Chapter 1
Introduction
Multiple-Choice
1. Public finance
A) is not like public economics.
B) develops principles for understanding the economic role of government.
C) only works for local and state governments.
D) is all of the above.
Ans: b
2. A regulatory budget would
A) provide an accounting of government regulation.
B) be difficult to compute.
C) have to be attempted unofficially.
D) be all of the above.
Ans: d
3. The federal government
A) is the largest taxing entity in the country.
B) is only concerned with international issues.
C) spends heavily on net interest.
D) is all of the above.
Ans: a
4. State and local governments receive the largest amount of revenue from
A) personal income taxes.
B) property taxes.
C) sales taxes.
D) loans from other states.
E) payroll taxes.
Ans: c
5. The federal government gets most of its revenue from
A) personal income taxes.
B) property taxes.
C) sales taxes.
D) loans from states.
E) payroll taxes.
Ans: a
1
6. In a pure market economy,
A) there is no role for government.
B) government intervention might be needed.
C) large markets where people meet to buy and sell are required.
D) all of the above.
Ans: b
7. A government good or service includes
A) bridges.
B) parks.
C) national defense.
D) all of the above.
Ans: d
8. Government output is hard to account for because government
A) is so large.
B) provides goods that have no resale value.
C) keeps secrets about what it produces.
D) goods are generally not sold or produced in easily measurable units.
Ans: d
9. Economists who study the role of government in the market
A) agree mostly on the role that the government should play.
B) study for market problems that the government might help solve.
C) find that supply and demand graphs never work for the government.
D) do none of the above.
Ans: b
10. Economics
A) is all about making money.
B) has nothing to do with money.
C) is the study of unlimited wants but limited resources.
D) has no “real world” relevance.
Ans: c
11. Taxes
A) are mandatory payments.
B) are necessary for financing government expenditures.
C) do not directly relate to the benefit of government goods and services received.
D) are all of the above.
Ans: d
2
12. For the government to provide goods and services, citizens
A) have to come to an agreement about how much is needed.
B) have to agree on a method of financing.
C) need to be informed about the opportunity costs.
D) must do all of the above.
Ans: d
13. Education is
A) generally financed at the state and local level.
B) too expensive for the federal government.
C) generally financed at the federal level.
D) financed on a voluntary basis.
Ans: a
14. Politics
A) play no role in public finance.
B) influence government decisions.
C) have to be factored into economic decision making.
D) do all of the above.
Ans: d
15. Individuals
A) are too small to matter in macroeconomic decision making.
B) need to participate in a democracy.
C) make up the government.
D) a and b.
E) b and c.
Ans: e
16. The unified budget is
A) a budget that includes all nations
B) a document which itemizes all the federal government’s expenditures and revenues.
C) a document that accounts for all spending by states.
D) none of the above.
Ans: b
17. In 2007, the federal budget was almost
A) 1 million pages long
B) 17 pages long
C) 1,300 pages long
D) 500 pages long.
Ans: c
3
18. Social insurance has become an increasingly large portion of federal taxes because of the “Baby
Boomer” generation.
A) True.
B) False.
C) Uncertain.
Ans: a
19. A very small portion of government expenditures is financed by taxes.
A) True.
B) False.
C) Uncertain.
Ans: b
20. In 2002, national defense was just as large a general expenditure as Social Security.
A) True.
B) False.
C) Uncertain.
Ans: b
21. The Constitution of the United States says nothing about state economic activity.
A) True.
B) False.
C) Uncertain.
Ans: b
22. The taxes paid by citizens are directly related to the benefit of government goods and services
received.
A) True.
B) False.
C) Uncertain.
Ans: c
23. Interest on the national debt, as a percentage of federal expenditures, has increased significantly since
1965.
A) True.
B) False.
C) Uncertain.
Ans: b
24. Local governments rely heavily on property taxes.
A) True.
B) False.
C) Uncertain.
Ans: a
4
25. Government is designed to handle problems not addressed by the private sector.
A) True.
B) False.
C) Uncertain.
Ans: c
26. Expenditures, as a percentage of GDP for the United States, are not very different than those of other
industrialized nations.
A) True.
B) False.
C) Uncertain.
Ans: a
27. Payroll taxes are a major financing tool at the federal level.
A) True.
B) False.
C) Uncertain.
Ans: a
28. State, local, and federal expenditures amounted to 97% of GDP in 2005.
A) True.
B) False.
C) Uncertain.
Ans: b
29. Personal income and Social Security payroll taxes are currently the largest sources of government
revenue.
A) True.
B) False.
C) Uncertain.
Ans: a
5
Chapter 2
Tools of Positive Analysis
Multiple-Choice
1. Positive economics
A) does not depend on market interactions.
B) only looks at the best parts of the economy.
C) examines how the economy actually works (as opposed to how it should work).
D) is very subjective.
Ans: c
2. The Law of Demand states
A) that there is an inverse relationship between price and quantity demanded.
B) that the judicial branch of government sets demand schedules.
C) that laws can have no effect on market economies.
D) none of the above.
Ans: a
3. The function Y = f(X,Z) means
A) X multiplied by Y equals f.
B) X + Y = Z.
C) Y is a function of both X and Z.
D) none of the above.
Ans: c
4. If there is a function and one component is Y3, then there is a ____ in the function.
A) square root
B) cubic
C) cosine
D) circle
E) all of the above
Ans: b
5. Refer to Question 4 above. The equation containing Y3 would be
A) linear.
B) quadratic.
C) a Nash equilibrium.
D) inefficient.
E) nonlinear.
Ans: e
6
6. Marginal and average taxes are
A) calculated using the same methodology.
B) not used in modern tax analysis.
C) not calculated using the same methodology.
D) all of the above.
Ans: d
7. The slope of a regression line is calculated by dividing
A) the intercept by the change in horizontal distance.
B) the change in horizontal distance by the change in vertical distance.
C) the change in horizontal distance by the intercept term.
D) the change in vertical distance by the change in horizontal distance.
E) none of the above.
Ans: d
8. Unobserved influences on a regression are captured in the
A) error term.
B) parameters.
C) regression line.
D) significance term.
E) regression coefficient.
Ans: a
9. The following can be analyzed using econometrics:
A) labor supply.
B) market demand.
C) tax-setting behavior.
D) poverty.
E) all of the above.
Ans: e
10. Normative economics
A) does not depend on market interactions.
B) only looks at the best parts of the economy.
C) examines how the economy actually works (as opposed to how it should work).
D) embodies value judgments.
Ans: d
11. The Latin phrase ceteris paribus means
A) let the buyer beware.
B) other things being the same.
C) swim at your own risk.
D) whatever will be will be.
Ans: b
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12. The substitution effect
A) is when individuals consume more of one good and less of another.
B) is associated with changes in relative prices.
C) will have no effect if goods are unrelated.
D) is all of the above.
Ans: d
13. Self-selection bias affects empirical estimation by
A) leading to samples that are not representative of the entire population.
B) making estimators improved.
C) increasing the accuracy of test results.
D) doing none of the above.
Ans: a
14. When different bundles of commodities give the same level of satisfaction, you are
A) said to be indifferent between the bundles.
B) said to be confused.
C) not able to make a decision.
D) unhappy with any combination.
E) none of the above.
Ans: a
15. The marginal rate of substitution is
A) the slope of the utility curve.
B) the slope of the contract curve.
C) the slope of the utility possibilities curve.
D) none of the above.
Ans: a
16. Data that is considered observational can be
A) cross-sectional
B) time series
C) panel
D) all of the above
Ans: d
17. A counterfactual is
A) what happens when there are no facts.
B) what would have happened if the treatment group had not received the treatment.
c) a legal term describing the process of proving that a negative is the actual truth.
D) none of the above.
Ans: b
8
21. Empirical analysis generally deals with theory and little data.
A) True.
B) False.
C) Uncertain.
Ans: b
22. Economists attempt, with moderate success, to perform controlled experiments making policy
analysis helpful.
A) True.
B) False.
C) Uncertain.
Ans: a
23. Regression coefficients are indicators of the impact of independent variables on dependent variables.
A) True.
B) False.
C) Uncertain.
Ans: a
24. Primary data sources include information gathered from interviews and experiments.
A) True.
B) False.
C) Uncertain.
Ans: a
25. Multiple regression analysis typically requires several computers.
A) True.
B) False.
C) Uncertain.
Ans: c
26. Econometrics is the statistical analysis of economic data.
A) True.
B) False.
C) Uncertain.
Ans: a
27. Theory is always necessary for empirical research.
A) True.
B) False.
C) Uncertain.
Ans: a
28. The demand for a good is not affected by the demand for a related good.
9
A) True.
B) False.
C) Uncertain.
Ans: c
29. Equilibrium in the market is where supply is equal to demand.
A) True.
B) False.
C) Uncertain.
Ans: a
30. A model is a simplified description of some aspect of the economy.
A) True.
B) False.
C) Uncertain.
Ans: a
31. Causation and Correlation are generally the same thing.
A) True.
B) False.
C) Uncertain.
Ans: b
32. An experimental study is one which individuals are randomly assigned to the treatment and control
groups.
A) True.
B) False.
C) Uncertain.
Ans: a
10
Chapter 3
Tools of Normative Analysis
Multiple-Choice
1. The slope of the production possibilities curve is the
A) marginal rate of substitution.
B) contract curve.
C) offer curve.
D) Engel curve.
E) marginal rate of transformation.
Ans: e
2. The First Fundamental Theorem of Welfare Economics requires
A) producers and consumers to be price takers.
B) that there be a market for every commodity.
C) that the economy operate at some point on the utility possibility curve.
D) all of the above.
Ans: d
3. Points outside the production possibility frontier are
A) producible.
B) endowment points.
C) consumer equilibrium points.
D) unattainable.
Ans: d
4. General equilibrium refers to
A) examining markets without specific information.
B) finding equilibrium from general information.
C) pricing goods at their shadow price.
D) all of the above.
E) none of the above.
Ans: e
5. The marginal rate of substitution is
A) the slope of the utility curve.
B) the slope of the contract curve.
C) the slope of the utility possibilities curve.
D) none of the above.
Ans: a
6. Market failure can occur when
A) monopoly power exists in the market.
B) markets are missing.
C) consumers can influence prices.
D) all of the above.
Ans: d
7. Partial equilibrium is
A) exactly like general equilibrium.
11
B) studying only the supply side of the market.
C) studying individual markets.
D) examining the demand side of the market.
Ans: c
8. A public good is
A) a good that the public must pay for.
B) nonrival in consumption.
C) more costly than a private good.
D) paid for by the government.
Ans: b
9. Merit goods
A) are provided for those who behave themselves and play nice.
B) should be provided even if there is no demand for them.
C) increase in costs along with demand.
D) do none of the above.
Ans: b
10. A social welfare function
A) is a function made by the Department of Welfare.
B) is a function that shows that the utilities of society are incorporated into society’s well-being.
C) can never be derived numerically.
D) is all of the above.
Ans: b
11. Movement from an inefficient allocation to an efficient allocation in the Edgeworth Box will
A) increase the utility of all individuals.
B) increase the utility of at least one individual, but may decrease the level of utility of another person.
C) increase the utility of one individual, but cannot decrease the utility of any individual.
D) decrease the utility of all individuals.
Ans: b
12. Points on the utility possibility frontier are
A) inefficient.
B) points of incomplete preferences.
C) not producible.
D) Pareto.
Ans: d
13. The Edgeworth Box should
A) lie inside the PPF.
B) lie partially inside the PPF.
C) lie completely outside of the PPF.
D) never touch the PPF.
Ans: a
14. Pareto points in the Edgeworth Box are
A) found when utility curves are tangent.
B) found when MRS are equal.
C) found when one person cannot be made better off without making another person worse off.
12
D) all of the above.
E) none of the above.
Ans: d
15. The Second Fundamental Theorem of Welfare Economics requires
A) that indifference curves be convex to the origin.
B) that isoquants be concave to the origin.
C) that there are no set prices for Pareto efficient allocations.
D) that production be twice as large as consumption.
E) all of the above.
Ans: a
21. Welfare economics is concerned with individual desirability of alternative economic states.
A) True.
B) False.
C) Uncertain.
Ans: b
22. The contract curve is the collection of points where utility curves are tangent in the Edgeworth box.
A) True.
B) False.
C) Uncertain.
Ans: a
23. The Utility Possibility Curve is derived from utility curves.
A) True.
B) False.
C) Uncertain.
Ans: a
24. When the First Fundamental Theorem of Welfare Economics doesn’t hold, there is a market failure.
A) True.
B) False.
C) Uncertain.
Ans: a
25. Externalities can be difficult to detect in open economies.
A) True.
B) False.
C) Uncertain.
Ans: c
26. Social indifference curves are the same as a Social Welfare Function.
A) True.
B) False.
C) Uncertain.
Ans: a
27. A utility possibilities frontier need not incorporate the utility of every individual.
A) True.
B) False.
13
C) Uncertain.
Ans: a
28. In equilibrium, the MRT should equal the MRS of all individuals.
A) True.
B) False.
C) Uncertain.
Ans: a
29. If the market does not allocate resources perfectly, the government can.
A) True.
B) False.
C) Uncertain.
Ans: c
30. Normative economics is more important than positive economics.
A) True.
B) False.
C) Uncertain.
Ans: c
31. Marginal cost of a product is the incremental cost of one additional unit of input
A) True.
B) False.
C) Uncertain.
Ans: a
32. Pareto improvement can be a reallocation of resources that makes more than one person better off.
A) True.
B) False.
C) Uncertain.
Ans: a
14
Chapter 4
Public Goods
Multiple Choice
1. Public goods are characterized by
A) nonrivalness.
B) excludability.
C) the sum of the MRSs equaling MRT.
D) all of the above.
Ans: d
2. Market mechanisms are unlikely to provide
A) prices.
B) nonrival goods efficiently.
C) supply and demand.
D) none of the above.
Ans: b
3. A pure private good is
A) nonrival in consumption and subject to exclusion.
B) rival in consumption and subject to exclusion.
C) rival in consumption and not subject to exclusion.
D) all of the above.
Ans: b
4. Commodity egalitarianism refers to commodities that
A) are important for most consumers.
B) are too dangerous for most consumers.
C) should be made available to all consumers.
D) are good ideas but never produced.
E) are produced in bulk.
Ans: c
5. Charging individual prices that are based on consumers’ willingness to pay is
A) government price supports.
B) will pricing.
C) second tier pricing.
D) price discrimination.
Ans: d
6. Equilibrium for public goods is characterized by
A) MSB = MSB.
B) MRS = MRT.
C) MRS = MRS = MRS=…=MRS = MRT.
D) MC = MB.
E) MRS – MRT = MSB.
Ans: c
15
7. Summing demand curves horizontally sends market ______________ to individuals, while summing
vertically sends market ______________ to individuals.
A) price; price
B) quantity; quantity
C) quantity; price
D) price; quantity
Ans: d
8. Public goods can be
A) provided privately.
B) provided publicly.
C) subject to free rider problems.
D) all of the above.
Ans: d
9. A ________ is a person who wants to enjoy the benefits of a public good without contributing his or
her marginal benefit to the cost of financing the amount made.
A) free rider
B) politician
C) price maker
D) price optimizer
Ans: a
10. Congestible public goods
A) are nonrival in consumption.
B) can not be priced in the market.
C) are rival in consumption.
D) are never provided by the private sector.
Ans: c
11. A private good is
A) nonrival in consumption.
B) subject to free rider problems.
C) subject to exclusion.
D) not subject to exclusion.
E) none of the above.
Ans: c
12. When those that do not contribute to the costs of a public good are denied use, this is a case of
A) exclusion.
B) being nonrival.
C) price discrimination.
D) infeasibility.
E) all of the above.
Ans: a
13. Which of the following is a public good?
A) public defense
B) public television
C) a library
D) schools
16
E) all of the above
Ans: d
14. Pure private goods are supplied through
A) the market.
B) government taxes.
C) merit pricing.
D) none of the above.
Ans: a
15. School vouchers are
A) provided by the government.
B) provided by private organizations.
C) public funds to be used for private tuition.
D) all of the above.
Ans: d
16. When asked to reveal their true preferences people
A) always tell the truth.
B) never tell the truth.
C) sometimes tell the truth.
D) generally don’t know what preferences are.
Ans: c
17. The MRT is
A) the marginal ring tone.
B) the minimal rate of time.
C) the maximum rate of transformation.
D) none of the above.
Ans: d
23. The free rider problem causes less than optimal production of a public good.
A) True.
B) False.
C) Uncertain.
Ans: a
24. Pure private goods are nonrival in consumption.
A) True.
B) False.
C) Uncertain.
Ans: a
25. Most goods that are nonexcludable are pure public goods.
A) True.
B) False.
C) Uncertain.
Ans: c
26. Vertical summation of demand curves yield results equivalent to those of horizontal summation.
A) True.
17
B) False.
C) Uncertain.
Ans: b
27. Increasing the quantity of a pure public good can be done at zero cost.
A) True.
B) False.
C) Uncertain.
Ans: b
28. Demand curves for pure public goods satisfy the law of demand.
A) True.
B) False.
C) Uncertain.
Ans: a
29. Pure public goods involve positive externalities.
A) True.
B) False.
C) Uncertain.
Ans: a
30. Increases in spending on education will lead to an increase in student performance.
A) True.
B) False.
C) Uncertain.
Ans: c
31. Privatization means taking services that are supplied by the government and turning them over to the
private sector for provision.
A) True.
B) False.
C) Uncertain.
Ans: a
32. Private goods are always provided by the private sector.
A) True.
B) False.
C) Uncertain.
Ans: b
33. The Global Positioning System (GPS) is an example of a good that is both non-rival and excludable
good.
A) True.
B) False.
C) Uncertain.
Ans: a
34. Choosing between public or private provision of a good always lead to market efficiencies.
A) True.
B) False.
C) Uncertain.
Ans: c
18
Chapter 5
Externalities
Multiple-Choice
1. Reducing output from the privately optimal level to the socially optimal level will
A) cause a loss of consumption to consumers.
B) reduce marginal damages.
C) reduce the production costs.
D) cause all of the above.
Ans: d
2. Marginal damages are hard to measure because
A) they can be generated from multiple sources.
B) they are hard to graph.
C) they happen over time.
D) no one cares about them.
Ans: a
3. In Figure 5.4, if the marginal damages line did not originate at 0,
A) it would mean that marginal damages did not exist.
B) there is no way to find MSC.
C) MSC would not originate at the same intercept as MPC.
D) then all of the above.
Ans: c
4. Externalities can be positive because
A) marginal damages do not last over time.
B) utility can be impacted positively as well as negatively.
C) there is no concept for marginal benefit.
D) positive externalities are subsidies.
Ans: b
5. Refer to the graphs below. Which graph(s) represent(s) an externality?
19
A) graph A
B) graphs A and B
C) graph B
D) neither graph A nor graph B
Ans: c
6. Refer to Figure 5.7 in the textbook. What does it mean if all firms have to reduce to a point
( Z *  X *)
2
?
A) Firm X will reduce more than optimal.
B) Firm Z will reduce less than optimal.
C) The new point is between X* and Z*.
D) All of the above.
Ans: d
7. The Coase theorem has problems because
A) generally, bargaining costs are not zero.
B) individuals are not concerned with others.
C) markets always exist.
D) all of the above.
Ans: a
8. Pollution rights may be traded if
A) polluters try to hide pollution.
B) administrators are uncertain about Pigouvian taxes.
C) there is no market for pollution.
D) pollution is harmless.
Ans: b
9. Externalities can be produced by ____________, as well as ____________.
A) individuals; firms
B) market prices; market incomes
C) oceans; streams
D) none of the above
Ans: a
10. A Pigouvian tax corrects for
A) market congestion.
B) market losses.
C) inefficient sales.
D) low market prices.
Ans: d
11. Which of the following is correct?
A) SMC = PMC - MD
B) MPB = MSB + MEB
C) SMC = PMC + MD
D) MSC = MPB
E) MSB =MSC + MPB
Ans: c
20
12. Marginal benefits are downward sloping when
A) there are no total benefits.
B) the slope of the marginal benefits curve is negative.
C) total benefits are increasing at a decreasing rate.
D) marginal costs are upward sloping.
Ans: b
13. A Pigouvian subsidy
A) can not exist with externalities.
B) is the same thing as a Pigouvian tax.
C) is measured in terms of Pigouvian dollars.
D) moves production to the socially optimal level of output.
Ans: d
14. As a general rule, zero pollution is not socially desirable because
A) there would be no production.
B) the Environmental Protection Agency (EPA) needs to have something to do.
C) no pollution would lead to global warming.
D) all of the above.
Ans: a
15. Externalities require government intervention when
A) violence will result between disputing parties.
B) there are only a few sellers in the market.
C) property rights are not clearly established.
D) the government imposes sales taxes.
E) all of the above.
Ans: c
16. Which method helps in obtaining the socially optimal level of output?
A) Pigouvian taxes
B) regulation
C) property rights and bargaining
D) all of the above
Ans: d
17. Marginal damages
A) must always be considered in social marginal costs.
B) must not be considered in social marginal costs.
C) must sometimes be considered in social marginal costs.
D) have nothing to do with social marginal costs.
Ans: a
18. A tax levied on each unit of pollution is
A) a income tax
B) a emissions fee
C) a flat tax
D) an international tax
Ans: b
21
19. A cap-and-trade policy
A) has a set number of permits
B) allows polluters to trade permits
C) caps the total level of pollution allowed
D) all of the above
E) none of the above
Ans: d
20. Command-and-control regulations
A) are less flexible than incentive based regulations
B) come from the private sector
C) have technology standards a type of control
D) a & c
E) a & b
Ans: d
26. Externalities always work themselves out.
A) True.
B) False.
C) Uncertain.
Ans: b
27. Negative externalities cause loss of welfare not transmitted by market factors.
A) True.
B) False.
C) Uncertain.
Ans: a
28. Externalities can be positive, as well as negative.
A) True.
B) False.
C) Uncertain.
Ans: a
29. A subsidy for pollution not produced can induce producers to pollute at the efficient level.
A) True.
B) False.
C) Uncertain.
Ans: a
30. Pollution rights can be traded and are always efficient.
A) True.
B) False.
C) Uncertain.
Ans: c
31. Regulation helps to correct for externalities.
A) True.
B) False.
C) Uncertain.
Ans: a
22
32. Any commodity market has the potential to have an externality.
A) True.
B) False.
C) Uncertain.
Ans: c
33. Market-oriented solutions to externalities rarely work.
A) True.
B) False.
C) Uncertain.
Ans: b
34. For market efficiency, MSC must be equated to MSB.
A) True.
B) False.
C) Uncertain.
Ans: a
35. College education is an example of a positive externality.
A) True.
B) False.
C) Uncertain.
Ans: c
36. An emissions fee is preferable to a cap-and-trade when MSB are elastic and costs are uncertain.
A) True.
B) False.
C) Uncertain.
Ans: a
37. Incentive-based regulations provide polluters no incentive to reduce pollution and are thus not used
often.
A) True.
B) False.
C) Uncertain.
Ans: b
23
Chapter 6
Political Economy
Multiple-Choice
1. Majority rule voting
A) requires a simple majority greater than half the voters.
B) requires that rules of order be established.
C) does not occur in democracies.
D) can only be applied to single issues.
Ans: a
2. With multiple-peaked preferences,
A) a unique political equilibrium does not exist.
B) all individuals have a point that is most preferred.
C) the law of transitivity is violated.
D) all of the above.
Ans: d
3. Logrolling is
A) a system used often at lumberjack contests.
B) a system that will always lead to worthy projects getting funded.
C) a system that involves the trading of votes.
D) a system that generally involves double-peaked preferences.
E) all of the above.
Ans: c
4. Rent seeking involves
A) finding reasonable rent rates.
B) price floors.
C) price ceilings.
D) citizen groups lobbying elected officials to manipulate government policy.
E) none of the above.
Ans: d
5. Special interest groups are established on the basis of
A) sources of labor.
B) size of income.
C) sources of income.
D) region.
E) all of the above.
Ans: e
6. When each individual has consistent preferences, but those of the community are not consistent, it is
known as
A) agenda manipulation.
B) majority rule.
C) voting paradox.
D) logrolling.
E) independence of irrelevant alternatives.
Ans: c
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7. In a representative democracy, there are
A) elected politicians.
B) public employees.
C) special interests.
D) all of the above.
Ans: d
8. A person prefers large and small levels of national defense to medium-sized levels of national defense.
This person
A) is violating the law of transitivity.
B) has single-peaked preferences.
C) has multiple-peaked preferences.
D) can not achieve his or her most-preferred outcome.
Ans: c
9. It is stated that, in democracy, every vote counts. To be a contentious voter in a democracy, one
should
A) spend some time learning about the issues.
B) find out about the positions of the candidates.
C) be sure to vote.
D) do all of the above.
Ans: d
10. Political parties
A) have a large influence on setting the political agenda of candidates.
B) are only concerned with market efficiency.
C) have primaries that influence the party platform.
D) a and b.
E) a and c.
Ans: e
11. Voter fraud
A) can have a detrimental effect on the political process.
B) is easily detected.
C) is defined as trading votes to pass certain political agenda items.
D) is more likely to occur in dictatorial political frameworks.
E) is more prevalent among younger voters.
Ans: a
12. Government bureaucrats want larger budgets
A) because salaries are sometimes tied to budget size.
B) to fulfill an “empire building” tendency.
C) because it may be necessary to ensure marginal benefits of output equal marginal costs.
D) because of all of the above.
Ans: d
13. Lindahl prices
A) result in efficient levels of public goods provision.
B) require honest revelation of preferences.
C) result in different prices for the same amount of output.
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D) cause all of the above.
E) cause none of the above.
Ans: d
14. Government growth has been caused by
A) citizens who want larger government.
B) lots of public lands available in the West.
C) increases in privatization.
D) inflation.
E) none of the above.
Ans: a
15. Which of the following is an example of a special-interest group?
A) Democratic party
B) Bureau of Alcohol, Tobacco, and Firearms
C) National Rifle Association
D) Association of State Legislators
E) all of the above
Ans: c
16. The Budget Enforcement Act (BEA) of 1990
A) focuses on spending and revenue targets
B) was implanted by the Bureau of Economic Analysis
C) created the Department of Homeland Security
D) all of the above
Ans: a
17. In 1930 which country had the highest ratio of government expenditures to GDP?
A) Canada
B) Switzerland
C) United Kingdom
D) none of the above.
Ans: c
23. The possibility of multiple-peaked preferences can not be ruled out.
A) True.
B) False.
C) Uncertain.
Ans: a
24. Applying economic principles to the analysis of political decision making is political economy.
A) True.
B) False.
C) Uncertain.
Ans: a
25. Mathematically, agenda manipulation can not occur with economies greater than four people.
A) True.
B) False.
C) Uncertain.
Ans: b
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26. The median voter must have preferences that reflect those of all people in the community.
A) True.
B) False.
C) Uncertain.
Ans: b
27. Elected officials never care about the wishes of the voting public and govern using their own value
system.
A) True.
B) False.
C) Uncertain.
Ans: c
28. Special interest groups are a determent to the political process.
A) True.
B) False.
C) Uncertain.
Ans: b
29. Under certain assumptions, the actions of elected officials mimic the wishes of the median voter.
A) True.
B) False.
C) Uncertain.
Ans: a
30. Arrow’s impossibility theorem is not relevant to modern analysis of political economy.
A) True.
B) False.
C) Uncertain.
Ans: b
31. Governments can work efficiently whether large or small.
A) True.
B) False.
C) Uncertain.
Ans: c
32. In William Niskanen’s model of bureaucracy, the efficient level of government output is greater than
the actual level of output.
A) True.
B) False.
C) Uncertain.
Ans: b
33. Government is inherently bad.
A) True.
B) False.
C) Uncertain.
Ans: b
34. Most economists – both liberals and conservatives – believe a balanced budget amendment is an illconceived idea.
A) True.
B) False.
C) Uncertain.
Ans: a
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Chapter 7
Education
Multiple Choice
1. Vouchers allow students to
A) get free lunches at public schools.
B) go to public schools at reduced rates.
C) receive discounts on school supplies like pens and paper.
D) all of the above
E) none of the above
Ans: e
2. _________ is the investment that individuals make in education, training, and health care that raise
their productive capacity
A) Capital market
B) Human capital
C) Human engineering
D) Private good production
Ans: b
3. In 2002 ___________ had the highest annual expenditures on public and private schools per student
A) Spain
B) France
C) United States
D) Japan
E) Switzerland
Ans: e
4. Publicly provided education is generally considered
a) a public good that generates positive externalities.
b) not to be a public good that generates negative externalities.
c) not to be a public good that generates positive externalities.
D) a public good that generates negative externalities.
E) not a public good and does not generate any externalities.
Ans: c
5. Reducing class size will
A) improve student test scores
B) decrease student test scores
C) have no impact on student test scores.
D) have an undetermined impact on test scores.
Ans: d
6. Charter schools
A) are public schools
B) operate under special state government charters
C) can experiment with a variety of approaches to education
D) have some independence in making spending and hiring decisions.
E) all of the above.
Ans: e
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7. By the year 2000 _____ states had accountability systems in place
A) 39
B) 15
C) 50
D) 25
Ans: a
8. Public provision of education might
A) cause property values to fall
B) crowd out private provision
C) decrease local taxes.
D) none of the above.
Ans: b
9. Between 2003 and 2004 real annual expenditure per pupil in public elementary and secondary schools
A) increased by $6
B) decreased by $7
C) did not change
D) increased by $7
E) decreased by $9
Ans: a
10. The presence of positive externalities _____ justify the current structure of government programs for
higher education
A) does not
B) does
C) should not
D) should.
Ans: a
11. Some critics have argued that moving children to private schools might reduce the _________ of
education.
A) pure public goods aspect
B) positive externalities
C) size of library holdings
D) size of teachers unions influence
E) none of the above
Ans: b
12. The federal government subsidizes higher education
A) less than primary and secondary education
B) more than primary and secondary education
C) about the same as primary and secondary education
D) because it does not subsidize primary and secondary education
Ans: a
13. Since the 1960s, SAT scores have been
A) falling
B) rising
C) stayed the same
D) none of the above
Ans: a
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14. Government subsidies for education are motivated by
A) concerns over disease
B) concerns over creating jobs for teachers
C) concerns over equity
D) concerns over choice.
Ans: c
15. Under school voucher systems, financial support goes to
A) to the school
B) to the school district
C) to the state
D) to the city
E) to the family
Ans: e
19. Education is one of the few areas of study in your text that do not require the use of public finance.
A) True.
B) False.
C) Uncertain.
Ans: b
20. Commodity egalitarianism suggests that some goods be available to everyone.
A) True.
B) False.
C) Uncertain.
Ans: a
21. Human capital is increased when an firm makes investments that raise workers productivity.
A) True.
B) False.
C) Uncertain.
Ans: c
22. Crowding out occurs when public provision of a good substitutes for private provision.
A) True.
B) False.
C) Uncertain.
Ans: a
23. There is no correlation between more years of schooling and increased earnings.
A) True.
B) False.
C) Uncertain.
Ans: b
24. A criticism of market-oriented schemes say that consumers may not be well Iinformed.
A) True.
B) False.
C) Uncertain.
Ans: a
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25. Loans are better than grants for higher education.
A) True.
B) False.
C) Uncertain.
Ans: c
26. Standardized tests are used in efforts to make schools more accountable.
A) True.
B) False.
C) Uncertain.
Ans: a
27. All students should go on to college.
A) True.
B) False.
C) Uncertain.
Ans: c
28. In Figure 7.1, Panel B shows free public schooling leading to less education.
A) True.
B) False.
C) Uncertain.
Ans: b
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