Econ Unit 3

11. The effectiveness of government antipoverty programs is reduced because they a. crowd out private/charitable efforts by families, individuals, churches and charitable organizations. b. encourage young people to stay in school and postpone having children. c. provide strong incentives for the poor to advance their education and secure full time jobs. d. provide individuals with strong incentives to earn, learn and invest.

a

17. The U.S. constitution prohibits government from imposing tariffs and quotas that restrict _______________. The authors of Common Sense Economics would also apply this prohibition to _______. Fill in the blanks. a. exports; imports b. imports; exports c. budget deficits; budget surpluses d. budget surpluses; budget deficits

a

21. Government provision of goods and services that cannot easily be provided through markets because it is difficult to establish a one-to-one link between payment and consumption of the good would be classified as the a. productive function of government. b. construction function of government. c. income redistribution function of government. d. protective function of government.

a

26. Compared to the private sector, the distinguishing characteristic of government is its a. monopoly on the legitimate use of force on adults. b. ability to consider the benefits of an action as well as its costs. c. ability to produce goods and services that people value. d. ability to escape the constraints imposed by scarcity.

a

28. If a government is going to promote economic progress which of the following is most important? a. protection of people and their property from aggressors and the provision of a few goods that are difficult to supply through markets b. redistribution of income from the rich to the poor and price controls to make sure that the prices of essential goods are low c. regulation of markets and rapid expansion in the supply of money so people will be able to buy goods d. a balanced federal budget and imposition of trade restrictions that will protect American businesses and assure jobs for all

a

33. Which of the following is true? a. Market suppliers will provide consumers a good or service as long as they are willing to cover the cost of producing it. b. In a market economy, a good or service will be produced only if a majority of the citizens approve of the production. c. If a majority of people purchase a product, you must also buy it. d. Mutual agreement provides the foundation for political action, while market action depends on the approval of the majority of citizens.

a

36. Politicians will often be able to gain from support of trade restrictions because a. organized interest groups benefiting from the restrictions will make large contributions to political campaigns while most others will not care much about the issue. b. the restrictions will lead to lower prices and substantial benefits for consumer groups. c. foreigners benefiting from the restrictions will be a major source of political contributions. d. trade restrictions typically generate substantial benefits for consumer groups at the expense of well-organized labor and industrial interests.

a

39. The fact that voters perceive their votes as unlikely to actually change the outcome of an election causes a. voters to have little incentive to become informed about candidates and political issues. b. voters to spend a great deal of effort becoming informed about candidates and political issues. c. the percent of people who actually turn out to cast a vote on election day to be very high. d. ordinary citizens to contribute heavily to political campaigns.

a

43. Government action will often result in the counterproductive use of resources because a. there is often a conflict between winning political elections and adoption of only productive programs. b. many politicians are not interested in how their legislative votes will influence their chances of winning future elections. c. politicians are often unwilling to listen to interest groups that have specialized knowledge. d. voter participation is low; if more people voted the political process would be more efficient.

a

52. The dominant Keynesian view of the 1960s and 1970s stressed that a. changes in government spending and budget deficits can help stabilize an economy. b. government should avoid budget deficits at all times as they may destabilize the economy. c. both budget deficits and surpluses should be small relative to the size of the overall economy. d. the "invisible hand" would be sufficient to lift the economy out of an economic downturn.

a

66. Which of the following is an example of a good that is produced by a government enterprise but consumers purchase it with their own money? a. first-class mail service from the U.S. Post Office b. public schools c. automobiles d. national defense

a

69. When services are provided by local rather than federal governments and people can move freely among governmental units, a. people will be able to vote with their feet as well as with their ballots. b. people will be able to vote only with their feet. c. people will be able to vote only with their ballots. d. local officials will have greater freedom to impose high taxes and provide lousy public services.

a

7. Which of the following best explains the political attractiveness of debt financing relative to taxation? a. Debt financing pushes the visible cost of government into the future. b. Debt financing exposes the current costs of government programs; taxes do not. c. Debt financing reduces the attractiveness of special-interest spending. d. Taxes allow politicians to supply voters with immediate benefits without having to impose a visible cost.

a

70. When services are provided by local rather than federal governments and people can move freely among governmental units, a. competition among governmental units will help taxpayers get more for their tax dollar. b. local governments will be in a strong position to exploit various groups of voters. c. there will be less incentive for government officials to operate efficiently than if there was only one centralized government. d. a local government will always be able to generate more revenues by raising taxes.

a

13. Central planning is an ineffective means of organizing an economy because a. most central planners are less intelligent than business entrepreneurs in market economies. b. central planners cannot possibly obtain all the information necessary to allocate resources efficiently. c. central planners do not respond predictably to incentives. d. central planners have inadequate funding to meet the needs of their constituents.

b

14. When the government both provides a good and covers its costs through taxation, a. the government enterprises producing the good have a strong incentive to supply it at low cost. b. consumers acting through markets are in a weak position to either discipline the suppliers or alter the quantity or quality of the good produced. c. goods will only be supplied if consumers are willing to pay an amount sufficient to cover their production costs. d. the invisible hand will direct consumers and producers toward an efficient level of output.

b

15. From the viewpoint of economic efficiency, does representative democracy do a good job of handling special-interest issues? a. Yes, special-interest groups are unable to benefit from government action unless they can convince the majority of voters that their position is sound. b. No, legislators can often derive political gain from the support of special-interest projects that are inefficient. c. Yes, the power of special interests is curtailed when decisions are made legislatively. d. No, actions favored by well-organized special-interest groups are often rejected even when they would promote economic progress.

b

23. Which of the following is the best measure of size of government as a share of the economy? a. private consumption as a percentage of Gross Domestic Product (GDP) b. total government expenditures as a percentage of GDP c. public consumption plus private investment as a percentage of GDP d. the supply of money as a percentage of GDP

b

24. Which of the following provides an example of a "productive function" of government rather than a "protective function" of government? a. A court system that resolves disputes. b. Flood control projects. c. Enforcement of copyright laws. d. Protection of private individuals and their property.

b

34. Which of the following provides the strongest evidence that consumers value a good more than the resources required for its production? a. Production of the good is funded by a political majority b. The good is purchased by consumers willing to pay a price sufficient to cover its costs. c. Production of the good is heavily subsidized by the government. d. Production of the good is funded by the government.

b

37. An individual voter will likely be concerned with a. most issues because they have some impact, however slight, on each citizen. b. only a few special issues (those that exert the most impact on the voter's personal welfare). c. most issues since information on nearly all issues is available at a low cost. d. the views of a particular political candidate on all issues.

b

38. When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party, a. consumers have a strong incentive to search out those firms offering them the best deal. b. private producers of the goods will have little incentive to control costs and keep prices low. c. goods will only be supplied if consumers are willing to pay an amount sufficient to cover their production costs. d. the invisible hand will direct consumers and producers toward an efficient level of output.

b

40. 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 if the budget is balanced.

b

46. A special-interest issue is one that a. allocates the cost of the activity among voters in accordance with the benefits received. b. benefits a small interest group at the expense of taxpayers or consumers. c. benefits everyone and imposes a cost on everyone. d. benefits a small interest group but makes that group pay for the cost of the program.

b

53. Which of the following is true? a. A budget deficit will reduce the national debt. b. A budget deficit will increase the national debt. c. A balanced budget will increase the national debt. d. A budget surplus will increase the national debt. `

b

57. If a three-fourths majority of both houses of the U.S. Congress were required for approval of federal spending in excess of revenues, economic analysis indicates that a. the federal government would be more likely to run a budget deficit. b. the federal government would be less likely to run a budget deficit. c. the size of the federal government as a share of the economy would expand. d. federal spending would increase relative to government spending at the state and local levels.

b

59. Which of the following is true? a. The size of the economic pie is fixed, and therefore it will be unaffected by income transfers. b. In a market economy, the link between productivity and income provides individuals with an incentive to provide resources that are highly valued by others. c. Taxes and transfers do not affect the amount of income that is created. d. How income

b

60. When the War on Poverty programs were instituted and transfer payments expanded in the last half of the 1960s, what happened to the poverty rate? a. After rising for several decades, the official poverty rate has been declining since 1968. b. After falling for several decades, the official poverty rate has been relatively constant since the late 1960s. c. The poverty rate declined prior to the War on Poverty period and it has continued to decline. d. The poverty rate rose prior to the War on Poverty period and has continued to rise.

b

67. Which of the following is an example of a good that is produced by a government enterprise and is paid for by taxpayers and provided to consumers free of charge? a. first-class mail service from the U.S. Post Office b. K-12 public schools c.broad band Internet service d.cell phone service

b

8. Politicians have incentive to support special-interest groups at the expense of unorganized, widely dispersed groups (for example, taxpayers or consumers) a. only when the benefits that accrue to the special-interest group exceed the costs imposed on others. b. when nonspecial-interest voters are unconcerned or uninformed about the issue, and campaign funds are readily available from the special-interest group. c. only if the government action is efficient. d. Only if the government action will reduce the monopoly power of business or labor, and thereby lead to an improvement in the general welfare.

b

1. A government fulfills a protective function when it a. gives cash payments to the poor. b. provides funds for flood control projects and builds highways. c. prevents illegal seizure of private property. d. redistributes income.

c

10. Transfer payments are a. payments made to individuals who are employed by the government. b. payments made to individuals who provide goods and services to the government. c. transfers of income from taxpayers to recipients who do not provide related services for the payments. d. omitted from the government expenditure figures.

c

16. When decentralized governmental units operate independently and compete with each other, governments will attract residents and expand their tax base when a. they increase their tax rates. b. they provide residents with fewer government services. c. they provide residents with desired services at an attractive tax cost. d. they discontinue desired government services in order to keep taxes low.

c

20. The political structure that is most consistent with economic growth and progress is a. rule by the majority. b. a dictatorship. c. limited government, protection of individuals from aggression by others, and decentralized political decision-making. d. centralization of power in the hands of an elected legislature and a president or prime minister.

c

22. The protective function of government is vitally important in order to a. guarantee an adequate income level for all. b. assure low skill workers that they will not fall into poverty. c. assure people that they will be permitted to keep most of what they earn. d. keep the prices of essential goods low and protect people against the uncertainties of nature.

c

27. The framers of the U.S. Constitution sought to design a political system that would a. be based on majority rule. b. promote efficiency through central planning of the economy. c. limit the powers of the federal government and protect the rights of individuals. d. provide the federal government with virtually unlimited power to promote the general welfare.

c

3. Which of the following is true? a. If we want to get the most from our resources, the pricing of goods and allocation of investment should be decided by majority voting. b. In a representative democracy, majority voting will assure that approved projects are productive. c. There are good reasons to expect that majority voting will sometimes result in the approval of projects that are inefficient. d. Private firms can force their customers to pay for products they produce, but the government cannot do so.

c

32. When voters pay taxes in proportion to the benefits they receive from government projects a. efficient projects will tend to be opposed by a majority of voters. b. inefficient projects will often be favored by a majority of voters. c. projects that are efficient will tend to be favored by an overwhelming majority of voters. d. democratic political decision making can be expected to work poorly.

c

4. The political process is most likely to accept a project if it is efficient and reject it if it is inefficient when a. the benefits of the project are highly concentrated, and costs are widely spread among voters. b. the costs of the project are highly concentrated, and the benefits are widely spread among voters. c. voters pay approximately in proportion to the benefits derived from the project. d. the benefits of the project are realized in the future, while the costs are more visible during the current period.

c

45. The political attractiveness of tariffs, quotas, and other trade restrictions is primarily the result of the a. political clout of foreigners. b. political clout of domestic consumers. c. special-interest nature of trade restrictions. d. attractiveness of sound economic policies to elected political officials.

c

47. Restrictions that limit sugar imports, subsidies for the construction of sports stadiums, and federal spending on programs like the construction of an indoor rain forest in Iowa all provide examples of government programs a. based on careful analysis of benefits relative to costs. b. designed to redistribute income from the rich to the poor. c. that reflect the political attractiveness of special-interest issues. d. that promote the general welfare.

c

51. Which of the following provides the most reasonable explanation for why agricultural interest groups lobby for higher farm subsidies and price controls? a. Without the farm subsidies, food shortages would result. b. Subsidies promote the efficient use of agricultural resources. c. Agricultural interests seek a redistribution of income favoring themselves. d. The price support programs reduce food costs, which helps the poor.

c

54. The national debt is a. the difference between a nation's exports and imports of goods and services. b. the sum of the personal debt of all citizens in the United States. c. the cumulative effect of all past budget deficits and surpluses of the federal government. d. equal to the current size of the budget deficit.

c

55. The total indebtedness of the federal government in the form of outstanding interest-earning bonds is the a. budget deficit. b. budget surplus. c. national debt. d. trade deficit.

c

58. Which of the following is true of transfer payment programs? a. Transfer payments are designed to be used as tax breaks for wealthy consumers. b. Transfer payments to low-income individuals have reduced substantially the number of people living below the poverty level. c. Transfer payment programs have failed to exert much impact on the poverty rate. d. Measured as a proportion of total income, income transfer payments to the poor have declined since the War on Poverty began in the mid-1960s.

c

64. Private entrepreneurs are likely to make better investment decisions than central planners because a. failure of a government project will reduce the personal wealth of the planners involved in the decision. b. the entrepreneurs can often turn a project's failure into a request for additional funding to rectify the "problem". c. the entrepreneurs seek ever larger budgets, while planners will be more focused on cost reductions and efficiency. d. the entrepreneurs who make mistakes must bear the costs of these mistakes personally.

c

68. Competition among decentralized governmental units will a. make it more difficult for citizens to satisfy their preferences with regard to the goods and services supplied by governments. b. evolve naturally because local governments will want to compete with each other. c. strengthen the incentive of governments to operate efficiently and cater to the views of citizens. d. result in wasteful duplication and inefficiency in production of governmental services.

c

72. Competition is a. important in the market sector, but not in the government sector. b. important in the government sector, but not in the market sector. c. important in both the market and government sectors. d. not very important in either the government or the market sector.

c

74. The Fifth Amendment of the Bill of Rights of the U.S. Constitution states that a. Americans have the right to bear arms. b. the freedom of speech of Americans cannot be violated. c. private property shall not be taken except for public use and with compensation. d. the government can undertake any activity that is favored by the majority of citizens.

c

75. Basic economics indicates that the cornerstones of economic progress are a. centralized government, free elections, majority rule, and two legislative branches. b. representative democracy, a powerful chief executive, protection of domestic business, and government regulation. c. private ownership, freedom of exchange, competitive markets, and monetary stability. d. free elections, the right to bear arms, a written constitution, and a powerful legislature.

c

76. Which of the following is not a guaranteed freedom included in the U.S. Constitution? a. freedom of speech b. freedom of religion c. freedom to trade d. freedom of the press

c

12. The increase in transfer payments initiated by the War on Poverty during the latter half of the 1960s resulted in a. a substantial reduction in the poverty rate. b. a more equal distribution of income. c. fewer single-parent families because a married couple receives benefits twice as large. d. little change in the official poverty rate.

d

18. If a three-fourths majority of both houses of the U.S. Congress was required for approval of a spending project, economic analysis indicates that a. federal spending would increase sharply from the current level. b. the political power of special-interest groups would increase. c. inefficient government spending programs would expand. d. the power of special interests would be curtailed and federal spending reduced.

d

19. A special-interest issue generates substantial personal benefits a. for all voters. b. for the majority of voters. c. for the vast overwhelming number of voters, but small personal costs are imposed on a small minority of voters. d. for a small minority of voters, but small personal costs are imposed on the vast overwhelming number of voters.

d

2. Which of the following is the best example of a public good? a. an amusement park like Disney World b. a civic center owned and operated by the government c. a state university d. a regional flood control project

d

25. Public goods are often difficult for markets to allocate efficiently because a. consumers do not value public goods. b. public goods must be produced by the government. c. the benefits of public goods are always concentrated on only a small group of people. d. it is difficult for producers to establish a one-to-one link between payment for and receipt of these goods.

d

29. When economists say an activity is consistent with economic efficiency, they mean a. a majority of citizens favor the activity. b. the number of people who gain from the activity exceeds the number who lose. c. the costs that result from the activity exceed the benefits. d. the benefits that result from the activity exceed the costs.

d

30. A productive project is one that generates a. something that people value. b. benefits for consumers. c. revenues for producers. d. benefits that are greater than the costs of the project.

d

31. Which of the following is true? a. If there is an economic problem, the government will be able to solve it. b. A good outcome is guaranteed when a government program is created with good intentions. c. If a majority of voters favor a proposal, it will achieve positive results. d. Even if government programs are implemented with good intentions, they may lead to undesirable outcomes.

d

35. The economic way of thinking indicates that personal benefits and costs influence the actions of a. consumers in the private sector but not voters in the public sector. b. producers in the private sector but not politicians in the public sector. c. taxpayers, but not recipients of government-provided goods and services. d. consumers, producers, voters, and politicians in both the private and the public sectors.

d

41. "I am in favor of increasing the corporate income tax. Businesses should shoulder a larger share of the tax burden." This statement is a. essentially correct. b. false; businesses already shoulder most of the tax burden in the United States. c. false; economic analysis indicates that individuals should pay more taxes and businesses less. d. misleading; all taxes including those levied on businesses, are paid by people.

d

42. The private sector cost of tax revenues is equal to a. the tax revenue collected by government. b. the income that could have been earned by government employees if they had worked in the private sector. c. the difference between government expenditures and tax revenues. d. the tax revenue plus the cost of tax compliance and the excess burden of taxation.

d

44. In the United States, government expenditures comprise approximately of gross domestic product (GDP), and when the cost of complying with government regulations is also included the cost of government increases to nearly as a share of the economy. Fill in the blanks. a. 10 percent; 15 percent b. 15 percent; 25 percent c. 25 percent; 35 percent d. 35 percent;50 percent

d

48. Under a democratic representative government, legislators will have a strong incentive to support the positions of well-organized special-interest groups because a. this position will be efficient - it will generate more benefits than costs. b. this position will be favored by the majority of voters. c. the special-interest voters are likely to be uninformed, while others will feel strongly about the issue. d. the special-interest voters will feel strongly about the issue, while others are likely to be uninformed.

d

49. Which of the following is an expected result of unconstrained majoritarian democracy? a. The government persistently runs budget deficits. b. Transfer payments are coerced from taxpayers and given to well organized, special-interest groups. c. Voters are uninformed on many issues. d. All of the above.

d

5. How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government? a. one dollar b. less than one dollar because the administration of and compliance with the tax laws creates jobs for people c. less than a dollar because of the excess burden resulting from the elimination of productive exchanges by the taxes d. more than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production

d

50. The framers of the Constitution sought to limit the economic role of the government as evidenced by a. the enumeration of the permissible powers of the federal government in Article I, Section 8. b. the 5th Amendment's limitation on the government's power to take private property. c. the 10th Amendment's allocation of all non-enumerated powers to the states and the people. d. all of the above.

d

56. The persistent budget deficits of recent decades are a. surprising, because politicians have a strong incentive to balance the government's budget. b. an expected result, because politicians have an incentive to levy taxes rather than spend on current programs. c. surprising, because politicians have a strong incentive to run budget surpluses and thereby indicate that their actions have generated a profit. d. an expected result, because politicians have an incentive to spend on current programs rather than levy taxes.

d

6. Special-interest programs are highly attractive to vote-seeking politicians because a. these programs are highly efficient and therefore they tend to enhance the general welfare of the populace. b. members of special-interest groups favoring these programs are less likely to vote than the taxpayers who pay for them. c. low-income recipients are the primary beneficiaries of special-interest programs. d. members of special-interest groups favoring these programs feel strongly about them while most other voters are uninformed.

d

61. Since the late 1960s in the United States transfer programs have_______as a share of income and the poverty rate has ______. Fill in the blanks. a. decreased; increased sharply b. decreased; decreased substantially c. increased; declined sharply d. increased; remained relatively constant

d

62. Since 1968 the official poverty rate in the United States has a. declined from 20 percent at the beginning of the period to 10 percent today. b. risen from 10 percent at the beginning of the period to 15 percent today. c. declined from 32 percent at the beginning of the period to 5 percent today. d. remained constant at approximately 10 percent.

d

63. Income supplements large enough to significantly increase the economic status of poor people will a. encourage behavior that increases the risk of falling into poverty. b. reduce the incentive of transfer recipients to work and earn. c. encourage people to take steps to qualify for transfer benefits. d. all of the above.

d

65. The bulk of K-12 education in the United States is paid for by a. the consumer-purchaser and produced by private enterprises. b. the consumer-purchaser and produced by government enterprises. c. the taxpayer and produced by private enterprises. d. the taxpayer and produced by government enterprises.

d

71. When enterprises get more funds from government subsidies and less from consumers, they will have incentive to a. spend more time trying to satisfy consumers and very little time trying to satisfy politicians. b. produce more efficiently than if they were operating in a competitive market. c. spend more time catering to the views of consumers than if they were operating in a competitive market. d. spend more time trying to influence politicians and less time trying to reduce costs and please customers.

d

73. In the government sector, there is a. nothing comparable to profit and loss that will weed out inefficient activities. b. nothing comparable to bankruptcy that will bring inefficient programs to a halt. c. a strong incentive for managers of government agencies and enterprises to expand the size of their government funding. d. All of the above are true.

d

9. The difference between the national debt and a federal budget deficit is a. nothing; "debt" and "deficit" are identical. b. the national debt is financed primarily through government bonds, while the deficit is financed through taxes. c. the federal budget deficit represents the total amount of outstanding government debt while the national debt includes only the increase in the debt during the current year. d. the national debt represents the cumulative effect of all previous budget deficits and surpluses, while the federal budget deficit reflects only the additions to the debt during the current year.

d