Review Test Submission: Quiz 6
Course
Public Finance
Test
Quiz 6
Instructions This quiz consist of 30 multiple choice questions. The first 15 questions cover the
material in Chapter 11. The second 15 questions cover the material in Chapter 12. Be
sure you are in the correct Chapter when you take the quiz.
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Question 1
Housing construction is generally believed to be an industry of constant costs. In the long
run, which of the following is true if a $10 per square foot tax on housing construction is
collected directly
from builders?
Answer
Selected Answer:
The tax will be fully shifted to buyers of new construction.
Correct Answer:
The tax will be fully shifted to buyers of new construction.
Question 2
2 out of 2 points
Which of the following is true about a lump-sum tax?
Answer
Correct Answer:
It causes income effects.
Question 3
2 out of 2 points
The demand for medical care is very inelastic. If a 10-percent tax is levied on the sale of
medical services and is collected from medical-care providers, then:
Answer
Correct
Answer:
most of the tax is likely to be shifted to those who purchase medical
care.
Question 4
2 out of 2 points
Currently, a 10-cent per gallon tax is levied on gasoline consumption. The tax is increased to 20
cents per gallon. The excess burden of the tax will:
Answer
Correct Answer:
increase four times.
Question 5
Suppose an economy is comprised of only two markets: one for food and the other for
housing. A tax on food used to finance transfer payments is likely to:
Answer
Correct Answer:
decrease the price of housing.
Question 6
A $0.30 per unit tax is imposed on a good that reduces the quantity supplied and demanded by
1000 units. What is the deadweight loss (ignore price elasticities)?
Answer
Correct Answer:
$150.00
Question 7
The efficiency-loss ratio relative to tax is:
Answer
Correct Answer:
the excess burden divided by the tax revenue.
Question 8
2 out of 2 points
The current price of compact discs, which are traded in perfectly competitive markets, is
$10. A $1 per unit tax is levied on the discs. Annual record sales decline from five million to
four million as a result of the tax. Assuming that the income effect of the tax-induced price
change is negligible, the excess burden of the tax will be:
Answer
Correct Answer:
$500,000 per year.
Question 9
2 out of 2 points
If a lump-sum tax is imposed, the slope of the new budget line relative to the budget line
prior to the tax:
Answer
Correct Answer:
remains unchanged.
Question 10
If the price elasticity of supply of labor is equal to 0.5 and the price elasticity of demand for labor
is –2, then which of the following is likely to result from a tax on labor earnings?
Answer
Correct
Answer:
Some of the tax will be shifted to employers as market equilibrium wages
increase.
Question 11
A lump-sum tax:
Answer
Correct
Answer:
can result in price changes but does not prevent prices from
simultaneously being equal to MSB
and MSC.
Question 12
2 out of 2 points
Other things being equal, the more inelastic the demand for a taxed good,
Answer
Correct Answer:
the greater the portion of the tax paid by buyers.
Question 13
2 out of 2 points
Differential tax incidence measures the effect:
Answer
Correct
Answer:
on the distribution of income of substituting one tax for another while
holding the size and composition of the budget fixed.
Question 14
2 out of 2 points
Most studies of tax incidence assume that taxes on labor income and other input services
are borne entirely by the workers and other input owners that supply the services. This
implies that the:
Answer
Correct Answer:
supply of those input services is perfectly inelastic.
Question 15
Viewed from origin a price distorting tax creates a new budget line with a ______ slope
relative to the budget line without the tax.
Answer
Correct Answer:
more steep
Question 16
2 out of 2 points
Which of the following can contribute to a decrease in national saving?
Answer
Correct Answer:
a federal budget deficit
Question 17
The total dollar value of the federal debt outstanding is:
Answer
Correct Answer:
less than 50 percent of GDP.
Question 18
A government’s internal debt is:
Answer
Correct Answer:
debt owed to its citizens.
Question 19
Other things being equal, a government budget surplus:
Answer
Correct Answer:
increases the supply of loanable funds.
Question 20
The largest portion of the net federal debt outstanding is owed to:
Answer
Correct Answer:
U.S. citizens and companies.
Question 21
2 out of 2 points
Which of the following is true about the federal government budget balance in the United
States?
Answer
Correct Answer:
The federal budget had a surplus from 1998 until 2001.
Question 22
The federal budget has been in deficit:
Answer
Correct Answer:
for every year between 1970 and 1997.
Question 23
As a result of government borrowing to cover deficits, citizens increase the supply of savings to
provide themselves with funds to pay anticipated increases in future taxes. Then it follows that
increased government borrowing will:
Answer
Correct Answer:
have no effect of private investment.
Question 24
The high employment deficit is estimated at $100 billion. Assuming that the economy is
operating below full employment and that it will not overheat during the year,
Answer
Correct Answer:
increasing GDP will not eliminate the deficit.
Question 25
High-employment deficit or surplus is:
Answer
Correct
Answer:
the amount of deficit or surplus available when employment is at its
approximately full capacity.
Question 26
The National Income and Product Accounts budget balance reflects:
Answer
Correct Answer:
new debt resulting from a federal budget deficit.
Question 27
0 out of 2 points
A bond that is backed by the tolls collected from a bridge to be constructed from the proceeds of
the bond is an example of:
Answer
Correct Answer:
a revenue bond.
Question 28
2 out of 2 points
The debt of state and local governments is mostly:
Answer
Correct Answer:
external.
Question 29
2 out of 2 points
Evidence of “crowding out” in the market for loanable funds at a rate of 8% could be:
Answer
Correct Answer:
private investors who will borrow only at a rate lower than 8%.
Question 30
2 out of 2 points
The federal government, its agencies, and the Federal Reserve System:
Answer
Correct Answer:
hold between 15 and 25 percent of the outstanding federal debt.