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Chapter 12 The Design of the Tax System
MULTIPLE CHOICE
1. From the time of Benjamin Franklin to the present, the percentage of the average American’s income that goes
to pay taxes
a.
has decreased from about 20 percent to about 10 percent.
b.
has remained constant at about 10 percent.
c.
has risen from less than 2 percent to about 44.4 percent.
d.
has risen from less than 5 percent to about 33.3 percent.
2. Today the typical American pays approximately what percent of income in taxes, including all federal, state,
and local taxes?
a.
5 percent
b.
18 percent
c.
33 percent
d.
50 percent
3. Which of the following statements is correct?
a.
Equity is more important than efficiency as a goal of the tax system.
b.
Efficiency is more important than equity as a goal of the tax system.
c.
Both equity and efficiency are important goals of the tax system.
d.
Neither equity nor efficiency is an important goal of the tax system.
4. Who observed that "in this world nothing is certain but death and taxes"?
a.
Mark Twain
b.
P.T. Barnum
c.
Ben Franklin
d.
Richard Nixon
5. In 1789, the average American paid approximately what percent of income in taxes?
a.
5%
b.
15%
c.
33%
d.
50%
2 ❖ Chapter 12 /The Design of the Tax System
6. Citizens expect the government to provide various goods and services making taxes
a.
inefficient.
b.
equitable.
c.
inevitable.
d.
intolerable.
7. In 1789 the percentage of the average American’s income that went to pay taxes was about
a.
5%. Today it is about 33%.
b.
5%. Today it is about 50%.
c.
33%. Today it is about 33%.
d.
33%. Today it is about 50%.
A FINANCIAL OVERVIEW OF THE US GOVERNMENT
1. Which of the following is true about the percent of total income all levels of government in the U.S. take as
taxes?
a.
In 1902 the government collected about 7 percent of total income. In recent years, it collected
about 30 percent of total income.
b.
In 1902 the government collected about 30 percent of total income. In recent years, it collected
about 7 percent of total income.
c.
In 1902 the government collected about 7 percent of total income. In recent years, it collected
about 7 percent of total income.
d.
In 1902 the government collected about 30 percent of total income. In recent years, it collected
about 30 percent of total income.
2. Over the past 100 years, as the U.S. economy's income has grown,
a.
tax rates have decreased, while tax revenues have increased.
b.
tax rates have increased, while tax revenues have decreased.
c.
both tax rates and tax revenues have increased.
d.
both tax rates and tax revenues have decreased.
3. Which of the following countries has the largest tax burden?
a.
Brazil
b.
Germany
c.
United States
d.
Sweden
Chapter 12/The Design of the Tax System ❖ 3
4. Which of the following statements is not correct?
a.
The U.S. tax burden is high compared to many poor countries.
b.
As nations get richer, their governments typically collect a smaller share of income in taxes.
c.
The U.S. has a higher federal tax burden than China and India.
d.
The U.S. tax burden is low compared to many European countries.
5. Of the following countries, which country’s government collects the largest amount of tax revenue as a per-
centage of that country’s total income?
a.
France
b.
United States
c.
Canada
d.
Sweden
6. When compared to nonpoor countries, poor countries usually have
a.
very high tax burdens.
b.
similar tax burdens.
c.
relatively low tax burdens.
d.
no taxes because of high poverty levels.
7. The U.S. tax burden is
a.
about the same as most European countries.
b.
higher than most European countries.
c.
lower than most European countries.
d.
higher than all European countries.
8. Which of the following statements is correct?
a.
The U.S. federal government collected a higher percentage of income in taxes in the early 1900s
than in the early 2000s.
b.
The U.S. federal government collects a higher percentage of income in taxes than many European
countries, including France and Germany.
c.
The U.S. federal government collects a lower percentage of income in taxes than many developing
countries, including Mexico and India.
d.
The U.S. federal government collects a similar percentage of income in taxes as Brazil and Japan.
9. As a nation gets richer, the government typically takes
a.
a constant share of income in taxes.
b.
a smaller share of income in taxes.
c.
a larger share of income in taxes.
d.
There is little evidence of a relationship between income and taxes for most countries.
4 ❖ Chapter 12 /The Design of the Tax System
10. Of the following countries, which country’s government collects the least amount of tax revenue as a percent-
age of that country’s total income?
a.
France
b.
United States
c.
Canada
d.
Sweden
11. The U.S. federal government collects about
a.
one-third of the taxes in our economy.
b.
one-half of the taxes in our economy.
c.
two-thirds of the taxes in our economy.
d.
three-fourths of the taxes in our economy.
12. The U.S. federal government collects approximately what percentage of the taxes in the economy?
a.
10%
b.
40%
c.
50%
d.
67%
13. In 2009, the average American paid approximately how much to the federal government in taxes?
a.
$1,900
b.
$4,500
c.
$6,800
d.
$8,500
14. In 2009, the U.S. federal government collected approximately how much in total tax receipts?
a.
$307 million
b.
$2.1 billion
c.
$3.2 billion
d.
$6.8 billion
15. In 2009, which category represented the largest source of receipts for the U.S. federal government?
a.
Medicare
b.
Social Security
c.
corporate income taxes
d.
individual income taxes
Chapter 12/The Design of the Tax System ❖ 5
16. The largest source of income for the federal government is
a.
individual income taxes.
b.
corporate taxes.
c.
tariffs.
d.
“sin” taxes on alcohol and cigarettes.
17. The largest source of revenue for the federal government is the
a.
individual income tax.
b.
property tax.
c.
sales tax.
d.
corporate income tax.
18. Approximately what percentage of the U.S. federal government's receipts come from individual income taxes?
a.
8%
b.
15%
c.
43%
d.
67%
19. In 2009, approximately what percentage of federal government receipts came from individual income taxes?
a.
15%
b.
30%
c.
43%
d.
60%
20. The U.S. federal government collects taxes in a number of ways. Rank the following sources of revenue from
the largest to the smallest.
a.
corporate income taxes, individual income taxes, social insurance taxes
b.
social insurance taxes, individual income taxes, corporate income taxes
c.
individual income taxes, social insurance taxes, corporate income taxes
d.
individual income taxes, corporate income taxes, social insurance taxes
21. The two taxes that together provide the U.S. federal government with approximately 85 percent of its revenue
are
a.
individual income taxes and property taxes.
b.
individual income taxes and corporate income taxes.
c.
individual income taxes and payroll taxes.
d.
sales taxes and payroll taxes.
6 ❖ Chapter 12 /The Design of the Tax System
22. A person's tax liability refers to
a.
the percentage of income that a person must pay in taxes.
b.
the amount of tax a person owes to the government.
c.
the amount of tax the government is required to refund to each person.
d.
deductions that can be legally subtracted from a person's income each year.
23. The amount of income tax owed by a family is
a.
not simply proportional to its total income.
b.
unaffected by deductions.
c.
total income minus tax credits.
d.
a constant fraction of income.
24. A family's income tax liability is
a.
a standard percentage of all income earned.
b.
determined by wage income rather than dividend and interest income.
c.
based on total income.
d.
constant from year to year.
25. The federal taxes owed by a taxpayer depend
a.
only upon the marginal tax rate on the taxpayer’s first $25,000 of income.
b.
only upon the marginal tax rate on the taxpayer’s last $10,000 of income.
c.
upon all the marginal tax rates up to the taxpayer’s overall level of income.
d.
upon all the marginal tax rates, including those for income levels that exceed the taxpayer’s overall
Table 12-1
On Taxable Income ...
The Tax Rate is ...
Up to $8,375
10%
From $8,375 to $34,000
15
From $34,000 to $82,400
25
From $82,400 to $171,850
28
From $171,850 to $373,650
33
Over $373,650
35
26. Refer to Table 12-1. If Agatha has $80,000 in taxable income, her tax liability is
a.
$11,581.
b.
$16,181.
c.
$20,000.
d.
$24,881.
Chapter 12/The Design of the Tax System ❖ 7
27. Refer to Table 12-1. If Agatha has $80,000 in taxable income, her average tax rate is
a.
18.5%.
b.
20.2%.
c.
21.8%.
d.
25.0%.
28. Refer to Table 12-1. If Agatha has $80,000 in taxable income, her marginal tax rate is
a.
15%.
b.
25%.
c.
28%.
d.
33%.
29. Refer to Table 12-1. If Betina has $170,000 in taxable income, her tax liability will be
a.
$16,781.
b.
$41,309.
c.
$41,827.
d.
$47,600.
30. Refer to Table 12-1. If Betina has $170,000 in taxable income, her average tax rate is
a.
23.8%.
b.
24.3%.
c.
25.9%.
d.
28.0%.
31. Refer to Table 12-1. If Betina has $170,000 in taxable income, her marginal tax rate is
a.
25%.
b.
28%.
c.
33%.
d.
35%.
32. Refer to Table 12-1. If Damian has $33,000 in taxable income, his tax liability will be
a.
$4,531.
b.
$4,678.
c.
$4,950.
d.
$8,269.
8 ❖ Chapter 12 /The Design of the Tax System
33. Refer to Table 12-1. If Damian has $33,000 in taxable income, his average tax rate is
a.
13.7%.
b.
14.6%.
c.
15.0%.
d.
15.2%.
34. Refer to Table 12-1. If Damian has $33,000 in taxable income, his marginal tax rate is
a.
10%.
b.
15%.
c.
25%.
d.
28%.
Table 12-2
Consider the tax rates shown in the table below.
Tax Rate
Income Range
8%
0 - 15,000
16%
15,000 - 35,000
24%
35,000 - 75,000
34%
75,000 - 145,000
36%
145,000 - 330,000
38%
over 330,000
35. Refer to Table 12-2. If Mateo has taxable income of $165,000, his tax liability is
a.
$23,800.
b.
$36,000.
c.
$45,000.
d.
$47,698.
36. Refer to Table 12-2. If Mateo has taxable income of $165,000, his average tax rate is
a.
26.6%.
b.
26.9%.
c.
27.3%.
d.
28.5%.
37. Refer to Table 12-2. If Mateo has taxable income of $165,000, his marginal tax rate is
a.
16%.
b.
24%.
c.
34%.
d.
36%.
Chapter 12/The Design of the Tax System ❖ 9
38. Refer to Table 12-2. If Noah has taxable income of $43,000, his tax liability is
a.
$1,920.
b.
$4,400.
c.
$6,320.
d.
$8,175.
39. Refer to Table 12-2. If Noah has taxable income of $43,000, his average tax rate is
a.
14.7%.
b.
16.3%.
c.
20.8%.
d.
24.0%.
40. Refer to Table 12-2. If Noah has taxable income of $43,000, his marginal tax rate is
a.
8%.
b.
16%.
c.
24%.
d.
34%.
41. Refer to Table 12-2. If Livi has taxable income of $78,000, her tax liability is
a.
$7,800.
b.
$9,900.
c.
$10,200.
d.
$15,020.
42. Refer to Table 12-2. If Livi has taxable income of $78,000, her average tax rate is
a.
18.7%.
b.
19.3%.
c.
20.1%.
d.
34.0%.
43. Refer to Table 12-2. If Livi has taxable income of $78,000, her marginal tax rate is
a.
19.3%.
b.
24.0%.
c.
26.8%.
d.
34.0%.
10 ❖ Chapter 12 /The Design of the Tax System
44. In the United States, the payroll tax is also called a
a.
dividend income tax.
b.
social insurance tax.
c.
value added tax.
d.
capital gains tax.
45. Which type of tax is used to finance the Social Security program in the United States?
a.
consumption tax
b.
income tax
c.
payroll tax
d.
property tax
46. The revenue that the federal government collects from payroll taxes is earmarked to pay for
a.
national defense and income security (welfare) programs
b.
national defense and Medicare
c.
Social Security and public schools
d.
Social Security and Medicare
47. In 2009, social insurance taxes represented approximately what percentage of total receipts for the federal
government?
a.
12%
b.
22%
c.
32%
d.
42%
48. A payroll tax is a tax on
a.
the wages that a firm pays its workers.
b.
earned and unearned income.
c.
specific goods like gasoline and cigarettes.
d.
corporate profits.
49. The payroll tax differs from the individual income tax because the payroll tax is primarily earmarked to pay
for
a.
employer-provided pensions.
b.
Social Security and Medicare.
c.
employer-provided health benefits.
d.
job loss and training programs.
Chapter 12/The Design of the Tax System ❖ 11
50. A tax on the wages that a firm pays its workers is called
a.
an income tax.
b.
an excise tax.
c.
a consumption tax.
d.
a payroll tax.
51. In 2009, what percentage of federal government receipts came from corporate income taxes?
a.
7%
b.
15%
c.
25%
d.
42%
52. Corporate profits distributed as dividends are
a.
tax free.
b.
taxed once.
c.
taxed twice.
d.
taxed three times.
53. The government taxes corporate income on the basis of
a.
profit.
b.
the amount the firm receives for the goods or services it sells.
c.
the number of employees.
d.
All of the above are correct.
54. Corporate profits are
a.
included in payroll taxes.
b.
exempt from taxes.
c.
taxed twice, once as profit and once as dividends.
d.
taxed to pay for Medicare.
55. Which of the following are taxed?
a.
both corporate profits and dividends shareholders receive
b.
corporate profits but not dividends shareholders receive
c.
dividends shareholders receive but not corporate profits
d.
neither corporate profits nor dividends shareholders receive
12 ❖ Chapter 12 /The Design of the Tax System
56. Taxes on specific goods such as gasoline and alcoholic beverages are called
a.
excise taxes.
b.
payroll taxes.
c.
sales taxes.
d.
social insurance taxes.
57. Which of the following is an example of an excise tax?
a.
a tax on the wages that a firm pays its workers
b.
a tax on tobacco
c.
a tax on corporate profits
d.
the portion of federal income taxes earmarked to pay for Social Security and Medicare
58. If Vermont imposed a tax on butter of 50 cents per pound, it would
a.
be an excise tax.
b.
be an income tax.
c.
reduce tax revenue.
d.
cause the supply of milk to rise.
59. Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called
a.
sales taxes.
b.
excise taxes.
c.
social insurance taxes.
d.
consumption taxes.
60. In 2009, federal government receipts were approximately
a.
$6,800 per person and federal government spending was approximately $11,400 per person,
resulting in a budget surplus.
b.
$6,800 per person and federal government spending was approximately $11,400 per person,
resulting in a budget deficit.
c.
$11,400 per person and federal government spending was approximately $6,800 per person,
resulting in a budget surplus.
d.
$11,400 per person and federal government spending was approximately $6,800 per person,
resulting in a budget surplus.
61. In 2009, which category represented the largest category of spending for the U.S. federal government?
a.
Medicare
b.
Social Security
c.
national defense
d.
net interest
Chapter 12/The Design of the Tax System ❖ 13
62. Which of the following statements is correct?
a.
National defense and health care 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.
63. The U.S. federal government spends its revenues in a number of ways. Rank the following spending categories
from largest to smallest.
a.
Social Security, national defense, income security, net interest
b.
health care, national defense, net interest, income security
c.
Social Security, health care, national defense, Medicare
d.
national defense, Social Security, net interest, income security
64. The three largest categories of spending by the Federal government in order from first to third would be
a.
Social Security, Medicare, and national defense
b.
national defense, net interest, and Social Security
c.
Social Security, national defense, and income security
d.
income security, Social Security, and national defense
65. In 2009, approximately how much of federal government spending went to Social Security?
a.
9%
b.
19%
c.
29%
d.
39%
66. In 2009 the largest percentage of federal government spending was on
a.
national defense. The largest source of federal revenues was from corporate income taxes.
b.
national defense. The largest source of federal revenues was from individual income taxes.
c.
Social Security. The largest source of federal revenues was from corporate income taxes.
d.
Social Security. The largest source of federal revenues was from individual income taxes.
67. A transfer payment is a government payment
a.
to companies that provide goods or services to government agencies.
b.
designed to transfer funds from one government agency to another.
c.
which transfers revenue from the federal government to state government.
d.
not made in exchange for a good or service.
14 ❖ Chapter 12 /The Design of the Tax System
68. All of the following are transfer payments except
a.
Medicaid.
b.
unemployment compensation.
c.
personal income taxes.
d.
Food Stamps.
69. Which of the following is not true about government spending on national defense?
a.
It is the second-largest spending category for the U.S. federal government.
b.
It includes salaries of military personnel.
c.
It fluctuates over time as the political climate changes.
d.
It is not financed with tax revenue.
70. The government's health plan for the elderly is called
a.
Medicaid.
b.
Medicare.
c.
Social Security.
d.
TANF.
71. Medicare is the
a.
government's health plan for the elderly.
b.
government's health plan for the poor.
c.
another name for Social Security.
d.
Both a and c are correct.
72. Medicare has been the focus of many proposed reforms over the last several years because
a.
health care costs have risen more rapidly than the cost of other goods and services produced in the
economy.
b.
nationalized health care systems are more efficient than private health care systems.
c.
cures for many major diseases are likely to be found in the next few years.
d.
government health care research has found that limiting access to doctors will increase the general
health of the population.
73. Like spending on Social Security, the share of federal government spending on Medicare has risen substantial-
ly over time. This is most likely a result of
a.
a rising population of poor in the economy.
b.
the elderly population growing more rapidly than the overall population.
c.
an immigration policy that promotes an influx of migrant farm workers.
d.
All of the above are important factors.
Chapter 12/The Design of the Tax System ❖ 15
74. The federal healthcare spending program that specifically targets the poor is called
a.
Medicaid.
b.
Medicare.
c.
National Institutes of Health.
d.
Blue Cross/Blue Shield.
75. 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.
76. The concept of a “welfare program” is most closely associated with which particular federal government pro-
gram?
a.
spending on medical research
b.
Temporary Assistance for Needy Families (TANF)
c.
Medicare
d.
Social Security
77. Federal government spending on income security rose from 13 percent to 15 percent of total federal spending
between 2006 and 2009. The most likely cause of this increase is
a.
the recession and consequent increase in the number of unemployed citizens.
b.
the shift in power from Republicans to Democrats.
c.
wasteful spending due to an abundance of resources.
d.
an increase in life expectancies.
78. Which of the following programs is not included in the federal income security spending?
a.
Social Security
b.
Temporary Assistance for Needy Families (TANF)
c.
Food Stamps
d.
unemployment compensation
79. Specific spending programs that are included under the general category of income security include
a.
health programs.
b.
Medicare.
c.
Social Security.
d.
Food Stamps.
16 ❖ Chapter 12 /The Design of the Tax System
80. Temporary Assistance for Needy Families (TANF) falls into which spending category?
a.
Medicare
b.
income security
c.
guaranteed social eligibility
d.
Social Security
81. 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.
82. In 2009, the federal government spent 5 percent of the budget on net interest. Which of the following state-
ments 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 2009, the federal government spent 187 billion dollars to cover interest payments on its loans.
d.
All of the above are correct.
83. 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.
84. 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.
85. 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.
Chapter 12/The Design of the Tax System ❖ 17
86. 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.
87. Suppose that in 2015 the average citizen's federal tax bill is $11,987, and total federal spending is $12,294 per
person. In 2015, the federal government will have
a.
a budget surplus.
b.
a budget deficit.
c.
horizontal equity.
d.
vertical equity.
88. 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.
89. 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.
90. Suppose that in 2012 the average citizen’s federal tax bill is $11,888 per person, and total federal spending is
$13,997 per person. In 2012, 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.
18 ❖ Chapter 12 /The Design of the Tax System
91. Suppose that in 2012 the average citizen’s federal tax bill is $14,888 per person, and total federal spending is
$13,997 per person. In 2012, 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.
92. 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.
93. 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
94. 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.
95. According to long-run projections, under current law,
a.
federal government spending as a percentage of GDP will rise gradually but substantially in the
next several decades.
b.
federal taxes as a percentage of GDP will rise gradually but substantially in the next several
decades.
c.
the federal government’s budget deficit will gradually be eliminated in the next several decades.
d.
All of the above are correct.
96. The federal budget deficit in 2009 was nearly eight times larger than the deficit in 2007. The primary reason
for the dramatic increase in the deficit 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.
Chapter 12/The Design of the Tax System ❖ 19
97. Which of the following contributes to the projected rise in government spending on Social Security and Medi-
care as a percentage of GDP?
a.
increasing life expectancies
b.
increasing health care costs
c.
increasing fertility rates
d.
Both a and b are correct.
98. 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.
99. 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.
100. 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.
101. Many health economists believe that it will be very difficult to stem the rise in health care costs because
a.
government intervention is unpopular with most citizens, especially the elderly.
b.
improvements in medical technology have not kept pace with technological improvements in other
sectors of the economy.
c.
increased competition will increase rather than reduce costs.
d.
medical advances are providing better ways to extend and improve human lives but at high costs.
20 ❖ Chapter 12 /The Design of the Tax System
102. Many health economists believe that President Obama’s 2010 healthcare reform bill and other measures pro-
posed by policymakers to reduce the growth of healthcare costs will have only a limited impact because
a.
providing universal coverage is very expensive.
b.
the main source of higher costs is medical advances which extend and improve lives.
c.
lawsuits do not create a costly burden on the healthcare system.
d.
encouraging competition does not usually result in lower costs.
103. 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.
Social Security
c.
income security
d.
farm support programs
104. The most common explanation for Social Security payments accounting for a larger share of federal govern-
ment 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.
105. Which of the following is an important reason for the projected increase in government spending as a percent-
age 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
106. 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.
health care costs are rising faster than any other service in the U.S.
