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56. Medicaid is
a.
the government's health plan for the elderly.
b.
the government's health plan for the poor.
c.
another name for Social Security.
d.
Both a and c are correct.
57. Federal government spending on Social Security, Medicare, and Medicaid as a percentage of GDP rose from
a.
10 percent in 1950 to more than 50 percent today.
b.
10 percent in 1950 to more than 20 percent today.
c.
1 percent in 1950 to more than 10 percent today.
d.
1 percent in 1950 to more than 20 percent today.
58. Which of the following programs is not included in the federal income security spending?
a.
Social Security
b.
welfare
c.
education
d.
unemployment compensation
59. As government debt increases,
a.
Congress will reduce spending by an equal proportion.
b.
the government must spend more revenue on interest payments.
c.
a trade-off with government deficits is inevitable.
d.
tax rates must rise to cover the deficit.
60. In 2011, the federal government spent 9 percent of the budget on net interest. Which of the following statements
regarding net interest is correct?
a.
If the government pays down its debt, the amount of the budget needed for net interest decreases.
b.
If the government accrues more debt, the amount of the budget needed for net interest increases.
c.
In 2011, the federal government spent 325 billion dollars to cover interest payments on its loans.
d.
All of the above are correct.
61. The “other” category of federal spending consists of many less expensive functions of government, including all of the
following except
a.
housing credit programs.
b.
farm support programs.
c.
funding for the National Institutes of Health.
d.
the federal court system.
62. A budget deficit
a.
occurs when government receipts are less than spending.
b.
occurs when government spending is less than receipts.
c.
occurs when government receipts are equal to spending.
d.
is the accumulation of years of government overspending.
63. The U.S. federal government finances budget deficits by
a.
selling stock, much like a corporation.
b.
printing additional currency.
c.
borrowing from the public.
d.
raising property taxes.
64. Suppose that in 2020 the average citizen's federal tax bill is $12,466, and total federal spending is $10,824 per person.
In 2020, the federal government will have
a.
a budget surplus.
b.
a budget deficit.
c.
horizontal equity.
d.
vertical equity.
65. Suppose that in 2020 the average citizen's federal tax bill is $9,372, and total federal spending is $10,824 per person.
In 2020, the federal government will have
a.
a budget surplus.
b.
a budget deficit.
c.
horizontal equity.
d.
vertical equity.
66. Suppose that in 2020 the average citizen’s federal tax bill is $11,888 per person, and total federal spending is $13,997
per person. In 2020, the federal government will have
a.
a per person budget surplus of $2,109.
b.
a per person budget deficit of $2,109.
c.
horizontal equity.
d.
vertical equity.
67. If government spending exceeds government receipts, the government has a
a.
budget surplus. Other things the same, the surplus rises if taxes rise.
b.
budget surplus. Other things the same the surplus rises if taxes fall.
c.
budget deficit. Other things the same, the deficit rises if taxes rise.
d.
budget deficit. Other things the same, the deficit rises if taxes fall.
68. If a government sells debt to help meet its expenditures, then the government has a
a.
budget surplus. Other things the same, the surplus rises if government expenditures rise.
b.
budget surplus. Other things the same, the surplus rises if government expenditures fall.
c.
budget deficit. Other things the same, the deficit rises if government expenditures rise.
d.
budget deficit. Other things the same the deficit rises if government expenditures fall
69. The government finances the budget deficit by
a.
borrowing from the public.
b.
borrowing solely from the Federal Reserve Bank.
c.
printing currency in the amount of the budget deficit.
d.
requiring that budget surpluses occur every other year to pay off the deficits.
70. From 2009 to 2012, the federal budget deficits were the largest budget shortfalls since World War II. The primary
reason for the record-large deficits was
a.
the recession experienced during this time.
b.
severe budget tightening by members of Congress.
c.
the shift in political power from Republicans to Democrats.
d.
All of the above are correct.
71. Which of the following contributes to the projected rise in government spending on Social Security and Medicare as a
percentage of GDP?
a.
increasing life expectancies
b.
increasing healthcare costs
c.
increasing fertility rates
d.
Both a and b are correct.
72. From 1950 to today, government spending on Social Security, Medicare, and Medicaid as a percentage of GDP has
a.
decreased from about ten percent to less than one percent.
b.
increased from less than one percent to about ten percent.
c.
remained constant at less than one percent.
d.
remained constant at about ten percent.
73. In 1950 there were approximately 7 working age people for every elderly person; however, in 2050 there will be
a.
only 2.5 working people for every elderly person.
b.
only 5 working age people for every elderly person.
c.
10 working age people for every elderly person.
d.
14 working age people for every elderly person.
74. When government receipts exceed total government spending during a fiscal year, the difference is
a.
a budget surplus.
b.
a budget deficit.
c.
the national debt.
d.
automatically refunded.
75. Suppose that in 2020 the average citizen’s federal tax bill is $14,888 per person, and total federal spending is $13,997
per person. In 2020, the federal government will have
a.
a per person budget surplus of $891.
b.
a per person budget deficit of $891.
c.
horizontal equity.
d.
vertical equity.
76. Suppose that in 2020 the average citizen's federal tax bill is $11,987, and total federal spending is $12,294 per person.
In 2020, the federal government will have
a.
a budget surplus.
b.
a budget deficit.
c.
horizontal equity.
d.
vertical equity.
77. As the economy's income has grown, the government has
a.
grown at about the same pace.
b.
grown at a faster pace.
c.
grown at a slower pace.
d.
shrunk.
78. Most analysts expect the largest federal spending category to continue to grow in importance for many years into the
future. What category of spending is this?
a.
national defense
b.
education
c.
income security
d.
farm support programs
79. The most common explanation for Social Security payments accounting for a larger share of federal government
expenditures is
a.
increases in life expectancy.
b.
people becoming eligible for Social Security benefits at an earlier age.
c.
increases in birth rates among teenagers and the poor.
d.
falling payroll tax receipts.
80. Which of the following is an important reason for the projected increase in government spending as a percentage of
GDP over the next several decades?
a.
the increase in life expectancy resulting from advances in healthcare
b.
an increase in the average number of children per family.
c.
the increase in the number of jobs lost each year to foreign countries as a result of outsourcing
d.
the reduction in the number of high-cost medical procedures
81. The largest category of federal government spending is growing because
a.
the U.S. must spend more on national defense due to the war against terror.
b.
the elderly population is increasing due to rising life expectancies.
c.
expenditures on space exploration have increased dramatically.
d.
expenditures on school voucher programs have increased dramatically.
82. Which of the following statements is correct?
a.
National defense and health are the two largest spending categories for the federal government.
b.
Welfare programs and highways are the two largest spending categories for state and local governments.
c.
Sales taxes and property taxes are the two most important revenue sources for state and local governments.
d.
Corporate income taxes are the largest source of revenue for the federal government.
83. Which of the following statements is not correct?
a.
All states have state income taxes, but the percentages vary widely.
b.
Sales taxes and property taxes are important revenue sources for state and local governments.
c.
Medicare spending has increased because the percentage of the population that is elderly and the cost of
healthcare have both increased.
d.
A budget deficit occurs when government spending exceeds government receipts.
84. Which of the following statements about state income taxes is correct?
a.
Some states do not tax income at all.
b.
If states tax income, they must follow federal guidelines for designing the tax structure.
c.
States are not allowed to have a higher marginal tax rate than the federal marginal tax rate.
d.
All of the above are correct.
85. The two types of taxes that are most important to state and local governments as sources of revenue are
a.
individual income taxes and corporate income taxes.
b.
sales taxes and individual income taxes.
c.
sales taxes and property taxes.
d.
social insurance taxes and property taxes.
86. The tax that generates the most revenue for state and local government is the
a.
corporate income tax.
b.
individual income tax.
c.
property tax.
d.
sales tax.
87. State and local governments receive the largest portion of their tax revenues from
a.
sales taxes and income taxes.
b.
income taxes and property taxes.
c.
payroll taxes and income taxes.
d.
property taxes and sales taxes.
88. When a state levies a sales tax, the tax
a.
is paid only by the state's residents.
b.
occasionally excludes items that are deemed to be necessities.
c.
is commonly levied on labor services.
d.
applies to wholesale purchases but not retail purchases.
89. For state and local governments, in 2011, sales taxes and property taxes made up approximately
a.
10 percent of all receipts.
b.
22 percent of all receipts.
c.
33 percent of all receipts.
d.
43 percent of all receipts.
90. State and local governments
a.
are funded entirely by their own tax base.
b.
receive the majority of their tax revenues from corporate income taxes.
c.
are generally not responsible for collecting sales taxes.
d.
receive some of their funds from the federal government.
91. State and local governments
a.
use a mix of taxes and fees to generate revenue.
b.
are required by federal mandate to levy income taxes.
c.
are required to tax property at a standard rate set by the federal government.
d.
must tax wages more heavily than interest and dividend income.
92. State and local governments generate revenue from all of the following sources except
a.
sales taxes.
b.
the federal government.
c.
corporate income taxes.
d.
customs duties.
93. A tax levied on the total amount spent in retail stores is called
a.
a sales tax.
b.
an excise tax.
c.
a retail tax.
d.
an income tax.
94. The largest budgetary expense for a typical state or local government is
a.
education.
b.
Medicare.
c.
highways.
d.
income security.
95. The largest budgetary expense for a typical state or local government is
a.
public order and safety.
b.
welfare.
c.
highways.
d.
education.
96. The single largest expenditure by state and local governments is on
a.
highways.
b.
police.
c.
public welfare.
d.
education.
97. The typical state spends the most on
a.
education.
b.
Medicare and Social Security.
c.
highways.
d.
defense.
98. Public schools, which educate most students through high school, are paid for primarily by
a.
state governments.
b.
local governments.
c.
the federal government.
d.
taxpayers directly.
99. For state and local governments, in 2011, education accounted for approximately what percentage of spending?
a.
25 percent
b.
34 percent
c.
50 percent
d.
75 percent
100. Rank the following state and local government expenditure categories from largest to smallest.
a.
education, health, highways
b.
education, highways, income security
c.
highways, education, public order and safety
d.
public order and safety, highways, health
101. Rank the following state and local government expenditure categories from smallest to largest.
a.
education, health, highways
b.
education, highways, health
c.
highways, health, education
d.
health, education, highways.
102. Suppose Ron is willing to pay $200 to see a professional basketball game and Felix is willing to pay $150.Assume
the normal price of a ticket is $125.The local government decides to impose a $35/ticket surcharge to raise revenue,
causing the ticket price to rise to $160.The resulting deadweight loss is:
a.
$75
b.
$25
c.
$35
d.
$150
103. In 2015, the federal government collected $3.25 trillion dollars in tax revenues and spent $3.69 trillion dollars. This
means:
a.
The federal government had a budget deficit of $0.44 billion in 2015
b.
The federal government had a budget surplus of $0.44 billion in 2015
c.
The national debt is equal to $0.44 billion
d.
Taxes should be increased
104. In general, the largest sources of revenue for state and local governments come from:
a.
Sales taxes and property taxes
b.
Sales taxes and corporate taxes
c.
Property taxes and individual income taxes
d.
Individual income taxes and sales taxes
105. Karole’s income rises from $50,000 to $75,000 and her income tax increases from $8,000 to $9,500.Her average tax
rate is 6%.
a.
True
b.
False
