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73. From 2000 to 2010, the public sector share of total output
A. Trended up for state and local governments and down for the federal government.
74. From 1990 to 2010, the public sector share of total output
A. Trended upward to 2000 and then downward to 2010.
75. Between 1950 and 2010, most of the growth in federal expenditures was a result of
increases in
A. Private sector purchases of goods and services.
76. Most of the direct spending at the state government level is on
A. Defense.
77. The fastest-growing areas for state expenditures are
78. The primary function of taxes is to
79. Which of the following is an example of a progressive tax?
80. Which of the following properly ranks the size of tax revenues received by the federal
government from highest to lowest?
81. The largest single source of revenue for the federal government is
A. Excise taxes.
82. Suppose that if your income is $100,000, your tax is $20,000, but if your income is
$200,000, your tax is $45,000. Such a tax is
83. A proportional tax is one that
A. Rises as income rises.
84. Suppose that if your income is $20,000, your tax is $4,000, but if your income is
$40,000, your tax is $8,000. Such a tax is
85. A tax is regressive if it takes a
A. Larger number of dollars as income falls.
86. Suppose that if your income is $50,000, your tax is $5,000, but if your income is $100,000,
your tax is $8,000. Such a tax is
87. The Social Security tax is
88. Local property taxes are a
89. Cities and other local governments receive most of their tax revenues from
90. States receive most of their tax revenues from
91. In general, state and local taxes tend to be
92. Which of the following is the best description of the U.S. tax system?
93. A tax that is placed on the quantity of the item purchased, such as gallons of it, is called a(n)
94. The amendment to the U.S. Constitution that granted the federal government the authority to
collect income taxes was the
95. In real terms, the cost of government spending is measured by
A. Combining the private sector output with the public sector output sacrificed when the government
96. Which of the following is a source of government failure but is not typically an example of
market failure?
A. Monopoly.
97. Which of the following occurs if government intervention forces the economy inside the
production possibilities curve?
98. Government intervention in the market
99. According to cost-benefit analysis, a government project should be undertaken as long as
the
100. Local governments provide law enforcement, which benefits society, but if the costs of law
enforcement exceed the benefits, the result is a situation of
101. In the cost-benefit analysis of public goods, the benefits
A. Can be accurately measured using the market price of the public good.
102. When voting mechanisms substitute for the market mechanism in allocating resources, we
are relying on
103. Approximately what percentage of state and local expenditures do bond referenda account
for?
104. The theory of public choice
105. The theory of public choice examines
106. Which of the following scenarios would support the theory of public choice?
107. Government failure will likely arise if
108. A World View article titled "Secondhand Smoke Kills 600,000 People a Year: Study" claims
what percentage of all deaths worldwide are caused by secondhand smoke?
109. A World View article titled "Secondhand Smoke Kills 600,000 People a Year: Study" implies
the harm caused to nonsmokers is
A. An example of a public good.
110. An In the News article titled "Perpetuating Poverty: Lotteries Prey on the Poor" reports that
poor people spend a larger percentage of their income on government-promoted gambling
than do rich people. On the basis of this information, we can conclude that lotteries
function as
111. One In the News article titled "Persistent Doubts about Government Waste" indicates
that people think "the government wastes a lot of tax money." If this is true, this is an
example of
112. An In the News article titled "Persistent Doubts about Government Waste" implies
that people think the public sector is not producing as many services as it could with
the resources at its disposal. If this is true, this indicates a situation of
113. Which of the following statements is inaccurate?
114. The four specific sources of market failure are
115. From the In the News article titled, "Firefighters Watch as Home Burns to the Ground,"
Which of the following is true?
116. Market power may result from all of the following except
117. In response to the global recession of 2008 and 2009, governments around the world
118. Government failure may result from
119. The market mix of output and the optimal mix of output are always the same.
120. Public goods are any goods provided by units of local, state, or federal governments.
121. A public good is a good or service for which consumption by one person makes
consumption by others impossible.
122. The free-rider dilemma occurs in the provision of public goods because an individual can
realize the benefits of someone else's purchase (consumption) of a public good.
123. The difference between public goods and private goods rests on technical considerations of
124. Fire protection and police protection can be produced more efficiently by the private sector
than by the public sector.
125. The market mechanism leads to underproduction of public goods because the supply of
public goods is hidden.
126. The market tends to underproduce public goods.
127. If you burn garbage in your backyard and the smoke damages a neighbor's house, the
damage is considered an externality.
128. If your neighbors remove the weeds in their yard and this activity prevents weed seeds
from blowing into your yard, the benefit you receive is a public good.
129. Markets will underproduce goods that yield external benefits and overproduce those
that generate external costs.
130. Social demand equals market demand minus externalities when there are external benefits.
131. Social demand equals market demand plus externalities when there are positive external
benefits.
TRUE
132. Market failure can occur even when the price signals are accurate.
133. Sometimes the response to price signals, rather than the signals themselves, may be flawed.
134. Market power creates a flawed response to an accurate price signal.
135. Monopolies will tend to overproduce goods and charge a higher price than the competitive
price.
136. Transfer payments are payments to individuals for which nothing is currently rendered
in return.
137. Micro and macro failures of the marketplace never justify government intervention.
138. The federal personal income tax system is regressive.
139. A progressive tax system is one in which tax rates rise as incomes rise.
140. The largest source of federal revenue is the corporate income tax.
141. State governments receive half of their tax revenue from property taxes.
142. State income tax revenues are much less than sales tax revenues.
143. Government intervention that fails to improve economic outcomes is known as market
failure.
144. Government failure means that government intervention fails to move us closer to our
economic goals.
145. Government waste implies that the public sector is not producing as many services as it
could with the resources at its disposal.
146. As long as a public sector activity will generate benefits regardless of the costs, the
147. Public choice theory emphasizes the role of self-interest in public decision making.
148. Income transfers directly alter the mix of output and answer the question of WHAT is
produced question.
149. Explain why government-funded college education can be considered a role of
the government.
150. Why is it safe to assume that national defense will always be provided by the government
instead of the market?
151. Does a state sales tax function as a progressive, regressive, or proportional source of
revenue, and why?
152. What is government failure, and how would it be demonstrated on a production possibilities
curve?
153. What is public choice theory, and how can it affect government intervention?
Chapter 04 Test Bank Summary
Category
# of Questions
AACSB: Analytic
42
AACSB: Reflective Thinking
111
Accessibility: Keyboard Navigation
145
Blooms: Analyze
25
Blooms: Apply
17
Blooms: Remember
39
Blooms: Understand
72
Difficulty: 01 Easy
39
Difficulty: 02 Medium
72
Difficulty: 03 Hard
42
Learning Objective: 04-01 The nature and causes of market failure.
95
Learning Objective: 04-02 How the public sector has grown.
7
Learning Objective: 04-03 Which taxes finance state; local; and federal governments.
25
Learning Objective: 04-04 The meaning of government failure.
26
Topic: GOVERNMENT FAILURE
23
Topic: GROWTH OF GOVERNMENT
7
Topic: IN THE NEWS
2
Topic: MARKET FAILURE
96
Topic: TAXATION
25
