) there is no change in the share of income taxed at higher rates. 
C) a larger share of income is taxed at higher rates. 
D) none of the above are true.

Question 20

During the last 15 years,what has happened to the marginal tax rates imposed on high-income taxpayers and the personal income tax revenues collected from them?

Accepted Answer

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. 
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.

Exam 29: Government Spending and Taxation

Discuss how size of government can negatively affect economic growth.

The overall federal tax structure is

Which of the following is true?

Between 1960 and 2010,the share of federal spending allocated to national defense

The 18ᵗʰ century Scottish philosopher Alexander Tytler argued that democracy

Measured as a share of the economy,government spending

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

In 1960,spending on income transfers and health care accounted for 21.5 percent of the federal budget.In 2010,these two items accounted for

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

One dollar of tax revenue ends up costing citizens in the economy

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

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

Estimates from the U.S.Treasury Department suggest that the typical family in the highest income quintile pays approximately what percent of their total income in federal taxes?

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

Government expenditures for Social Security and unemployment benefits are examples of

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

"I am in favor of increasing the corporate income tax.Businesses should shoulder a larger share of the tax burden." This statement is

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

Under the progressive income tax system in the United States,as real incomes rise,

During the last 15 years,what has happened to the marginal tax rates imposed on high-income taxpayers and the personal income tax revenues collected from them?

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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