ECO/405 Week 11 Quiz
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ECO 405 Week 11 Quiz – Strayer
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Quiz 10 Chapter 14 and 15
Government Spending, Taxation, And The National Debt: Who Wins And Who
Loses?
Multiple Choice Questions
1. The Fears Of People Concerning The Size Of Government Are
A. Always Without Any Foundation
B. Well-Founded In Some Instances And Not Well-Founded In Some Instances
C. Difficult To Appreciate
D. Due To Low Income And Low Educational Levels Of Many People
E. Based Solely On Economic Efficiency
2. The Fears Of People Concerning Distribution Of Taxes Are Related To
A. Equity Or Justice In Taxation
B. Ample Evidence That There Are Tax Inequities In The Tax System At All Levels
Of Government
C. The Complete Lack Of Understanding That People Have About The Purpose Of
Taxes
D. Both (A) And (B)
E. All Of The Above
3. Total Government Expenditures Currently Represent Approximately What
Percentage Of Gdp?
A. 20%
B. 30%
C. 40%
D. 50%
E. 10%
4. A Cash Payment From The Government To An Individual, Based On Need, Is An
Example Of A
A. Transfer Payment
B. Government Purchase Of A Service
C. Government Purchase Of A Good
D. Transaction Payment
E. Government Receipt
5. A Payment From The Government To A Federal Employee Is A
A. Transfer Payment
B. Government Purchase Of A Service
C. Government Purchase Of A Good
D. Transaction Payment
E. Government Receipt
6. An Efficient Level Of Government Expenditures Is That Level Where
A. Total Costs Are Minimized
B. Total Benefits Are Maximized
C. Marginal Benefits Are Equal To Marginal Costs
D. Marginal Benefits Are Greater Than Marginal Costs
E. Marginal Benefits Are Less Than Marginal Costs
7. Public Goods And Services Have Characteristics That Make Them
A. Possible To Exclude People From Consuming Them
B. Less Available For One Person When Another Consumes Them
C. Easy To Provide Through Private Markets
D. All Of The Above
E. None Of The Above
8. The Size Of Government Is Growing At
A. A Slower Rate Than The Rest Of The Economy
B. Approximately The Same Rate As The Rest Of The Economy
C. A Faster Rate Than The Rest Of The Economy
D. Twice The Rate Of The Rest Of The Economy
E. A Negative Rate
9. Assuming Negative Externalities In Production, The Type Of Government Action
That Could Bring About An Efficient Level Of Production Would Be
A. A Tax Levied On Each Unit Produced Equal To Marginal External Costs
B. A Tax Levied On Each Unit Produced Greater Than Marginal External Costs
C. A Subsidy To Consumers Equal To Marginal External Benefits
D. A Subsidy To Consumers Greater Than Marginal External Benefits
E. None Of The Above
10. Assuming Positive Externalities In Consumption, The Type Of Government
Action That Could Bring About An Efficient Level Of Production Would Be
A. A Tax Levied On Each Unit Produced Equal To Marginal External Costs
B. A Tax Levied On Each Unit Produced Greater Than Marginal External Costs
C. A Subsidy On Each Unit Consumed Equal To Marginal External Benefits
D. A Subsidy On Each Unit Consumed Greater Than Marginal External Benefits
E. None Of The Above
11. Shifting Income From Those Who Are Relatively Productive To Those Who Are
Relatively Unproductive, Say Through Taxes And Subsidies, Must Be Based On
A. Sound Economic Principles
B. The Laws Of Demand And Supply
C. The Values Of People As To What Constitutes A "Fair" Distribution Of Income
D. Marginal Cost And Marginal Benefit
E. Both (A) And (D)
12. A National Crime Lab Used To Prevent Criminal Activity Nationwide Is An
Example Of A
A. Negative Externality
B. Positive Externality
C. Transfer Payment
D. Public Good
E. Private Good
13. Tax Equity Means That
A. All People Should Pay Equal Taxes
B. Only The "Rich" Should Pay Taxes
C. People In The Same Economic Circumstances Should Pay Equal Taxes, And
People In Different Economic Circumstances Should Pay Unequal Taxes
D. The Distribution Of Income After Taxes Should Be Equal
E. None Of The Above
14. An Efficient Tax Would Be A Tax For Which
A. The Excess Burden" From Taxes Is Zero
B. Taxes Should Have A Neutral Effect On The Operation Of The Economy
C. Taxes Should Be Levied At Progressive Rates
D. (A) And (B)
E. All Of The Above
15. According To The Equimarginal Principle, The Efficient Level Of Government
Expenditures Occurs When The Benefit Of The Last Dollar Spent For Each
Government Purchase Is
A. Greater Than The Benefit Of The Last Dollar Spent In The Private Sector
B. Less Than The Benefit Of The Last Dollar Spent In The Private Sector
C. Equal To The Benefit Of The Last Dollar Spent In The Private Sector
D. Paid For Out Of Current Tax Collections
E. None Of The Above
16. An Efficient Level Of Government Expenditures Is That Level At Which
A. Marginal Benefits Exceed Marginal Costs
B. Total Benefits Equal Total Costs
C. The Net Benefits To Society Are Maximized
D. The Total Costs Are Minimized
E. None Of The Above
17. Where Marginal Benefits Are Greater Than The Marginal Costs, Government
Expenditures Should
A. Be Increased
B. Remain The Same
C. Be Decreased Then Increased To Their Original Level
D. Be Increased Then Decreased To Their Original Level
E. Do None Of The Above
18. Characteristics Of Public Goods And Services Include Which Of The Following?
A. The Demand For These Goods And Services Is Divisible On The Basis Of
Individual Quantity Demanded
B. The Supply Of These Goods And Services Is Generally Not Divisible Into Small
Units
C. These Goods And Services Are Easily Provided By The Market System
D. The Costs Of These Goods Fall On Other Than The Buyer
E. None Of The Above
19. Which Of The Following Is An Example Of A Public Good Or Service?
A. A Public Highway
B. Free Cheese Offered By The Government
C. Food Stamps
D. Social Security
E. Automobiles
Questions 20 - 24 Refer To The Graph Below.
20. Assuming No External Benefits Or Costs, The Efficient Price And Quantity
Would Be
A. P2, Q2
B. P2, Q1
C. P1, Q1
D. P0, Q0
E. P0, Q2
21. Suppose There Are External Benefits Associated With The Production Of The
Good. The Efficient Price And Quantity Are
A. P2, Q2
B. P2, Q1
C. P1, Q1
D. P0, Q0
E. P0, Q2
22. If External Benefits Are Associated With The Consumption Of The Good,
Consumers Could Be Induced To Purchase The Efficient Quantity If The Price Were
Set At
A. P2
B. P1
C. P0
D. 0
E. None Of The Above
23. To Assure Consumers Purchase The Efficient Quantity When There Are Positive
External Benefits, The Government Would Lower Price To
A. P2
B. P1
C. P2- P1
D. P0- P1
E. P0
24. Marginal External Benefits Are Represented On The Graph As The Distance
A. Ab
B. Q2a
C. Ea
D. Cf
E. Af
25. Which Of The Following Is The Major Tax Source Of The Federal Government?
A. Income Taxes
B. Excise Taxes
C. Property Taxes
D. Wealth Taxes
E. Sales Taxes
26. A Progressive Tax Rate Means That The Ratio Of Tax Collections To Income
A. Falls As Income Rises
B. Rises As Income Rises
C. Remains The Same As Income Rises
D. Either (A) And (B)
E. May Fall, Rise, Or Remain The Same As Income Rises
27. In The Us, Major Sources Of Tax Revenues Are:
A. Income Taxes At The Federal Level, Property Taxes At The State Level
B. Sales Taxes At The Federal Level And Income Taxes And Property Taxes At The
State Level
C. Income Taxes At The Federal Level And Income And Sales Taxes At The State
Level
D. Income Taxes At The Federal Level And Payroll Taxes At The State Level
28. The Ability To Pay The Principle Of Taxation Suggests That People With More
Income Should Pay More Taxes. This Means That
A. Progressive Income Rates Are Consistent With The Ability To Pay Principle
B. Proportional Income Rates Are Consistent With The Ability To Pay Principle
C. Regressive Income Rates May Or May Not Be Consistent With The Ability To Pay
Principle Depending On The Rate Of Regression
D. Sales Taxes Are Consistent With The Ability To Pay Principle
E. None Of The Above
Questions 29 - 33 Refer To The Graph Below.
29. The Demand Curve For This Product Can Be Described As
A. Perfectly Elastic
B. Perfectly Inelastic
C. Unitary Elastic
D. Hyper Elastic
E. Price Elastic
30. Given Demand Curve D, If An Output Tax Per Unit Of P- P2 Is Levied On This
Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. It Can Not Be Determined
31. Which Of The Following Shifts Represents The Effect Of An Output Tax Levied
On This Good?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above
32. Which Of The Following Shifts Represents The Effect Of A Tax On This Good
Levied Independent Of Output?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above
33. Given Demand Curve D, If A Tax Independent Of Output Is Levied On This
Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined
Questions 34 - 38 Refer To The Graph Below.
34. The Demand Curve For This Product Can Be Described As
A. Perfectly Elastic
B. Perfectly Inelastic
C. Unitary Elastic
D. Hyper Elastic
E. Price Elastic
35. Given Demand Curve D, If An Output Tax Per Unit Of P- P1 Is Levied On This
Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined
36. Which Of The Following Shifts Represents The Effect Of An Output Tax Levied
On This Good?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above
37. Which Of The Following Shifts Represents The Effect Of A Tax On This Good
Levied Independent Of Output?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above
38. Given Demand Curve D, If A Tax Independent Of Output Is Levied On This
Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined
39. An Output Tax Will Be Shifted Completely
A. Backward If Demand Is Price Inelastic
B. Forward If Demand Is Perfectly Price Inelastic
C. Forward If Demand Is Price Elastic
D. Backward, Regardless Of Elasticity
E. All Of The Above
40. A Tax Levied Independent Of Output, Such As A Tax Levied On Net Income Of
Corporations, Will
A. Be Shifted If Demand Is More Elastic Than Supply
B. Be Shifted If Supply Is More Elastic Than Demand
C. Not Be Shifted In The Short Run If The Most Profitable Output Has Been Selected
Before The Tax
D. Be Shifted In The Short Run If The Most Profitable Output Has Been Selected
Before The Tax
E. Do None Of The Above
41. Government Borrowing Is Argued To Have The Effect Of Raising Interest Rates
—The "Crowding-Out Effect." In Conjunction With Government Spending, Does
Government Spending And Borrowing Have A Positive Or Negative Impact On The
Economy?
A. Negative, Since Borrowing Exceeds Spending
B. A Positive Impact, Since Expenditures Often Exceed Borrowing
C. A Neutral Effect, Since The Budget Is Always In Balance
D. Government Spending And Borrowing Have A Minimal Effect On The Economy
E. Government Spending And Borrowing Must Be Considered Separately
42. The Gasoline Tax Is Often Used To Illustrate The Benefits Received Principle Of
Taxation Because
A. Everyone Benefits From The Gasoline Tax
B. Those Who Pay The Tax Receive Benefits, Since The Revenues Are Used For
Road And Highway Construction And Maintenance
C. The Amount We Pay Is Consistent With Our Incomes
D. Everyone Knows When They Pay The Tax
E. The Gasoline Tax Is A Poor Example Of The Benefits Received Principle
43. Vertical Equity Implies That
A. People In Different States Should Pay The Same Taxes
B. People With Comparable Incomes Should Pay The Same Taxes
C. People In Different Economic Circumstances Should Pay Different Amounts
D. Taxes Should Rise As The Size Of Your Family Increases
E. Taxes Should Be Based Upon How Tall The Taxpayer Is
44. Proportional Tax Rates Mean That The Ratio Of Tax Collection To Income
A. Falls As Income Rises
B. Rises, As Income Rises
C. Remains The Same As Income Rises
D. Rises As Income Falls
E. Falls As Income Falls
45. Regressive Tax Rates Mean That The Ratio Of Tax Collections To Income
A. Falls As Income Rises
B. Rises As Income Rises
C. Remains The Same As Income Rises
D. Remains The Same As Income Falls
E. Falls As Income Falls
46. The Us Federal Personal Income Tax Is An Example Of A(N)
A. Regressive Tax Rate Structure
B. Proportional Tax Rate Structure
C. Progressive Tax Rate Structure
D. More Regressive Than Proportional Tax Rate Structure
E. Equitable Tax Rate Structure
47. If Demand For A Product Is Perfectly Inelastic, An Output Tax Will Be Shifted
A. Completely Backward
B. Completely Forward
C. Completely To The Poor
D. Completely To The Rich
E. Completely To The Producer
48. A Tax That Is Shifted Forward Is A Tax That Falls On
A. The Consumer In The Form Of Higher Prices
B. The Producer Through Lower Sales
C. The Government
D. Foreign Investors
E. None Of The Above
49. A Tax That Is Shifted Backward Is A Tax That Falls On
A. The Consumer In The Form Of Higher Prices
B. The Owners Of Resources In The Form Of Lower Resource Prices
C. The Government
D. Foreign Investors
E. None Of The Above
50. At The Federal Level, The Largest Revenue Generating Tax Is The
A. Corporate Income Tax
B. Personal Income Tax
C. Property Tax
D. Sales Tax
E. Customs Duty
51. If The Ratio Of Tax Collections To Income Rises As Income Rises, Then The Tax
Rate Is
A. Regressive
B. Proportional
C. Progressive
D. Regressive Then Proportional
E. None Of The Above
52. The Federal Government Lowered Tax Rates In
A. 1986 And 2001
B. 1986
C. 2001
D. Neither Year
E. 1909 And Has Raised Them Ever Since
53. Suppose There Are Two Individuals Who Each Earn $25,000 Per Year. One
Individual Pays $2,500 In Taxes And The Other Pays $2,000. This Is A Violation Of
A. The Benefits Received Principle
B. The Ability To Pay Principle
C. Vertical Equity
D. Horizontal Equity
E. None Of The Above
54. Suppose One Individual Earns $25,000 Per Year And Another Individual Earns
$15,000 Per Year. If The Individual Earning $25,000 Per Year Pays $750 More Per
Year In Taxes Than The Person Earning $15,000, This Is An Illustration Of
A. The Benefits Received Principle
B. The Ability To Pay Principle
C. The Equal Tax Treatment Principle
D. The Equitable Payment Doctrine
E. None Of The Above
55. If We Levy A Tax On Profits That Is Neither Shifted Neither Forward Nor
Backward, It Is
A. An Output Tax
B. An Input Tax
C. A Tax Independent Of Output
D. A Tax Dependent On Output
E. None Of The Above
56. The Federal Tax System In The United States Can Be Described As
A. Regressive
B. Highly Progressive
C. Slightly Progressive
D. Proportional
E. None Of The Above
57. A Tax System That Will Not Alter The Distribution Of Income Is
A. Proportional
B. Regressive
C. Slightly Progressive
D. Very Progressive
E. None Of The Above
58. Which Of The Following Countries Has The Lowest Taxes Collected (As A
Percent Of Gdp)?
A. The United States
B. Germany
C. Italy
D. France
E. The United Kingdom
59. The Highest Effective Federal Tax Rate In The United States Is Approximately
A. 10%
B. 15%
C. 20%
D. 24%
E. 34%
60. The Highest Effective Federal Tax Rate In The United States Falls On Which
Income Category?
A. The Lowest Quintile
B. The Middle Quintile
C. The Top 10%
D. The Top 5%
E. The Top 1%
61. The Single Most Important Source Of Tax Revenue For The Local Governments
In The United States Is The
A. Real Property Tax
B. Personal Income Tax
C. National Sales Tax
D. Cigarette Tax
E. Inheritance Tax
62. Enforcement And Collection Of Personal Income Taxes Is The Responsibility Of
The
A. Treasury Department
B. Individual State Governments
C. Federal Reserve System
D. Internal Revenue Service
E. Department Of Labor
63. The Federal Government Uses Taxes To
A. Generate Revenue
B. Encourage Saving For Education And Retirement
C. Discourage Certain Behaviors
D. Promote The Purchase Of Houses
E. Do All Of The Above
64. The 1986 Tax Reform Act ________ The Number Of Tax Brackets And _______
The Highest Tax Bracket.
A. Increased; Increased
B. Increased; Decreased
C. Decreased; Increased
D. Decreased; Decreased
E. Decreased; Did Not Change
65. Since 2004, The Highest Personal Income Tax Bracket Has Been
A. 10%
B. 15%
C. 25%
D. 28%
E. 35%
66. The Economic Growth And Taxpayer Relief Reconciliation Act Passed By
Congress And Signed By President George W. Bush Did Which Of The Following?
A. Immediately Cut Federal Tax Rates By One-Third
B. Gave A $300 Check To Each Taxpayer
C. Decreased The Tax On Income From Financial Investments
D. Decreased The Federal Budget Deficit
E. Increased The Number Of Personal Income Tax Brackets
67. The First Budget Surplus Since 1969 Occurred In
A. 1993
B. 1995
C. 1998
D. 1999
E. 2000
68. The Budget Surpluses Of The Late 1990’s And The Early 2000’s Could Be
Attributed To Which Of The Following Government Policies?
A. The Value Added Tax Act
B. The Tax Reform Act Of 1986
C. The Economic Growth And Taxpayer Relief Reconciliation Act
D. Increased Government Debt
E. All Of The Above
69. If A Government Bond With A Maturity Value Of $10,000 Sells For $9,000 And
Pays Annual Interest Of $1,000, What Is The Rate Of Interest On The Bond?
A. 1%
B. 10%
C. 11.1%
D. 88.9%
E. 90%
70. An Increase In Government Borrowing Will Cause Which Of The Following?
A. A Decrease In The Demand For Loanable Funds
B. A Decrease In The Supply Of Bonds
C. An Increase In The Interest Rate
D. An Increase In The Price Of Bonds
E. All Of The Above
71. Federal Debt Reduction Will Cause Which Of The Following?
A. A Decrease In The Interest Rate
B. An Increase In Private Investment
C. A Decrease In The Supply Of Bonds
D. An Increase In The Price Of Bonds
E. All Of The Above
72. The Federal Government Ended Its Most Recent Period Of Budget Surpluses And
Returned To Deficits In
A. 1999
B. 2000
C. 2001
D. 2002
E. 2003
73. The Federal Deficit Was Increased In 2002 As A Result Of
A. The 2001 Recession
B. The War On Terrorism
C. The 2001 Tax Cut
D. Increased Defense Spending
E. All Of The Above
74. Retiring The Federal Debt Will
A. Decrease The Supply Of Government Bonds
B. Increase Government Bond Prices
C. Lower The Interest Rate On Government Bonds
D. Decrease The Demand For Money
E. Do All Of The Above
True / False Questions
75. The Fears That People Have Concerning Government Are Related To The Size Of
Government And The Distribution Of Taxes.
76. Some Of The Fears That People Have Concerning Government Are Well-Founded
And Some Are Not.
77. Government Expenditures Have Grown Faster Than The Gdp Since 1958,
Representing About Fifty Percent Of Gdp Today.
78. Government Transfer Payments, Such As Public Assistance Payments And Social
Security Payments, Have Been A Constant Percentage Of The Gdp Since 1960.
79. Government Purchases Of Goods And Services Have Remained A Constant
Percentage Of The Gdp For The Last Two Decades.
80. Before An Intelligent Decision Can Be Made About Whether Government Is Too
Large Or Small, The Benefits And Costs Must Be Weighed.
81. An Efficient Level Of Government Expenditures Is That Level Where Net
Benefits To Society Are Maximized.
82. Public Goods And Services Can Be Supplied In The Market Because They Are
Easily Divisible Into Small Units And Can Be Priced To The Individual Demander.
83. The Existence Of Externalities In Production Or Consumption Does Not Negate
The Possibility That These Goods And Services Can Be Supplied Efficiently In The
Market.
84. A Great Deal Of Government Activity Is Based On The Idea That People In
Society Should Determine The Extent To Which The Distribution Of Income Should
Be Altered.
85. The Major Tax Source Of The Federal Government Is The Highly Regressive
Sales Tax.
86. The Federal Income Tax System Results In A Mildly Progressive Tax Structure.
87. The Major Tax Source Of State Governments Is The Property Tax.
88. Progressive Income Tax Rates Are Consistent With The Ability To Pay Principle
Of Taxation But Are Inconsistent With The Tax Criterion Of Economic Efficiency.
89. The Relative Tax Treatment Doctrine Would Call For All Taxpayers To Pay Equal
Taxes.
90. Since Gasoline Taxes Are Used Primarily To Finance Highways, Gasoline Taxes
Can Be Defended On The Benefits Received Principle Of Taxation.
91. The Excess Tax Burden Is In The Form Of The Loss In Private Production That
May Take Place If Incentives To Work And To Produce Are Discouraged.
92. A Tax Levied On Each Unit Produced Will Likely Be Shifted Forward And
Backward Depending Upon The Elasticities Of Demand And Supply.
93. If An Output Tax Is Levied On A Product That Has A Perfectly Elastic Demand,
The Tax Will Be Shifted Completely To The Consumer In The Form Of Higher
Prices.
94. Federal Budget Deficits Occurred Throughout The 1970's And 1980's But In The
Late 1990's Deficits Turned Into Budget Surpluses.
95. The Tax Reform Act Of 1986 Increased The Highest Marginal Tax Rate To 50%
From 38%.
96. In General, A Tax Levied On Net Income Of A Corporation Would Be Shifted To
Consumers In The Short Run.
97. Tax Equity Would Probably Be Reduced If Federal Tax Exclusions, Such As
Interest On State And Local Government Securities, Were Eliminated.
98. Demand For Public Goods And Services Is Not Generally Divisible On The Basis
Of Individual Quantity Demanded.
99. The Tax Base Is What A Tax Is Levied On, Such As Income, Sales, Or The Value
Of Property.
100. Regressive Tax Rates Mean That The Ratio Of Tax Collection To Income Rises
As Income Rises.
101. Tax Equity Means That All People Should Pay Equal Taxes.
102. An Output Tax Will Be Shifted Completely Forward If Demand Is Price Elastic.
103. According To The Equimarginal Principle, The Efficient Level Of Government
Expenditures Occurs When The Benefit Of The Last Dollar Spent For Each Purchase
Is Greater Than The Last Dollar Of Cost.
104. When Marginal Benefits Equal Marginal Costs Then Net Benefits Are
Maximized.
105. Horizontal Equity Means That People In Identical Economic Positions Should
Pay Equal Taxes.
106. Transfer Payments Are Government Expenditures For Currently Produced Goods
And Services.
107. In The Absence Of Externalities, Government Actions Are Needed To Ensure
The Efficiency Of The Market System.
108. According To The Equal Tax Treatment Doctrine, People In Identical Economic
Circumstances Should Pay Equal Taxes.
109. The Equal Tax Treatment Doctrine Pertains To Vertical Equity.
110. The Federal Tax System Is Much More Progressive Than Is Generally Believed.
111. The Economic Growth And Taxpayer Relief Reconciliation Act, The Job
Creation And Worker Assistance Act, And The Jobs And Growth Tax Relief Act Each
Reduced Effective Tax Rates On Income.
112. The United States Has Not Had A Federal Budget Surplus Since The 1960s.
113. The Personal Income Tax Is The Single Most Important Source Of Tax Revenue
For The Federal Government Of The United States.
114. The Enforcement And Collection Of The Personal Income Tax Is The
Responsibility Of The Internal Revenue Service.
115. There Are Currently 14 Tax Brackets Ranging From 11% To 50%.
116. The Federal Government Uses The Tax Code To Encourage Certain Behaviors.
117. Bond Prices And Interest Rates Are Inversely Related.
118. The First Budget Surplus Since 1969 Occurred In 1998.
119. A Budget Deficit Occurs When Tax Revenues Exceed Government Spending.
120. A Lower Interest Rate Encourages Private Investment Spending.
121. The National Debt Is The Sum Of Past Budget Deficits.
122. The Government Owes Almost One Third Of The National Debt To Itself.
123. An Increase In Government Borrowing Increases The Demand For Loanable
Funds.
124. An Increase In Government Borrowing Increases The Supply Of Loanable
Funds.
125. The Federal Budget Has Been In Deficit Each Year Since The Beginning Of The
1970s.
Chapter 15
Social Security And Medicare: How Secure Is Our Safety Net For The Elderly?
Multiple Choice Questions
1. Government Programs That Guarantee Citizens Financial Benefits For Events
Beyond Their Personal Control And That Are Financed Through Tax Revenues Are
Called
A. Social Insurance Programs
B. Entitlement Programs
C. Private Insurance Programs
D. Welfare Programs
E. Transfer Programs
2. The Largest Social Insurance Program In The United States Is
A. Temporary Assistance For Needy Families
B. Social Security
C. Medicaid
D. Federal Flood Insurance
E. Job Corps
3. The Most Significant Factor That Threatens The Financial Stability Of The Social
Security System Is The
A. Increasing Number Of Young Workers
B. Relatively High Rates Of Social Security Taxes
C. Population Bulge Created By The "Baby Boom" Generation
D. Generosity Of Current Social Security Benefits
E. Threat Of Foreign Workers Entering The U.S. Due To Nafta
4. Which Of The Following Nations Was The First To Offer Its Citizens A Modern
Social Insurance Program?
A. United States
B. Great Britain
C. Russia
D. Germany
E. Japan
5. In The United States, Social Security Was Established In When President Signed
The Social Security Act Into Law.
A. 1903; Theodore Roosevelt
B. 1929; Herbert Hoover
C. 1965; Lyndon Johnson
D. 1865; Abraham Lincoln
E. 1935; Franklin Roosevelt
6. Which Of The Following Statements Is Concerning The Scope Of The Social
Security Program?
A. Social Security Has Narrowed Its Scope Over Time To Focus On The Economic
Stability Of The Individual
B. The Scope Of Social Security Has Remained Constant Throughout Its History
C. Social Security Has Broadened Its Scope Over Time To Focus On The Economic
Stability Of The Family
D. The Scope Of Social Security Has Always Focused On The Family Unit
E. None Of The Above
7. How Many Americans Receive A Monthly Check From The Social Security
Administration?
A. Fewer Than 10 Million
B. More Than 50 Million
C. About 27 Million
D. Roughly 38 Million
E. More Than 100 Million
8. As Originally Designed, Social Security Was To Be Financed As A
A. Private Insurance Program
B. Pure Income Transfer Program
C. Pay-As-You-Go Insurance Program
D. Fully-Funded Insurance Program
E. Means-Tested Benefits Program
9. How Are Social Security Tax Revenues Allocated Today?
A. They Are Used To Pay Today's Social Security Beneficiaries, And Any Extra Is
Placed Into The Social Security Trust Fund
B. All Of Today's Revenues Are Placed In The Social Security Trust Fund To Pay For
Tomorrow's Beneficiaries
C. Tax Revenues Are Placed Into Accounts For Each Worker Who Will Draw Upon
The Balance When They Retire
D. The Revenues Are Invested In Government Securities And In The Stock Market
E. No One Really Knows
10. Current Projections Estimate That The Social Security Trust Fund Will Be
Completely Depleted
A. In Late 2003
B. During 2010-2020
C. In About 100 Years
D. Around 2100
E. Before 2040
11. Given The Way Social Security Is Financed, Which Of The Following Is ?
A. Social Security Results In A Transfer Of Income From The Old To The Young
B. Social Security Results In A Transfer Of Income From The Young To The Old
C. Social Security Has A Neutral Effect On The Nation's Income Distribution
D. The Purchasing Power Of The Elderly Has Been Diminished By Social Security
Taxes
E. (A) And (D)
12. Social Security Taxes Are
A. Paid Only By Workers
B. Levied On Salaries And Wages
C. Paid Only By Employers
D. Paid By Both Workers And Employers
E. (B) And (D)
13. Currently, The Total Combined Tax Rate Collected By Social Security Is
A. 21.6% Of Earnings
B. 15.3% Of Earnings
C. 7.65% Of Earnings
D. 6.20% Of Earnings
E. 1.45% Of Earnings
14. Which Of The Following Is Concerning Social Security's Retirement Benefit
Structure?
A. All Eligible Retired Workers Are Entitled To The Same Benefits
B. High Wage Workers Receive A Greater Percentage Of Past Earnings In Benefits
Than Low Wage Workers
C. Retired Female Workers Are Entitled To Higher Benefits Than Retired Male
Workers
D. Low Wage Workers Receive A Greater Percentage Of Past Earnings In Benefits
Than Do High Wage Workers
E. Retired Workers Living In Cities Receive Larger Benefits Than Those Living In
Rural Areas
15. Most Of Today's College Student Population Will Be Eligible To Receive Full
Social Security Retirement Benefits When They Reach The Age Of
A. 62
B. 65
C. 67
D. 70
E. 72
16. The Cost Of Living Adjustment (Cola) Employed By Social Security Is Based On
The
A. Current Level Of Gdp
B. Local Rate Of Inflation
C. Consumer Price Index
D. Producer Price Index
E. Annual Poverty Threshold
17. How Many Elderly Households Receive Social Security Benefits?
A. More Than 90%
B. Less Than 50%
C. About 75%
D. Only About 15%
E. None Of The Above
18. Which Of The Following Statements Is ?
A. 20% Of Elderly Households Receive Social Security As Their Only Source Of
Income
B. Approximately 90% Of Elderly Households Receive Social Security Benefits
C. Just Under 30% Of Elderly Households Receive Private Pension Benefits
D. For Nearly Two Thirds Of Elderly Households, Social Security Represents More
Than 50% Of Total Income
E. None Of The Above. All Are
19. If People Choose To Work Fewer Hours Because The Social Security Tax Reduces
Their Real Wage, Their Behavior Is Dominated By The
A. Substitution Effect
B. Bequest Effect
C. Income Effect
D. Wealth Effect
E. Real Wage Effect
20. If People Choose To Work More Hours Because The Social Security Tax Reduces
Their Real Wage, Their Behavior Is Dominated By The
A. Substitution Effect
B. Bequest Effect
C. Income Effect
D. Wealth Effect
E. Real Wage Effect
21. Empirical Evidence Suggests That Social Security Has _______ The Overall
Supply Of Labor.
A. Had No Effect On
B. Reduced
C. Increased
D. Stimulated
E. Done None Of The Above To
22. Social Security May Increase The Level Of Personal Saving Due To
A. The Retirement Effect
B. The Bequest Effect
C. The Wealth Substitution Effect
D. (A) And (B)
E. (B) And (C)
23. Empirical Studies Indicate That Social Security Has
A. Increased The Level Of Personal Savings
B. Had A Neutral Effect On The Level Of Personal Savings
C. Reduced The Level Of Personal Savings
D. Increased The Number Of Older Workers
E. Raised The Average Age At Which Workers Choose To Retire
24. The Effect Of Social Security On Personal Savings Is Important Because
A. The Level Of Savings Determines The Pool Of Investment Funds
B. Savings Are Necessary To Finance The Social Security Trust Fund
C. Personal Savings Are Negatively Related To Economic Growth
D. Savings Are A Major Source Of Income For All Elderly Households
E. The Level Of Savings Reflects The Magnitude Of Future Consumption
25. Why Can't Social Security Rely On A Strict Pay-As-You-Go Financial Structure?
A. The Current Generation Of Workers Is Too Small To Support Future Retirees
B. A Pay-As-You-Go Financial Structure Is Inherently Unstable
C. The Current Generation Of Retirees Will Bankrupt The System Before The "Baby
Boom" Retires
D. Inflation Erodes The Value Of Contributions That Must Be Saved To Pay Future
Retirees
E. None Of The Above
26. The Most Simple And Direct Way To Postpone The Looming Social Security
Financial Crisis Is To
A. Invest Social Security Taxes In The Stock Market
B. Raise Social Security Taxes And/Or Lower Benefits
C. Privatize The Social Security Administration
D. Eliminate The Social Security System And Force Everyone To Buy Private
Insurance
E. Subsidize Social Security With General Tax Revenues
27. The Most Significant Argument Against Privatizing Social Security Is That
A. Benefits Would Have To Be Cut
B. It Has Not Worked In Other Countries
C. Future Benefits Levels Cannot Be Guaranteed
D. It Is Too Complicated To Be Practical
E. Taxes Would Have To Be Raised
28. Why Do Some People Favor Investing The Social Security Trust Fund In The
Stock Market?
A. Because For Most Beneficiaries The Historic Return On Their Social Security
Taxes Has Been Less Than What Would Have Been Earned If Those Dollars Were
Invested In The Stock Market
B. Because Investment In The Stock Market Will Guarantee Higher Rates Of Return
Over The Long Run For All Retirees
C. Because Investments In The Stock Market Carry Very Little Risk And Offer The
Potential For Excessive Short-Run Gains With Little Or No Potential For Loss
D. Because The Stock Market Offers The Safest Form Of Investment
E. All Of The Above
Questions 29 - 33 Refer To The Graph Below.
29. The Results Of The Retirement Effect Are Illustrated On The Graph As A
Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above
30. The Results Of The Bequest Effect Are Illustrated On The Graph As A Movement
From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above
31. The Results Of The Wealth Substitution Effect Are Illustrated On The Graph As A
Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above
32. A Change In Consumption From Ce To Cf Could Be Caused By Which Of The
Following?
A. The Bequest Effect
B. The Retirement Effect
C. The Wealth Substitution Effect
D. All Of The Above
E. None Of The Above
33. A Movement From Point E To Point F As A Result Of Social Security Would
Result In Which Of The Following Costs To Society? A Long-Run Movement To
A. Ppc Cd Rather Than Gh
B. Ppc Gh Rather Than Cd
C. Point B Rather Than Point A
D. Point A Rather Than Point B
E. If To Cf
34. If I Start Saving More During My Working Life Because I Anticipate Retiring
Earlier Thanks To Social Security, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above
35. If I Spend More Each Year Because I Know That I Will Receive Social Security
Payments When I Retire, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above
36. If I Put Extra Into A Savings Account So That I Can Leave Assets To My Children
To Compensate Them For Their Payments Into The Social Security System, I Am
Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above
37. If Inflation Increases, What Will Happen To The Social Security Cola? It Will
A. Expire
B. Increase
C. Decrease
D. Be Divided Among Social Security Recipients
E. Be Added To The Social Security Trust Fund
38. "An Agreement To Pay A Premium To A Company In Return For A Guarantee Of
Financial Benefits In The Event Of An Undesired Circumstance" Defines
A. Social Insurance
B. Private Insurance
C. Private Investment
D. Asset Management
E. Retirement Savings
39. Social Insurance Uses Tax Revenues To Guarantee Citizens Financial Benefits For
Events Including
A. Old Age
B. Disability
C. Poor Health
D. Death Of A Spouse
E. All Of The Above
40. If A Program's Benefits Are Funded By Interest Earned On Accumulated
Payments, It Is Which Type Of System?
A. An Investment System
B. A Fully Funded Scheme
C. An Interest Scheme
D. A Pay-As-You-Go System
E. An Endowed System
41. If A Program's Benefits Are Funded Out Of Current Payments, It Is Which Type
Of System?
A. An Investment System
B. A Fully Funded Scheme
C. A Pyramid Scheme
D. A Pay-As-You-Go System
E. An Endowed System
42. When Was The Medicare Program Established?
A. 1935
B. 1945
C. 1955
D. 1965
E. 1975
43. Today, The Health Care Sector Of The U.S. Economy Accounts For About Percent
Of National Income.
A. 3
B. 5
C. 8
D. 12
E. 18
44. A Person With Health Insurance Will Tend To
A. Have A Lower Demand For Health Care Services
B. Have A Much Greater Concern For Preventive Care
C. Buy A Lower Quantity Of Health Care At A Higher Price
D. Demand More Health Care Services Than A Person Without Insurance
E. Do None Of The Above
45. The Payment And Delivery Of Health Care Service Under A Managed Care
System Is Based On
A. A Fee-For-Service Market Principle
B. A Prearranged Schedule Of Fixed Prices
C. The Ability To Pay Principle
D. Price Negotiation Between The Consumer And Provider
E. None Of The Above
46. The Medicare Program
A. Was Established As A Socialistic Takeover Of Health Care Providers
B. Has Reduced The Demand For Health Care Services
C. Affects Persons 65 And Older, Regardless Of Income
D. Enrolls All Poor People Regardless Of Age
E. Does None Of The Above
47. Part C Of The Medicare Program (Medicare + Choice)
A. Provides Health Care Plan Choices To The Beneficiaries Of Medicare
B. Restricts Medicare Beneficiaries To A Simple Fee-For-Service Health Care Plan
C. Provides Comprehensive Health Insurance Coverage For All Poor People
D. Is Only Available To Disabled Retirees Receiving Social Security
E. Does None Of The Above
48. A Potential Benefit Of Managed Care Plans To Medicare Enrollees Is That These
Plans
A. Typically Require Less Cost Sharing
B. Provide A Higher Quality Of Health Care
C. Provide A Greater Quantity Of Health Care
D. Require Less Paper Work
E. Do All Of The Above
49. Part A Of The Medicare Program (Hospital Insurance) Is Financed Primarily By
A. A Monthly Premium
B. A 2.9% Tax Levied On Wages And Salaries
C. An Allocation From General Tax Revenues
D. User Fees Paid By Patients
E. Insurance Deductibles
50. What Percent Of The Average Health Care Dollar Spent In The United States
Comes Directly From The Consumer?
A. 100
B. 83
C. 50
D. 34
E. 12
51. Which Of The Following Factors Has Contributed Most To The Tremendous
Increase In Health Care Expenditures Experience In The U.S. During The Past Fifty
Years?
A. Health Care Inflation
B. The Aging Of The Population
C. Increased Public Support For Health Care
D. Private Health Insurance
E. Growth In Medicaid
52. Which Of The Following Receives The Largest Share Of Expenditures Made On
Health Care In The United States?
A. Physicians
B. Nursing Homes
C. Hospitals
D. Personal Health Care Product And Service Providers
E. Pharmacies
53. In A Fee-For-Service Health Care System, Consumers Pay The
A. Insurance Company A Fee Every Time They Use A Service
B. Full Cost Of The Services They Receive
C. Hmo When They Receive Care
D. Doctor A Small Payment Called A "Co-Pay."
E. Prearranged, Fixed Fee For Services They Receive
54. How Are Payments To Health Care Providers Determined Under A Managed Care
System? By The
A. Government
B. Market
C. Insurance Company And The Provider
D. Provider And The Consumer
E. Ama (American Medical Association)
55. Which Of The Following Is An Example Of A Managed Health Plan?
A. Hmo
B. Ppo
C. Pos
D. Physicians Network
E. All Of The Above
Questions 56 - 59 Refer To The Graph Below.
56. With A Market Allocation Of Medical Services, Equilibrium Quantity Will Be
A. 0
B. 50
C. 2,000
D. 2,800
E. 4,000
57. If Medical Care Is Provided Free Of Charge, What Quantity Will Be Demanded?
A. 0
B. 2,000
C. 2,800
D. 4,000
E. An Infinite Amount
58. If Medical Care Is Provided Free Of Charge, What Quantity Will Be Supplied?
A. 0
B. 50
C. 2,000
D. 2,800
E. 4,000
59. The Supply Of Medical Services In This Market Is
A. Elastic
B. Inelastic
C. Unit Elastic
D. Price Elastic
E. Infinite
60. Under Most Insurance Systems, Patients Are Responsible For Which Of The
Following Payments For Health Care Services?
A. Deductible
B. Co-Insurance
C. Fee-For-Service Charges
D. All Of The Above
E. None Of The Above
61. A Patient May Be Required To Pay A Percentage Of The Cost Of Their Health
Care Above The Fixed Fee They Pay. This Is Known As
A. The Deductible
B. Co-Insurance
C. Fee-For-Service
D. The Health Care Tax
E. Medicare Tax
62. If Your Insurance Company Agrees To Pay A Fixed Fee For You To Receive A
Given Treatment (For Example, $5,000 For An Appendectomy), The Company Is
Using Which Of The Following?
A. A Fee-For-Service System
B. A Managed Care System
C. A Co-Insurance System
D. A Prospective Payment System
E. A Social Insurance System
63. If Your Deductible Is $200 And You Pay Co-Insurance Of 20%, How Much Will
You Have To Pay For A $3,000 Hospital Stay?
A. $200
B. $560
C. $600
D. $760
E. $800
64. If Your Deductible Is $400 And You Have Co-Insurance Of 25%, How Much Will
You Have To Pay For A $5,000 Hospital Stay?
A. $400
B. $1,150
C. $1,250
D. $1,550
E. $1,650
Questions 65 - 69 Refer To The Graph Below.
65. If Patients Pay The Full Price For Office Visits, What Price Will Be Charged In
The Market?
A. $0
B. $25
C. $50
D. $75
E. More Than $75
66. If Patients Pay The Full Price For Of Office Visits, How Many Office Visits Will
They Make?
A. 0
B. 30
C. 50
D. 70
E. More Than 70
67. If A Third Party Guarantees A Maximum Patient Price Of $25, What Quantity Of
Office Visits Will Patients Demand?
A. 0
B. 30
C. 50
D. 70
E. More Than 70
68. If A Third Party Guarantees A Maximum Patient Price Of $25, What Total Price
Must Be Paid Per Office Visit To Assure The Quantity Of Office Visits Demanded
Will Be Provided?
A. $0
B. $25
C. $50
D. $75
E. More Than $75
69. If A Third Party Guarantees A Maximum Patient Price Of $25, How Much Must
The Third Party Pay Per Office Visit?
A. $0
B. $25
C. $50
D. $75
E. More Than $75
70. Health Insurance Results In
A. An Increase In The Quantity Of Health Care Demanded
B. An Increase In The Quantity Of Health Care Provided
C. An Increase In The Total Cost Of Providing Health Care
D. All Of The Above
E. None Of The Above
71. The Medicare Modernization Act, Passed In 2003, Established
A. The First Long Term Care Coverage For Medicare Recipients
B. Lowered Deductibles For Most Medicare Recipients
C. Added A Prescription Drug Benefit To The Medicare Program
D. Instituted Stringent Price Controls On The Fees Doctors And Hospitals Can Charge
E. Restricted The Benefits That High Income Medicare Recipients Can Receive
72. The Prescription Drug Benefit That Is Part Of The Medicare Modernization Act
Of 2003 Requires That Recipients Pay:
A. A Monthly Premium
B. A Co-Pay
C. A Deductible
D. All Of The Above
E. None Of The Above, These Benefits Are Provided To Recipients At No Charge
True / False Questions
73. Social Insurance Is Private Insurance Purchased By The Government.
74. Programs That Provide Citizens With Benefits For Events That Are Beyond An
Individual Person's Control Are Called Social Insurance Programs.
75. Both Social Security And Medicare Are Social Insurance Programs.
76. The Major Underlying Factor That Endangers Social Security's Financial Stability
Is The Population Bulge Created By The "Baby Boom" Generation.
77. The United States Was The First Nation To Provide Social Insurance Programs
For Its Citizens.
78. The Original Design Of The Social Security System Called For A Pay-As-You-Go
Financing Scheme.
79. The Social Security Act Was Signed Into Law By President Franklin Roosevelt In
1935.
80. Over Time, Social Security Has Evolved To Focus More On The Family And Less
On The Individual.
81. Currently, About 20 Million Americans Receive Social Security Benefits.
82. All American Citizens Are Entitled To Receive Social Security And Medicare
Benefits When They Retire.
83. Today, Social Security Is Financed Under A Pay-As-You-Go Financial System.
84. All Current Social Security Taxes Collected By The Government Are Used To Pay
Current Beneficiaries, With Nothing Left Over.
85. Social Security And Medicare Are Financed Through A Flat Tax On Wages Paid
Up To A Predetermined Limit.
86. Workers And Their Employers Share The Burden Of Social Security Taxes.
87. The Social Security Trust Fund Currently Has A Negative Balance.
88. Social Security Benefits Are Adjusted Each Year For Inflation Using The
Consumer Price Index (Cpi).
89. About 50% Of All Elderly Households Receive Some Form Of Social Security
Benefits.
90. Today, In The Aggregate, Social Security Accounts For Over 35% Of Senior
Citizens' Income.
91. Without Social Security, Nearly 50 Percent Of Elderly Households Would Live
Below The Poverty Threshold.
92. The Substitution Effect Of Social Security Taxes Causes Some People To Work
More Hours.
93. The Income Effect Of Social Security Taxes Causes Some People To Work Less
Hours.
94. Studies Show That Social Security Has Caused Some Workers To Retire Earlier
Than They Would If Social Security Did Not Exist.
95. The Bequest Effect Of Social Security Causes Some People To Save Less During
Their Lifetimes.
96. The Empirical Evidence Suggests That, Overall; Social Security Causes People To
Increase Their Personal Savings.
97. Because Social Security Increases Savings, More Funds Are Available For
Investment In The Overall Economy.
98. Current Estimates Indicate That The Social Security Trust Fund Will Be Depleted
Before 2040.
99. A Modest Increase In Taxes Could Postpone Social Security's Financial Crisis For
Decades.
100. Privatization Of The Social Security System Would Reduce The Financial Risks
Faced By Retiring Workers.
101. Chile And Other Nations Have Successfully Privatized All Or Part Of Their
Social Insurance Programs.
102. Oasdi Is Social Security's Medical Insurance Program.
103. The Most Important Factor Explaining The Growth In Personal Health Care
Expenditures On Hospital And Physician Services Is Higher Prices For These
Services.
104. Third-Party Payments Increase The Efficiency Of Medical Markets.
105. A Dominant Feature Of The U.S. Health Care Industry Is Price Competition
Among Providers.
106. Medicare And Medicaid Have Reduced The Demand For Health Care Services.
107. The Purpose Of A Prearranged Payment And Delivery System, Such As A
Managed Care Plan, Is To Take Away Any Incentive For The Provider To Supply
Unnecessary Care.
108. The Demand For Health Services Is Characterized By Well-Informed
Consumers.
109. The Medicare Program Affects Persons Aged 65 And Older, Regardless Of Their
Income Level.
110. A Consumer With Health Insurance Is Likely To Buy More Health Services Than
One Who Is Not Insured.
111. A Reduction In The Price Of Medical Services Will Cause The Demand Curve
To Shift To The Right.
112. Health Care Providers Are Paid The Amount Of A Patient's Deductible By The
Health Insurance Company.
113. The Amount A Patient Must Pay Above The Deductible Is Known As CoInsurance.
114. Projections Indicate That The Medicare Hi Program Will Be Depleted Of Funds
By 2025.
115. More Than 70% Of All Privately Insured Employees Are Covered By Managed
Care Plans.
116. The Medicare Program Could Be Secured By An Increase In The Payroll Tax
That Supports The Program.
117. The Medicare Program Could Be Secured By Increasing Premiums, Deductibles
And Co Payments.
118. Medicare's Fee-For-Service Plan Provides Incentives For Supplying Excessive
Services.
119. Managed Care Plans Provide Incentives For Supplying Excessive Services.
120. Third-Party Payments For Health Care Increase The Quantity Of Services
Demanded.
121. Third-Party Payments For Health Care Decrease The Price Consumers Pay For
Services.
122. The Fee-For-Service Delivery And Payment System Is The Primary Means By
Which Most Elderly Americans Receive Their Health Care.
123. Third-Party Payments For Health Care Result In Less Usage Of The Health
Care System.
124. Managed Care Leads To Higher Costs Of Providing Health Care Services.
125. Investments Of Social Security Tax Payments Result In High Returns On The
Contributions Made By Taxpayers.
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Quiz 10 Chapter 14 and 15
Government Spending, Taxation, And The National Debt: Who Wins And Who
Loses?
Multiple Choice Questions
1. The Fears Of People Concerning The Size Of Government Are
A. Always Without Any Foundation
B. Well-Founded In Some Instances And Not Well-Founded In Some Instances
C. Difficult To Appreciate
D. Due To Low Income And Low Educational Levels Of Many People
E. Based Solely On Economic Efficiency
2. The Fears Of People Concerning Distribution Of Taxes Are Related To
A. Equity Or Justice In Taxation
B. Ample Evidence That There Are Tax Inequities In The Tax System At All Levels
Of Government
C. The Complete Lack Of Understanding That People Have About The Purpose Of
Taxes
D. Both (A) And (B)
E. All Of The Above
3. Total Government Expenditures Currently Represent Approximately What
Percentage Of Gdp?
A. 20%
B. 30%
C. 40%
D. 50%
E. 10%
4. A Cash Payment From The Government To An Individual, Based On Need, Is An
Example Of A
A. Transfer Payment
B. Government Purchase Of A Service
C. Government Purchase Of A Good
D. Transaction Payment
E. Government Receipt
5. A Payment From The Government To A Federal Employee Is A
A. Transfer Payment
B. Government Purchase Of A Service
C. Government Purchase Of A Good
D. Transaction Payment
E. Government Receipt
6. An Efficient Level Of Government Expenditures Is That Level Where
A. Total Costs Are Minimized
B. Total Benefits Are Maximized
C. Marginal Benefits Are Equal To Marginal Costs
D. Marginal Benefits Are Greater Than Marginal Costs
E. Marginal Benefits Are Less Than Marginal Costs
7. Public Goods And Services Have Characteristics That Make Them
A. Possible To Exclude People From Consuming Them
B. Less Available For One Person When Another Consumes Them
C. Easy To Provide Through Private Markets
D. All Of The Above
E. None Of The Above
8. The Size Of Government Is Growing At
A. A Slower Rate Than The Rest Of The Economy
B. Approximately The Same Rate As The Rest Of The Economy
C. A Faster Rate Than The Rest Of The Economy
D. Twice The Rate Of The Rest Of The Economy
E. A Negative Rate
9. Assuming Negative Externalities In Production, The Type Of Government Action
That Could Bring About An Efficient Level Of Production Would Be
A. A Tax Levied On Each Unit Produced Equal To Marginal External Costs
B. A Tax Levied On Each Unit Produced Greater Than Marginal External Costs
C. A Subsidy To Consumers Equal To Marginal External Benefits
D. A Subsidy To Consumers Greater Than Marginal External Benefits
E. None Of The Above
10. Assuming Positive Externalities In Consumption, The Type Of Government
Action That Could Bring About An Efficient Level Of Production Would Be
A. A Tax Levied On Each Unit Produced Equal To Marginal External Costs
B. A Tax Levied On Each Unit Produced Greater Than Marginal External Costs
C. A Subsidy On Each Unit Consumed Equal To Marginal External Benefits
D. A Subsidy On Each Unit Consumed Greater Than Marginal External Benefits
E. None Of The Above
11. Shifting Income From Those Who Are Relatively Productive To Those Who Are
Relatively Unproductive, Say Through Taxes And Subsidies, Must Be Based On
A. Sound Economic Principles
B. The Laws Of Demand And Supply
C. The Values Of People As To What Constitutes A "Fair" Distribution Of Income
D. Marginal Cost And Marginal Benefit
E. Both (A) And (D)
12. A National Crime Lab Used To Prevent Criminal Activity Nationwide Is An
Example Of A
A. Negative Externality
B. Positive Externality
C. Transfer Payment
D. Public Good
E. Private Good
13. Tax Equity Means That
A. All People Should Pay Equal Taxes
B. Only The "Rich" Should Pay Taxes
C. People In The Same Economic Circumstances Should Pay Equal Taxes, And
People In Different Economic Circumstances Should Pay Unequal Taxes
D. The Distribution Of Income After Taxes Should Be Equal
E. None Of The Above
14. An Efficient Tax Would Be A Tax For Which
A. The Excess Burden" From Taxes Is Zero
B. Taxes Should Have A Neutral Effect On The Operation Of The Economy
C. Taxes Should Be Levied At Progressive Rates
D. (A) And (B)
E. All Of The Above
15. According To The Equimarginal Principle, The Efficient Level Of Government
Expenditures Occurs When The Benefit Of The Last Dollar Spent For Each
Government Purchase Is
A. Greater Than The Benefit Of The Last Dollar Spent In The Private Sector
B. Less Than The Benefit Of The Last Dollar Spent In The Private Sector
C. Equal To The Benefit Of The Last Dollar Spent In The Private Sector
D. Paid For Out Of Current Tax Collections
E. None Of The Above
16. An Efficient Level Of Government Expenditures Is That Level At Which
A. Marginal Benefits Exceed Marginal Costs
B. Total Benefits Equal Total Costs
C. The Net Benefits To Society Are Maximized
D. The Total Costs Are Minimized
E. None Of The Above
17. Where Marginal Benefits Are Greater Than The Marginal Costs, Government
Expenditures Should
A. Be Increased
B. Remain The Same
C. Be Decreased Then Increased To Their Original Level
D. Be Increased Then Decreased To Their Original Level
E. Do None Of The Above
18. Characteristics Of Public Goods And Services Include Which Of The Following?
A. The Demand For These Goods And Services Is Divisible On The Basis Of
Individual Quantity Demanded
B. The Supply Of These Goods And Services Is Generally Not Divisible Into Small
Units
C. These Goods And Services Are Easily Provided By The Market System
D. The Costs Of These Goods Fall On Other Than The Buyer
E. None Of The Above
19. Which Of The Following Is An Example Of A Public Good Or Service?
A. A Public Highway
B. Free Cheese Offered By The Government
C. Food Stamps
D. Social Security
E. Automobiles
Questions 20 - 24 Refer To The Graph Below.
20. Assuming No External Benefits Or Costs, The Efficient Price And Quantity
Would Be
A. P2, Q2
B. P2, Q1
C. P1, Q1
D. P0, Q0
E. P0, Q2
21. Suppose There Are External Benefits Associated With The Production Of The
Good. The Efficient Price And Quantity Are
A. P2, Q2
B. P2, Q1
C. P1, Q1
D. P0, Q0
E. P0, Q2
22. If External Benefits Are Associated With The Consumption Of The Good,
Consumers Could Be Induced To Purchase The Efficient Quantity If The Price Were
Set At
A. P2
B. P1
C. P0
D. 0
E. None Of The Above
23. To Assure Consumers Purchase The Efficient Quantity When There Are Positive
External Benefits, The Government Would Lower Price To
A. P2
B. P1
C. P2- P1
D. P0- P1
E. P0
24. Marginal External Benefits Are Represented On The Graph As The Distance
A. Ab
B. Q2a
C. Ea
D. Cf
E. Af
25. Which Of The Following Is The Major Tax Source Of The Federal Government?
A. Income Taxes
B. Excise Taxes
C. Property Taxes
D. Wealth Taxes
E. Sales Taxes
26. A Progressive Tax Rate Means That The Ratio Of Tax Collections To Income
A. Falls As Income Rises
B. Rises As Income Rises
C. Remains The Same As Income Rises
D. Either (A) And (B)
E. May Fall, Rise, Or Remain The Same As Income Rises
27. In The Us, Major Sources Of Tax Revenues Are:
A. Income Taxes At The Federal Level, Property Taxes At The State Level
B. Sales Taxes At The Federal Level And Income Taxes And Property Taxes At The
State Level
C. Income Taxes At The Federal Level And Income And Sales Taxes At The State
Level
D. Income Taxes At The Federal Level And Payroll Taxes At The State Level
28. The Ability To Pay The Principle Of Taxation Suggests That People With More
Income Should Pay More Taxes. This Means That
A. Progressive Income Rates Are Consistent With The Ability To Pay Principle
B. Proportional Income Rates Are Consistent With The Ability To Pay Principle
C. Regressive Income Rates May Or May Not Be Consistent With The Ability To Pay
Principle Depending On The Rate Of Regression
D. Sales Taxes Are Consistent With The Ability To Pay Principle
E. None Of The Above
Questions 29 - 33 Refer To The Graph Below.
29. The Demand Curve For This Product Can Be Described As
A. Perfectly Elastic
B. Perfectly Inelastic
C. Unitary Elastic
D. Hyper Elastic
E. Price Elastic
30. Given Demand Curve D, If An Output Tax Per Unit Of P- P2 Is Levied On This
Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. It Can Not Be Determined
31. Which Of The Following Shifts Represents The Effect Of An Output Tax Levied
On This Good?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above
32. Which Of The Following Shifts Represents The Effect Of A Tax On This Good
Levied Independent Of Output?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above
33. Given Demand Curve D, If A Tax Independent Of Output Is Levied On This
Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined
Questions 34 - 38 Refer To The Graph Below.
34. The Demand Curve For This Product Can Be Described As
A. Perfectly Elastic
B. Perfectly Inelastic
C. Unitary Elastic
D. Hyper Elastic
E. Price Elastic
35. Given Demand Curve D, If An Output Tax Per Unit Of P- P1 Is Levied On This
Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined
36. Which Of The Following Shifts Represents The Effect Of An Output Tax Levied
On This Good?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above
37. Which Of The Following Shifts Represents The Effect Of A Tax On This Good
Levied Independent Of Output?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above
38. Given Demand Curve D, If A Tax Independent Of Output Is Levied On This
Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined
39. An Output Tax Will Be Shifted Completely
A. Backward If Demand Is Price Inelastic
B. Forward If Demand Is Perfectly Price Inelastic
C. Forward If Demand Is Price Elastic
D. Backward, Regardless Of Elasticity
E. All Of The Above
40. A Tax Levied Independent Of Output, Such As A Tax Levied On Net Income Of
Corporations, Will
A. Be Shifted If Demand Is More Elastic Than Supply
B. Be Shifted If Supply Is More Elastic Than Demand
C. Not Be Shifted In The Short Run If The Most Profitable Output Has Been Selected
Before The Tax
D. Be Shifted In The Short Run If The Most Profitable Output Has Been Selected
Before The Tax
E. Do None Of The Above
41. Government Borrowing Is Argued To Have The Effect Of Raising Interest Rates
—The "Crowding-Out Effect." In Conjunction With Government Spending, Does
Government Spending And Borrowing Have A Positive Or Negative Impact On The
Economy?
A. Negative, Since Borrowing Exceeds Spending
B. A Positive Impact, Since Expenditures Often Exceed Borrowing
C. A Neutral Effect, Since The Budget Is Always In Balance
D. Government Spending And Borrowing Have A Minimal Effect On The Economy
E. Government Spending And Borrowing Must Be Considered Separately
42. The Gasoline Tax Is Often Used To Illustrate The Benefits Received Principle Of
Taxation Because
A. Everyone Benefits From The Gasoline Tax
B. Those Who Pay The Tax Receive Benefits, Since The Revenues Are Used For
Road And Highway Construction And Maintenance
C. The Amount We Pay Is Consistent With Our Incomes
D. Everyone Knows When They Pay The Tax
E. The Gasoline Tax Is A Poor Example Of The Benefits Received Principle
43. Vertical Equity Implies That
A. People In Different States Should Pay The Same Taxes
B. People With Comparable Incomes Should Pay The Same Taxes
C. People In Different Economic Circumstances Should Pay Different Amounts
D. Taxes Should Rise As The Size Of Your Family Increases
E. Taxes Should Be Based Upon How Tall The Taxpayer Is
44. Proportional Tax Rates Mean That The Ratio Of Tax Collection To Income
A. Falls As Income Rises
B. Rises, As Income Rises
C. Remains The Same As Income Rises
D. Rises As Income Falls
E. Falls As Income Falls
45. Regressive Tax Rates Mean That The Ratio Of Tax Collections To Income
A. Falls As Income Rises
B. Rises As Income Rises
C. Remains The Same As Income Rises
D. Remains The Same As Income Falls
E. Falls As Income Falls
46. The Us Federal Personal Income Tax Is An Example Of A(N)
A. Regressive Tax Rate Structure
B. Proportional Tax Rate Structure
C. Progressive Tax Rate Structure
D. More Regressive Than Proportional Tax Rate Structure
E. Equitable Tax Rate Structure
47. If Demand For A Product Is Perfectly Inelastic, An Output Tax Will Be Shifted
A. Completely Backward
B. Completely Forward
C. Completely To The Poor
D. Completely To The Rich
E. Completely To The Producer
48. A Tax That Is Shifted Forward Is A Tax That Falls On
A. The Consumer In The Form Of Higher Prices
B. The Producer Through Lower Sales
C. The Government
D. Foreign Investors
E. None Of The Above
49. A Tax That Is Shifted Backward Is A Tax That Falls On
A. The Consumer In The Form Of Higher Prices
B. The Owners Of Resources In The Form Of Lower Resource Prices
C. The Government
D. Foreign Investors
E. None Of The Above
50. At The Federal Level, The Largest Revenue Generating Tax Is The
A. Corporate Income Tax
B. Personal Income Tax
C. Property Tax
D. Sales Tax
E. Customs Duty
51. If The Ratio Of Tax Collections To Income Rises As Income Rises, Then The Tax
Rate Is
A. Regressive
B. Proportional
C. Progressive
D. Regressive Then Proportional
E. None Of The Above
52. The Federal Government Lowered Tax Rates In
A. 1986 And 2001
B. 1986
C. 2001
D. Neither Year
E. 1909 And Has Raised Them Ever Since
53. Suppose There Are Two Individuals Who Each Earn $25,000 Per Year. One
Individual Pays $2,500 In Taxes And The Other Pays $2,000. This Is A Violation Of
A. The Benefits Received Principle
B. The Ability To Pay Principle
C. Vertical Equity
D. Horizontal Equity
E. None Of The Above
54. Suppose One Individual Earns $25,000 Per Year And Another Individual Earns
$15,000 Per Year. If The Individual Earning $25,000 Per Year Pays $750 More Per
Year In Taxes Than The Person Earning $15,000, This Is An Illustration Of
A. The Benefits Received Principle
B. The Ability To Pay Principle
C. The Equal Tax Treatment Principle
D. The Equitable Payment Doctrine
E. None Of The Above
55. If We Levy A Tax On Profits That Is Neither Shifted Neither Forward Nor
Backward, It Is
A. An Output Tax
B. An Input Tax
C. A Tax Independent Of Output
D. A Tax Dependent On Output
E. None Of The Above
56. The Federal Tax System In The United States Can Be Described As
A. Regressive
B. Highly Progressive
C. Slightly Progressive
D. Proportional
E. None Of The Above
57. A Tax System That Will Not Alter The Distribution Of Income Is
A. Proportional
B. Regressive
C. Slightly Progressive
D. Very Progressive
E. None Of The Above
58. Which Of The Following Countries Has The Lowest Taxes Collected (As A
Percent Of Gdp)?
A. The United States
B. Germany
C. Italy
D. France
E. The United Kingdom
59. The Highest Effective Federal Tax Rate In The United States Is Approximately
A. 10%
B. 15%
C. 20%
D. 24%
E. 34%
60. The Highest Effective Federal Tax Rate In The United States Falls On Which
Income Category?
A. The Lowest Quintile
B. The Middle Quintile
C. The Top 10%
D. The Top 5%
E. The Top 1%
61. The Single Most Important Source Of Tax Revenue For The Local Governments
In The United States Is The
A. Real Property Tax
B. Personal Income Tax
C. National Sales Tax
D. Cigarette Tax
E. Inheritance Tax
62. Enforcement And Collection Of Personal Income Taxes Is The Responsibility Of
The
A. Treasury Department
B. Individual State Governments
C. Federal Reserve System
D. Internal Revenue Service
E. Department Of Labor
63. The Federal Government Uses Taxes To
A. Generate Revenue
B. Encourage Saving For Education And Retirement
C. Discourage Certain Behaviors
D. Promote The Purchase Of Houses
E. Do All Of The Above
64. The 1986 Tax Reform Act ________ The Number Of Tax Brackets And _______
The Highest Tax Bracket.
A. Increased; Increased
B. Increased; Decreased
C. Decreased; Increased
D. Decreased; Decreased
E. Decreased; Did Not Change
65. Since 2004, The Highest Personal Income Tax Bracket Has Been
A. 10%
B. 15%
C. 25%
D. 28%
E. 35%
66. The Economic Growth And Taxpayer Relief Reconciliation Act Passed By
Congress And Signed By President George W. Bush Did Which Of The Following?
A. Immediately Cut Federal Tax Rates By One-Third
B. Gave A $300 Check To Each Taxpayer
C. Decreased The Tax On Income From Financial Investments
D. Decreased The Federal Budget Deficit
E. Increased The Number Of Personal Income Tax Brackets
67. The First Budget Surplus Since 1969 Occurred In
A. 1993
B. 1995
C. 1998
D. 1999
E. 2000
68. The Budget Surpluses Of The Late 1990’s And The Early 2000’s Could Be
Attributed To Which Of The Following Government Policies?
A. The Value Added Tax Act
B. The Tax Reform Act Of 1986
C. The Economic Growth And Taxpayer Relief Reconciliation Act
D. Increased Government Debt
E. All Of The Above
69. If A Government Bond With A Maturity Value Of $10,000 Sells For $9,000 And
Pays Annual Interest Of $1,000, What Is The Rate Of Interest On The Bond?
A. 1%
B. 10%
C. 11.1%
D. 88.9%
E. 90%
70. An Increase In Government Borrowing Will Cause Which Of The Following?
A. A Decrease In The Demand For Loanable Funds
B. A Decrease In The Supply Of Bonds
C. An Increase In The Interest Rate
D. An Increase In The Price Of Bonds
E. All Of The Above
71. Federal Debt Reduction Will Cause Which Of The Following?
A. A Decrease In The Interest Rate
B. An Increase In Private Investment
C. A Decrease In The Supply Of Bonds
D. An Increase In The Price Of Bonds
E. All Of The Above
72. The Federal Government Ended Its Most Recent Period Of Budget Surpluses And
Returned To Deficits In
A. 1999
B. 2000
C. 2001
D. 2002
E. 2003
73. The Federal Deficit Was Increased In 2002 As A Result Of
A. The 2001 Recession
B. The War On Terrorism
C. The 2001 Tax Cut
D. Increased Defense Spending
E. All Of The Above
74. Retiring The Federal Debt Will
A. Decrease The Supply Of Government Bonds
B. Increase Government Bond Prices
C. Lower The Interest Rate On Government Bonds
D. Decrease The Demand For Money
E. Do All Of The Above
True / False Questions
75. The Fears That People Have Concerning Government Are Related To The Size Of
Government And The Distribution Of Taxes.
76. Some Of The Fears That People Have Concerning Government Are Well-Founded
And Some Are Not.
77. Government Expenditures Have Grown Faster Than The Gdp Since 1958,
Representing About Fifty Percent Of Gdp Today.
78. Government Transfer Payments, Such As Public Assistance Payments And Social
Security Payments, Have Been A Constant Percentage Of The Gdp Since 1960.
79. Government Purchases Of Goods And Services Have Remained A Constant
Percentage Of The Gdp For The Last Two Decades.
80. Before An Intelligent Decision Can Be Made About Whether Government Is Too
Large Or Small, The Benefits And Costs Must Be Weighed.
81. An Efficient Level Of Government Expenditures Is That Level Where Net
Benefits To Society Are Maximized.
82. Public Goods And Services Can Be Supplied In The Market Because They Are
Easily Divisible Into Small Units And Can Be Priced To The Individual Demander.
83. The Existence Of Externalities In Production Or Consumption Does Not Negate
The Possibility That These Goods And Services Can Be Supplied Efficiently In The
Market.
84. A Great Deal Of Government Activity Is Based On The Idea That People In
Society Should Determine The Extent To Which The Distribution Of Income Should
Be Altered.
85. The Major Tax Source Of The Federal Government Is The Highly Regressive
Sales Tax.
86. The Federal Income Tax System Results In A Mildly Progressive Tax Structure.
87. The Major Tax Source Of State Governments Is The Property Tax.
88. Progressive Income Tax Rates Are Consistent With The Ability To Pay Principle
Of Taxation But Are Inconsistent With The Tax Criterion Of Economic Efficiency.
89. The Relative Tax Treatment Doctrine Would Call For All Taxpayers To Pay Equal
Taxes.
90. Since Gasoline Taxes Are Used Primarily To Finance Highways, Gasoline Taxes
Can Be Defended On The Benefits Received Principle Of Taxation.
91. The Excess Tax Burden Is In The Form Of The Loss In Private Production That
May Take Place If Incentives To Work And To Produce Are Discouraged.
92. A Tax Levied On Each Unit Produced Will Likely Be Shifted Forward And
Backward Depending Upon The Elasticities Of Demand And Supply.
93. If An Output Tax Is Levied On A Product That Has A Perfectly Elastic Demand,
The Tax Will Be Shifted Completely To The Consumer In The Form Of Higher
Prices.
94. Federal Budget Deficits Occurred Throughout The 1970's And 1980's But In The
Late 1990's Deficits Turned Into Budget Surpluses.
95. The Tax Reform Act Of 1986 Increased The Highest Marginal Tax Rate To 50%
From 38%.
96. In General, A Tax Levied On Net Income Of A Corporation Would Be Shifted To
Consumers In The Short Run.
97. Tax Equity Would Probably Be Reduced If Federal Tax Exclusions, Such As
Interest On State And Local Government Securities, Were Eliminated.
98. Demand For Public Goods And Services Is Not Generally Divisible On The Basis
Of Individual Quantity Demanded.
99. The Tax Base Is What A Tax Is Levied On, Such As Income, Sales, Or The Value
Of Property.
100. Regressive Tax Rates Mean That The Ratio Of Tax Collection To Income Rises
As Income Rises.
101. Tax Equity Means That All People Should Pay Equal Taxes.
102. An Output Tax Will Be Shifted Completely Forward If Demand Is Price Elastic.
103. According To The Equimarginal Principle, The Efficient Level Of Government
Expenditures Occurs When The Benefit Of The Last Dollar Spent For Each Purchase
Is Greater Than The Last Dollar Of Cost.
104. When Marginal Benefits Equal Marginal Costs Then Net Benefits Are
Maximized.
105. Horizontal Equity Means That People In Identical Economic Positions Should
Pay Equal Taxes.
106. Transfer Payments Are Government Expenditures For Currently Produced Goods
And Services.
107. In The Absence Of Externalities, Government Actions Are Needed To Ensure
The Efficiency Of The Market System.
108. According To The Equal Tax Treatment Doctrine, People In Identical Economic
Circumstances Should Pay Equal Taxes.
109. The Equal Tax Treatment Doctrine Pertains To Vertical Equity.
110. The Federal Tax System Is Much More Progressive Than Is Generally Believed.
111. The Economic Growth And Taxpayer Relief Reconciliation Act, The Job
Creation And Worker Assistance Act, And The Jobs And Growth Tax Relief Act Each
Reduced Effective Tax Rates On Income.
112. The United States Has Not Had A Federal Budget Surplus Since The 1960s.
113. The Personal Income Tax Is The Single Most Important Source Of Tax Revenue
For The Federal Government Of The United States.
114. The Enforcement And Collection Of The Personal Income Tax Is The
Responsibility Of The Internal Revenue Service.
115. There Are Currently 14 Tax Brackets Ranging From 11% To 50%.
116. The Federal Government Uses The Tax Code To Encourage Certain Behaviors.
117. Bond Prices And Interest Rates Are Inversely Related.
118. The First Budget Surplus Since 1969 Occurred In 1998.
119. A Budget Deficit Occurs When Tax Revenues Exceed Government Spending.
120. A Lower Interest Rate Encourages Private Investment Spending.
121. The National Debt Is The Sum Of Past Budget Deficits.
122. The Government Owes Almost One Third Of The National Debt To Itself.
123. An Increase In Government Borrowing Increases The Demand For Loanable
Funds.
124. An Increase In Government Borrowing Increases The Supply Of Loanable
Funds.
125. The Federal Budget Has Been In Deficit Each Year Since The Beginning Of The
1970s.
Chapter 15
Social Security And Medicare: How Secure Is Our Safety Net For The Elderly?
Multiple Choice Questions
1. Government Programs That Guarantee Citizens Financial Benefits For Events
Beyond Their Personal Control And That Are Financed Through Tax Revenues Are
Called
A. Social Insurance Programs
B. Entitlement Programs
C. Private Insurance Programs
D. Welfare Programs
E. Transfer Programs
2. The Largest Social Insurance Program In The United States Is
A. Temporary Assistance For Needy Families
B. Social Security
C. Medicaid
D. Federal Flood Insurance
E. Job Corps
3. The Most Significant Factor That Threatens The Financial Stability Of The Social
Security System Is The
A. Increasing Number Of Young Workers
B. Relatively High Rates Of Social Security Taxes
C. Population Bulge Created By The "Baby Boom" Generation
D. Generosity Of Current Social Security Benefits
E. Threat Of Foreign Workers Entering The U.S. Due To Nafta
4. Which Of The Following Nations Was The First To Offer Its Citizens A Modern
Social Insurance Program?
A. United States
B. Great Britain
C. Russia
D. Germany
E. Japan
5. In The United States, Social Security Was Established In When President Signed
The Social Security Act Into Law.
A. 1903; Theodore Roosevelt
B. 1929; Herbert Hoover
C. 1965; Lyndon Johnson
D. 1865; Abraham Lincoln
E. 1935; Franklin Roosevelt
6. Which Of The Following Statements Is Concerning The Scope Of The Social
Security Program?
A. Social Security Has Narrowed Its Scope Over Time To Focus On The Economic
Stability Of The Individual
B. The Scope Of Social Security Has Remained Constant Throughout Its History
C. Social Security Has Broadened Its Scope Over Time To Focus On The Economic
Stability Of The Family
D. The Scope Of Social Security Has Always Focused On The Family Unit
E. None Of The Above
7. How Many Americans Receive A Monthly Check From The Social Security
Administration?
A. Fewer Than 10 Million
B. More Than 50 Million
C. About 27 Million
D. Roughly 38 Million
E. More Than 100 Million
8. As Originally Designed, Social Security Was To Be Financed As A
A. Private Insurance Program
B. Pure Income Transfer Program
C. Pay-As-You-Go Insurance Program
D. Fully-Funded Insurance Program
E. Means-Tested Benefits Program
9. How Are Social Security Tax Revenues Allocated Today?
A. They Are Used To Pay Today's Social Security Beneficiaries, And Any Extra Is
Placed Into The Social Security Trust Fund
B. All Of Today's Revenues Are Placed In The Social Security Trust Fund To Pay For
Tomorrow's Beneficiaries
C. Tax Revenues Are Placed Into Accounts For Each Worker Who Will Draw Upon
The Balance When They Retire
D. The Revenues Are Invested In Government Securities And In The Stock Market
E. No One Really Knows
10. Current Projections Estimate That The Social Security Trust Fund Will Be
Completely Depleted
A. In Late 2003
B. During 2010-2020
C. In About 100 Years
D. Around 2100
E. Before 2040
11. Given The Way Social Security Is Financed, Which Of The Following Is ?
A. Social Security Results In A Transfer Of Income From The Old To The Young
B. Social Security Results In A Transfer Of Income From The Young To The Old
C. Social Security Has A Neutral Effect On The Nation's Income Distribution
D. The Purchasing Power Of The Elderly Has Been Diminished By Social Security
Taxes
E. (A) And (D)
12. Social Security Taxes Are
A. Paid Only By Workers
B. Levied On Salaries And Wages
C. Paid Only By Employers
D. Paid By Both Workers And Employers
E. (B) And (D)
13. Currently, The Total Combined Tax Rate Collected By Social Security Is
A. 21.6% Of Earnings
B. 15.3% Of Earnings
C. 7.65% Of Earnings
D. 6.20% Of Earnings
E. 1.45% Of Earnings
14. Which Of The Following Is Concerning Social Security's Retirement Benefit
Structure?
A. All Eligible Retired Workers Are Entitled To The Same Benefits
B. High Wage Workers Receive A Greater Percentage Of Past Earnings In Benefits
Than Low Wage Workers
C. Retired Female Workers Are Entitled To Higher Benefits Than Retired Male
Workers
D. Low Wage Workers Receive A Greater Percentage Of Past Earnings In Benefits
Than Do High Wage Workers
E. Retired Workers Living In Cities Receive Larger Benefits Than Those Living In
Rural Areas
15. Most Of Today's College Student Population Will Be Eligible To Receive Full
Social Security Retirement Benefits When They Reach The Age Of
A. 62
B. 65
C. 67
D. 70
E. 72
16. The Cost Of Living Adjustment (Cola) Employed By Social Security Is Based On
The
A. Current Level Of Gdp
B. Local Rate Of Inflation
C. Consumer Price Index
D. Producer Price Index
E. Annual Poverty Threshold
17. How Many Elderly Households Receive Social Security Benefits?
A. More Than 90%
B. Less Than 50%
C. About 75%
D. Only About 15%
E. None Of The Above
18. Which Of The Following Statements Is ?
A. 20% Of Elderly Households Receive Social Security As Their Only Source Of
Income
B. Approximately 90% Of Elderly Households Receive Social Security Benefits
C. Just Under 30% Of Elderly Households Receive Private Pension Benefits
D. For Nearly Two Thirds Of Elderly Households, Social Security Represents More
Than 50% Of Total Income
E. None Of The Above. All Are
19. If People Choose To Work Fewer Hours Because The Social Security Tax Reduces
Their Real Wage, Their Behavior Is Dominated By The
A. Substitution Effect
B. Bequest Effect
C. Income Effect
D. Wealth Effect
E. Real Wage Effect
20. If People Choose To Work More Hours Because The Social Security Tax Reduces
Their Real Wage, Their Behavior Is Dominated By The
A. Substitution Effect
B. Bequest Effect
C. Income Effect
D. Wealth Effect
E. Real Wage Effect
21. Empirical Evidence Suggests That Social Security Has _______ The Overall
Supply Of Labor.
A. Had No Effect On
B. Reduced
C. Increased
D. Stimulated
E. Done None Of The Above To
22. Social Security May Increase The Level Of Personal Saving Due To
A. The Retirement Effect
B. The Bequest Effect
C. The Wealth Substitution Effect
D. (A) And (B)
E. (B) And (C)
23. Empirical Studies Indicate That Social Security Has
A. Increased The Level Of Personal Savings
B. Had A Neutral Effect On The Level Of Personal Savings
C. Reduced The Level Of Personal Savings
D. Increased The Number Of Older Workers
E. Raised The Average Age At Which Workers Choose To Retire
24. The Effect Of Social Security On Personal Savings Is Important Because
A. The Level Of Savings Determines The Pool Of Investment Funds
B. Savings Are Necessary To Finance The Social Security Trust Fund
C. Personal Savings Are Negatively Related To Economic Growth
D. Savings Are A Major Source Of Income For All Elderly Households
E. The Level Of Savings Reflects The Magnitude Of Future Consumption
25. Why Can't Social Security Rely On A Strict Pay-As-You-Go Financial Structure?
A. The Current Generation Of Workers Is Too Small To Support Future Retirees
B. A Pay-As-You-Go Financial Structure Is Inherently Unstable
C. The Current Generation Of Retirees Will Bankrupt The System Before The "Baby
Boom" Retires
D. Inflation Erodes The Value Of Contributions That Must Be Saved To Pay Future
Retirees
E. None Of The Above
26. The Most Simple And Direct Way To Postpone The Looming Social Security
Financial Crisis Is To
A. Invest Social Security Taxes In The Stock Market
B. Raise Social Security Taxes And/Or Lower Benefits
C. Privatize The Social Security Administration
D. Eliminate The Social Security System And Force Everyone To Buy Private
Insurance
E. Subsidize Social Security With General Tax Revenues
27. The Most Significant Argument Against Privatizing Social Security Is That
A. Benefits Would Have To Be Cut
B. It Has Not Worked In Other Countries
C. Future Benefits Levels Cannot Be Guaranteed
D. It Is Too Complicated To Be Practical
E. Taxes Would Have To Be Raised
28. Why Do Some People Favor Investing The Social Security Trust Fund In The
Stock Market?
A. Because For Most Beneficiaries The Historic Return On Their Social Security
Taxes Has Been Less Than What Would Have Been Earned If Those Dollars Were
Invested In The Stock Market
B. Because Investment In The Stock Market Will Guarantee Higher Rates Of Return
Over The Long Run For All Retirees
C. Because Investments In The Stock Market Carry Very Little Risk And Offer The
Potential For Excessive Short-Run Gains With Little Or No Potential For Loss
D. Because The Stock Market Offers The Safest Form Of Investment
E. All Of The Above
Questions 29 - 33 Refer To The Graph Below.
29. The Results Of The Retirement Effect Are Illustrated On The Graph As A
Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above
30. The Results Of The Bequest Effect Are Illustrated On The Graph As A Movement
From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above
31. The Results Of The Wealth Substitution Effect Are Illustrated On The Graph As A
Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above
32. A Change In Consumption From Ce To Cf Could Be Caused By Which Of The
Following?
A. The Bequest Effect
B. The Retirement Effect
C. The Wealth Substitution Effect
D. All Of The Above
E. None Of The Above
33. A Movement From Point E To Point F As A Result Of Social Security Would
Result In Which Of The Following Costs To Society? A Long-Run Movement To
A. Ppc Cd Rather Than Gh
B. Ppc Gh Rather Than Cd
C. Point B Rather Than Point A
D. Point A Rather Than Point B
E. If To Cf
34. If I Start Saving More During My Working Life Because I Anticipate Retiring
Earlier Thanks To Social Security, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above
35. If I Spend More Each Year Because I Know That I Will Receive Social Security
Payments When I Retire, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above
36. If I Put Extra Into A Savings Account So That I Can Leave Assets To My Children
To Compensate Them For Their Payments Into The Social Security System, I Am
Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above
37. If Inflation Increases, What Will Happen To The Social Security Cola? It Will
A. Expire
B. Increase
C. Decrease
D. Be Divided Among Social Security Recipients
E. Be Added To The Social Security Trust Fund
38. "An Agreement To Pay A Premium To A Company In Return For A Guarantee Of
Financial Benefits In The Event Of An Undesired Circumstance" Defines
A. Social Insurance
B. Private Insurance
C. Private Investment
D. Asset Management
E. Retirement Savings
39. Social Insurance Uses Tax Revenues To Guarantee Citizens Financial Benefits For
Events Including
A. Old Age
B. Disability
C. Poor Health
D. Death Of A Spouse
E. All Of The Above
40. If A Program's Benefits Are Funded By Interest Earned On Accumulated
Payments, It Is Which Type Of System?
A. An Investment System
B. A Fully Funded Scheme
C. An Interest Scheme
D. A Pay-As-You-Go System
E. An Endowed System
41. If A Program's Benefits Are Funded Out Of Current Payments, It Is Which Type
Of System?
A. An Investment System
B. A Fully Funded Scheme
C. A Pyramid Scheme
D. A Pay-As-You-Go System
E. An Endowed System
42. When Was The Medicare Program Established?
A. 1935
B. 1945
C. 1955
D. 1965
E. 1975
43. Today, The Health Care Sector Of The U.S. Economy Accounts For About Percent
Of National Income.
A. 3
B. 5
C. 8
D. 12
E. 18
44. A Person With Health Insurance Will Tend To
A. Have A Lower Demand For Health Care Services
B. Have A Much Greater Concern For Preventive Care
C. Buy A Lower Quantity Of Health Care At A Higher Price
D. Demand More Health Care Services Than A Person Without Insurance
E. Do None Of The Above
45. The Payment And Delivery Of Health Care Service Under A Managed Care
System Is Based On
A. A Fee-For-Service Market Principle
B. A Prearranged Schedule Of Fixed Prices
C. The Ability To Pay Principle
D. Price Negotiation Between The Consumer And Provider
E. None Of The Above
46. The Medicare Program
A. Was Established As A Socialistic Takeover Of Health Care Providers
B. Has Reduced The Demand For Health Care Services
C. Affects Persons 65 And Older, Regardless Of Income
D. Enrolls All Poor People Regardless Of Age
E. Does None Of The Above
47. Part C Of The Medicare Program (Medicare + Choice)
A. Provides Health Care Plan Choices To The Beneficiaries Of Medicare
B. Restricts Medicare Beneficiaries To A Simple Fee-For-Service Health Care Plan
C. Provides Comprehensive Health Insurance Coverage For All Poor People
D. Is Only Available To Disabled Retirees Receiving Social Security
E. Does None Of The Above
48. A Potential Benefit Of Managed Care Plans To Medicare Enrollees Is That These
Plans
A. Typically Require Less Cost Sharing
B. Provide A Higher Quality Of Health Care
C. Provide A Greater Quantity Of Health Care
D. Require Less Paper Work
E. Do All Of The Above
49. Part A Of The Medicare Program (Hospital Insurance) Is Financed Primarily By
A. A Monthly Premium
B. A 2.9% Tax Levied On Wages And Salaries
C. An Allocation From General Tax Revenues
D. User Fees Paid By Patients
E. Insurance Deductibles
50. What Percent Of The Average Health Care Dollar Spent In The United States
Comes Directly From The Consumer?
A. 100
B. 83
C. 50
D. 34
E. 12
51. Which Of The Following Factors Has Contributed Most To The Tremendous
Increase In Health Care Expenditures Experience In The U.S. During The Past Fifty
Years?
A. Health Care Inflation
B. The Aging Of The Population
C. Increased Public Support For Health Care
D. Private Health Insurance
E. Growth In Medicaid
52. Which Of The Following Receives The Largest Share Of Expenditures Made On
Health Care In The United States?
A. Physicians
B. Nursing Homes
C. Hospitals
D. Personal Health Care Product And Service Providers
E. Pharmacies
53. In A Fee-For-Service Health Care System, Consumers Pay The
A. Insurance Company A Fee Every Time They Use A Service
B. Full Cost Of The Services They Receive
C. Hmo When They Receive Care
D. Doctor A Small Payment Called A "Co-Pay."
E. Prearranged, Fixed Fee For Services They Receive
54. How Are Payments To Health Care Providers Determined Under A Managed Care
System? By The
A. Government
B. Market
C. Insurance Company And The Provider
D. Provider And The Consumer
E. Ama (American Medical Association)
55. Which Of The Following Is An Example Of A Managed Health Plan?
A. Hmo
B. Ppo
C. Pos
D. Physicians Network
E. All Of The Above
Questions 56 - 59 Refer To The Graph Below.
56. With A Market Allocation Of Medical Services, Equilibrium Quantity Will Be
A. 0
B. 50
C. 2,000
D. 2,800
E. 4,000
57. If Medical Care Is Provided Free Of Charge, What Quantity Will Be Demanded?
A. 0
B. 2,000
C. 2,800
D. 4,000
E. An Infinite Amount
58. If Medical Care Is Provided Free Of Charge, What Quantity Will Be Supplied?
A. 0
B. 50
C. 2,000
D. 2,800
E. 4,000
59. The Supply Of Medical Services In This Market Is
A. Elastic
B. Inelastic
C. Unit Elastic
D. Price Elastic
E. Infinite
60. Under Most Insurance Systems, Patients Are Responsible For Which Of The
Following Payments For Health Care Services?
A. Deductible
B. Co-Insurance
C. Fee-For-Service Charges
D. All Of The Above
E. None Of The Above
61. A Patient May Be Required To Pay A Percentage Of The Cost Of Their Health
Care Above The Fixed Fee They Pay. This Is Known As
A. The Deductible
B. Co-Insurance
C. Fee-For-Service
D. The Health Care Tax
E. Medicare Tax
62. If Your Insurance Company Agrees To Pay A Fixed Fee For You To Receive A
Given Treatment (For Example, $5,000 For An Appendectomy), The Company Is
Using Which Of The Following?
A. A Fee-For-Service System
B. A Managed Care System
C. A Co-Insurance System
D. A Prospective Payment System
E. A Social Insurance System
63. If Your Deductible Is $200 And You Pay Co-Insurance Of 20%, How Much Will
You Have To Pay For A $3,000 Hospital Stay?
A. $200
B. $560
C. $600
D. $760
E. $800
64. If Your Deductible Is $400 And You Have Co-Insurance Of 25%, How Much Will
You Have To Pay For A $5,000 Hospital Stay?
A. $400
B. $1,150
C. $1,250
D. $1,550
E. $1,650
Questions 65 - 69 Refer To The Graph Below.
65. If Patients Pay The Full Price For Office Visits, What Price Will Be Charged In
The Market?
A. $0
B. $25
C. $50
D. $75
E. More Than $75
66. If Patients Pay The Full Price For Of Office Visits, How Many Office Visits Will
They Make?
A. 0
B. 30
C. 50
D. 70
E. More Than 70
67. If A Third Party Guarantees A Maximum Patient Price Of $25, What Quantity Of
Office Visits Will Patients Demand?
A. 0
B. 30
C. 50
D. 70
E. More Than 70
68. If A Third Party Guarantees A Maximum Patient Price Of $25, What Total Price
Must Be Paid Per Office Visit To Assure The Quantity Of Office Visits Demanded
Will Be Provided?
A. $0
B. $25
C. $50
D. $75
E. More Than $75
69. If A Third Party Guarantees A Maximum Patient Price Of $25, How Much Must
The Third Party Pay Per Office Visit?
A. $0
B. $25
C. $50
D. $75
E. More Than $75
70. Health Insurance Results In
A. An Increase In The Quantity Of Health Care Demanded
B. An Increase In The Quantity Of Health Care Provided
C. An Increase In The Total Cost Of Providing Health Care
D. All Of The Above
E. None Of The Above
71. The Medicare Modernization Act, Passed In 2003, Established
A. The First Long Term Care Coverage For Medicare Recipients
B. Lowered Deductibles For Most Medicare Recipients
C. Added A Prescription Drug Benefit To The Medicare Program
D. Instituted Stringent Price Controls On The Fees Doctors And Hospitals Can Charge
E. Restricted The Benefits That High Income Medicare Recipients Can Receive
72. The Prescription Drug Benefit That Is Part Of The Medicare Modernization Act
Of 2003 Requires That Recipients Pay:
A. A Monthly Premium
B. A Co-Pay
C. A Deductible
D. All Of The Above
E. None Of The Above, These Benefits Are Provided To Recipients At No Charge
True / False Questions
73. Social Insurance Is Private Insurance Purchased By The Government.
74. Programs That Provide Citizens With Benefits For Events That Are Beyond An
Individual Person's Control Are Called Social Insurance Programs.
75. Both Social Security And Medicare Are Social Insurance Programs.
76. The Major Underlying Factor That Endangers Social Security's Financial Stability
Is The Population Bulge Created By The "Baby Boom" Generation.
77. The United States Was The First Nation To Provide Social Insurance Programs
For Its Citizens.
78. The Original Design Of The Social Security System Called For A Pay-As-You-Go
Financing Scheme.
79. The Social Security Act Was Signed Into Law By President Franklin Roosevelt In
1935.
80. Over Time, Social Security Has Evolved To Focus More On The Family And Less
On The Individual.
81. Currently, About 20 Million Americans Receive Social Security Benefits.
82. All American Citizens Are Entitled To Receive Social Security And Medicare
Benefits When They Retire.
83. Today, Social Security Is Financed Under A Pay-As-You-Go Financial System.
84. All Current Social Security Taxes Collected By The Government Are Used To Pay
Current Beneficiaries, With Nothing Left Over.
85. Social Security And Medicare Are Financed Through A Flat Tax On Wages Paid
Up To A Predetermined Limit.
86. Workers And Their Employers Share The Burden Of Social Security Taxes.
87. The Social Security Trust Fund Currently Has A Negative Balance.
88. Social Security Benefits Are Adjusted Each Year For Inflation Using The
Consumer Price Index (Cpi).
89. About 50% Of All Elderly Households Receive Some Form Of Social Security
Benefits.
90. Today, In The Aggregate, Social Security Accounts For Over 35% Of Senior
Citizens' Income.
91. Without Social Security, Nearly 50 Percent Of Elderly Households Would Live
Below The Poverty Threshold.
92. The Substitution Effect Of Social Security Taxes Causes Some People To Work
More Hours.
93. The Income Effect Of Social Security Taxes Causes Some People To Work Less
Hours.
94. Studies Show That Social Security Has Caused Some Workers To Retire Earlier
Than They Would If Social Security Did Not Exist.
95. The Bequest Effect Of Social Security Causes Some People To Save Less During
Their Lifetimes.
96. The Empirical Evidence Suggests That, Overall; Social Security Causes People To
Increase Their Personal Savings.
97. Because Social Security Increases Savings, More Funds Are Available For
Investment In The Overall Economy.
98. Current Estimates Indicate That The Social Security Trust Fund Will Be Depleted
Before 2040.
99. A Modest Increase In Taxes Could Postpone Social Security's Financial Crisis For
Decades.
100. Privatization Of The Social Security System Would Reduce The Financial Risks
Faced By Retiring Workers.
101. Chile And Other Nations Have Successfully Privatized All Or Part Of Their
Social Insurance Programs.
102. Oasdi Is Social Security's Medical Insurance Program.
103. The Most Important Factor Explaining The Growth In Personal Health Care
Expenditures On Hospital And Physician Services Is Higher Prices For These
Services.
104. Third-Party Payments Increase The Efficiency Of Medical Markets.
105. A Dominant Feature Of The U.S. Health Care Industry Is Price Competition
Among Providers.
106. Medicare And Medicaid Have Reduced The Demand For Health Care Services.
107. The Purpose Of A Prearranged Payment And Delivery System, Such As A
Managed Care Plan, Is To Take Away Any Incentive For The Provider To Supply
Unnecessary Care.
108. The Demand For Health Services Is Characterized By Well-Informed
Consumers.
109. The Medicare Program Affects Persons Aged 65 And Older, Regardless Of Their
Income Level.
110. A Consumer With Health Insurance Is Likely To Buy More Health Services Than
One Who Is Not Insured.
111. A Reduction In The Price Of Medical Services Will Cause The Demand Curve
To Shift To The Right.
112. Health Care Providers Are Paid The Amount Of A Patient's Deductible By The
Health Insurance Company.
113. The Amount A Patient Must Pay Above The Deductible Is Known As CoInsurance.
114. Projections Indicate That The Medicare Hi Program Will Be Depleted Of Funds
By 2025.
115. More Than 70% Of All Privately Insured Employees Are Covered By Managed
Care Plans.
116. The Medicare Program Could Be Secured By An Increase In The Payroll Tax
That Supports The Program.
117. The Medicare Program Could Be Secured By Increasing Premiums, Deductibles
And Co Payments.
118. Medicare's Fee-For-Service Plan Provides Incentives For Supplying Excessive
Services.
119. Managed Care Plans Provide Incentives For Supplying Excessive Services.
120. Third-Party Payments For Health Care Increase The Quantity Of Services
Demanded.
121. Third-Party Payments For Health Care Decrease The Price Consumers Pay For
Services.
122. The Fee-For-Service Delivery And Payment System Is The Primary Means By
Which Most Elderly Americans Receive Their Health Care.
123. Third-Party Payments For Health Care Result In Less Usage Of The Health
Care System.
124. Managed Care Leads To Higher Costs Of Providing Health Care Services.
125. Investments Of Social Security Tax Payments Result In High Returns On The
Contributions Made By Taxpayers.
