econ exam 3 pt 2
When people are discussing taxes paid to the federal government, the question of how much "the rich" pay versus how much "the poor" pay is often brought up. Which of the following best describes how much each group contributes to the total amount of federal taxes paid in percentage terms? The bottom 60% of all income earners contribute about _____ to the total taxes collected by the federal government, while the top 20% of all income earners contribute about _____ to the total taxes collected by the federal government.
12%; 70% PROGRESSIVE TAX SYSTEM
Which of the following policies is not consistent with the benefits-received principle?
A city creates a property tax to raise revenue for a new skate park.
The government of the country Rumlin recently introduced a new tax on wine and distilled spirits. An industry analyst, Mark Bittman, was of the opinion that this tax, like other government taxes, would create a substantial deadweight loss in the market. A research study on the effects of the tax showed that the revenue from this tax was higher than expected. The efficiency loss in the market was also found to be much lower than Mark's estimates. Which of the following would best explain this outcome?
Alcohol firms in the country were able to pass on a substantial part of the tax to consumers.
One of the most important differences among health care systems in different countries is how people pay for the health care they receive. Which of the following countries has a single minus payer health care system?
Canada
Income inequality can be explained by all of the following except:
Changes in tax laws and rates between different periods of time create great disparity among workers.
An economist makes the following observations about an industrialized country X: Observation 1: Country X has an effective healthcare system. Observation 2: Country X has higher incidences of certain diseases when benchmarked against comparable countries. Which of the following best explains this seeming contradiction?
Diseases in which Country X compares poorly are the result of lifestyle decisions.
In recent years, economists have begun to use height as a measure of health and, indirectly, general well-being. Over time, people in high-income countries have, on average, become taller, just as people in high-income countries today are taller than people in low-income countries. An analysis of economic indicators suggests that Country A has recorded remarkable growth for the last 50 years. A student of economics, who analyzes the economic data as part of his college project, comes to the conclusion that the average height of the country's population should have increased during this period. Which of the following, if true, would undermine his conclusion?
Faced with a negative population growth rate, the country relaxed immigration control norms 25 years ago.
Great Benefit Inc., a reputed private insurance company, launched a new health insurance scheme for life-saving surgeries about a year back. The company had set the premiums based on the assessment of its risk analysis team that only 2 percent of the people who buy private insurance would submit a claim each year. However, at the end of the first year, higher number of claims on this policy had a negative impact on the company's profits. Which of the following, if true, would explain this outcome?
Great Benefit set higher premiums than the competition, but covered a larger number of critical illnesses.
Harry Williams is a single-income individual who owns a group of retail firms in the country Austinia. While filing his tax returns, he notices that the difference between his average and marginal tax rate is only around 2 percentage points. Which of the following, if true, would explain this outcome?
Harry earns more than 8 times the amount earned by an average individual in the highest income bracket.
Emma Thomson runs a small-scale manufacturing firm with 20 employees. She is faced with an increased premium demand from a private health insurer after two employees filed injury claims in the previous year. She turns around and tells her assistant manager that "health insurance is a scam. If these companies have to cover their profits in every portfolio, then why call it insurance?" Her assistant manager claims that this is not the case, and points to the fact that the two employees who benefited from the insurance would have found themselves in a difficult position had it not been for the insurance. Emma says, "Precisely my point. And we have to pay increased premiums to cover that. If premiums that we have to pay go up because of claims, essentially we are funding it ourselves. Then what is the point in calling this insurance?" What of the following best summarizes Emma's point of view?
Insurance companies are intermediaries that reallocate assets and earn a margin.
Which of the following, if true, would weaken Erin's argument that inequality will fall as a result of the tax on compensation for higher-level executives?
It has been observed that companies respond to taxation measures by further increasing executive compensation.
The policymakers of a particular nation are debating the future direction of healthcare reforms. There are two distinct camps. One group favors a single-payer health care system in which the government pays 100 percent national health insurance to all residents. Another group favors the continuation of the existing system which relies exclusively on private health insurance. Which of the following, if true, would strengthen the argument for a single-payer health care system?
Many major private insurers suffered substantial investment losses during a recent financial crisis.
When taxes are being considered, equity is usually a major component of the debate. The difficulty is equity typically deals with normative statements LOADING... and efficiency deals with positive statements LOADING.... Which of the following statements about the equity and efficiency of taxes is a positive statement?
Progressive taxes, such as the US income tax, require the rate of taxes to increase as income of an individual or household increases.
Which of the following policies follows the ability-to-pay principle
The U.S. income tax has people with higher overall resources paying a larger amount of the overall income taxes.
Health care costs in a country have traditionally been moderate. However, some economists in this country predict that healthcare costs are likely to rise in the future. Which of the following trends, if true, would strengthen the argument of these economists?
The average population of the country is becoming olde
Glendale Medical Care and Research Center (GMCRC) offers advanced scientific treatment to the patients suffering from neurological cancer. The treatment plan offered by the hospital is relatively cost effective compared to similar treatments provided by the other medical centers. However, the hospital management observes that the number of patients who receive neurological cancer treatment at GMCRC each quarter is much lower compared to the other hospitals. Which of the following, if true, would explain this outcome?
The bulk of the treatment cost for neurological cancer is borne by the health insurance companies.
Recent research in the country of Terbia shows that obesity among children has reached epidemic proportions. Some commentators believe that the increase in the consumption of fast food is linked to the growth of obesity. Dr. Frieda Morris attributes this to the fact that the price of fast food has fallen over the years. She thinks that the government should tax junk food in order to prevent excessive consumption. Frederic Miller, a chemistry professor, thinks that it would be more effective for the government to set up a regulatory body that will control the amount of sodium and fat in junk food than to tax the product. However, John Engert, a spokesperson for a fast food industry association, thinks that government intervention usually distorts people's incentives. Besides, he says, consumers can always choose to eat healthy food. Which of the following, if true, would weaken Frederic's argument?
The costs associated with a regulatory body exceed the costs of implementing and collecting taxes.
The health care expenditure as a percentage of GDP is increasing in an emerging economy during a period of accelerated economic growth. Which of the following, if true, would signal that this is not a sign of trouble?
The country is making huge investments in building up basic health infrastructure.
Which of the following, if true, would strengthen Joshua's belief?
The food consumption pattern is shifting heavily in favor of junk food.
The majority of the people of Dalmatia were unable to access critical medical care. Consequently, the mortality rates were high. This prompted the government to adopt a health insurance program, under which the necessary medical expenditure for critical illnesses for every citizen would be borne by the government. At the end of the first year after the policy shift, health statistics revealed that the program had a very small impact on the mortality rates in this country. Which of the following, if true, would explain this outcome?
The hospitals in Dalmatia were operating at full capacity at the time the program was announced.
Avalon, an industrialized country, has recorded a significant growth in per capita annual income during the past five years. The unemployment rate has declined considerably during this period, while inflation has remained more or less stable. Joshua Thompson, a health researcher, feels that the health conditions in Avalon will deteriorate during the next few years. Meanwhile, his colleague, Kate Pattinson, feels that despite increased investments in health research, the average life-span of the people in Avalon will not increase in the near future. Which of the following, if true, is most likely to strengthen Kate's belief?
The latest medical advances are too expensive for all but the most prosperous of Avalon's citizens.
Which of the following tax rates has the greatest effect on people's willingness to work, save, and invest?
The marginal tax rate.
Following elections in the country Paragon, a new political party comes into power. In an attempt to reduce inequality, the new government introduces a series of tax reforms, among other policy measures. The reforms are approved by the parliament and are passed into legislation the same year. Amy Gray, a research analyst, notices that the government increased the marginal income tax rates for the higher income tax brackets. However, she notices that the average income tax rate has actually fallen. Which of the following, if true, best explains this outcome?
The new legislation lowered the marginal tax rates on the lower income brackets.
Mallecks & Wood is an investment bank located in a small country, Gondor. Its recent financial statements showed that the CEO was paid an annual compensation of $16 million that year. A journalist, Erin Myers, claims that the government should increase the tax on executive compensation to 50 percent. According to Erin, executive compensation is exorbitantly high; a tax on these earnings would help reduce inequality in the economy. Bryan Warwick, her senior editor, does not agree with her. He feels that the current levels of compensation for higher-level executives are justified and the government need not intervene. Which of the following, if true, would strengthen Bryan's argument?
The number of qualified candidates in the market for executive talent is much lower than the number of positions to be filled.
Zambezi and Zoravia are two developing countries with similar populations. The governments of these countries had adopted a similar health care plan about ten years ago and spend about the same dollar amounts on annual health care. When the health care plan was first adopted, the life expectancy of the people of both these countries was approximately 50 years. However, after ten years, Zambezi showed a much higher average life expectancy compared to Zoravia. Which of the following, had it happened during this period, would help explain this outcome?
Zambezi has been more effective at reducing unnecessary health care spending.
The overall mortality rate in the United States decreased by more than 25 percent between 1981 and 2009. Which of the following is not a cause of this decline? The decline in the mortality rate is due to all of the following except a decline in deaths due to
diabetes
Spending on health care has been growing faster than the economy as a whole for at least the past several decades. What has caused this trend? Health care as a proportion of GDP has been increasing because
expensive medical equipment has been invented
The nominal GDP of Westville, a small landlocked nation, has been increasing by 7 percent every year for the last decade. Looking at the extremely strong growth data, Mike Skoller, a market analyst, feels that the benefits of overall growth must have trickled down to even the poorest individuals in the country. His colleague, Jenna Dunst, disagrees. She says that growth in Westville's GDP need not necessarily reflect a fall in inequality. Which of the following, if true, is likely to weaken Mike's argument that everyone in the economy is better off as a result of economic growth?
in the last ten years, around 19.7 percent of the population moved to a higher income quintile while 23 percent moved into a lower quintile.
How accurate are measures of poverty? Measures of poverty, such as the poverty rate, are
inaccurate in that they do not take into account income mobility
How accurate are measures of poverty? Measures of poverty, such as the poverty rate, are
inaccurate in that they ignore the effects of government programs meant to reduce poverty.
Are policymakers susceptible to rent-seeking behavior? Explain. Rent-seeking behavior
may succeed when policymakers engage in logrolling
Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with asymmetric information are adverse selection and moral hazard. Which of the following is an example of adverse selection? An example of adverse selection is
old people being more likely to purchase health insurance than young people
According to the public choice model, how do policymakers arrive at their decisions? The public choice model suggests that
policymakers will pursue their own self minus interest.
According to the public choice model LOADING..., how do policymakers arrive at their decisions? The public choice model suggests that
policymakers will take actions that are likely to result in their being re- elected.
Health care spending in the United States is forecasted to be as much as $4.6 trillion in 2020, accounting for about $1 of every $5 in the economy. Currently, health care spending is roughly $2.7 trillion. How is this cost paid for most Americans? In the United States, the majority of people have
private health insurance.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (ACA). Which of the following is true of the legislation? The ACA
provides tax credits to low-income individuals and small businesses with 25 or fewer employees.
What can health insurance companies do to minimize problems associated with asymmetric information such as adverse selection or moral hazard? To deal with asymmetric information, insurance companies can
require policyholders to pay deductibles/coinsurance.
Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with asymmetric information are adverse selection and moral hazard. Which of the following is an example of adverse selection? An example of adverse selection is
sick people being more likely to purchase health insurance than healthy people
Measures of poverty and income distribution in the United States may be misleading because
these measures are snapshots in time that do not take into account income mobility. AND these measures ignore cash and noncash benefits received from government transfer programs
Health care spending per person in the United States is higher than in other countries, even taking into account the relatively high income levels in the U.S. However, this has not necessarily resulted in better health outcomes. All of the following health indicators are less favorable in the United States than in Canada except
the mortality ratio for cancer.
Which of the following is the average tax rate?
the total tax paid divided by total income
One of the most important differences among health care systems in different countries is how people pay for the health care they receive. Which of the following countries has socialized medicine?
the united kingdom
Asymmetric information is a situation in which one party to an economic transaction has less information than the other party. Two types of problems associated with asymmetric information are adverse selection and moral hazard. Which of the following is an example of moral hazard? An example of moral hazard is
those with health insurance smoking cigarettes; those with health insurance over-eating