Course
Public Finance
Test
Final Exam Part 1
Instructions This final exam consist of 30 multiple choice questions and covers the material in
Chapters 8 through 12. There are six questions from each Chapter.
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Question 1
3 out of 3 points
A worker earns $2,000 per month before taxes. He pays $140 per month payroll tax on
those wages. In addition, the income taxes on those wages are $360 per month. On
retirement, the worker receives a Social Security pension of $750 per month. Which of the
following statements is true?
Answer
Correct Answer:
The worker’s net replacement rate is 50 percent.
Question 2
3 out of 3 points
The Social Security Act was implemented in the United States in:
Answer
Selected Answer:
1935.
Correct Answer:
1935.
Question 3
3 out of 3 points
The gross replacement rate:
Answer
Selected
Answer:
Correct
Answer:
measures a worker’s monthly retirement benefit divided by monthly earnings
before taxes in the year prior to retirement.
measures a worker’s monthly retirement benefit divided by monthly earnings
before taxes in the year prior to retirement.
Question 4
Social Security tax rates can be reduced if:
Answer
Correct Answer:
the retirement age is raised.
Question 5
The Social Security retirement system:
Answer
Selected
Answer:
Correct
Answer:
is a tax-financed retirement system that finances pensions by taxing
workers each year and transferring the bulk of revenues obtained directly to
retirees.
is a tax-financed retirement system that finances pensions by taxing
workers each year and transferring the bulk of revenues obtained directly to
retirees.
Question 6
The induced-retirement effect of the Social Security pension system induces workers to:
Answer
Correct Answer:
save more for retirement.
Question 7
Which of the following is true about the Medicare program in the United States?
Answer
Correct Answer:
It is available to all citizens over the age of 65.
Question 8
The percent of total health care costs in the United States paid for by governments is
approximately:
Answer
Correct Answer:
45 percent.
Question 9
The government program that provides the health insurance to the poor in the United States is
called:
Answer
Correct Answer:
Medicaid.
Question 10
Under national health insurance as operated in Great Britain,
Answer
Correct
Answer:
general practice physicians are paid on a per-patient rather than on a per-unitof-service basis.
Question 11
Most of the medical bills of Americans in the United States are paid by:
Answer
Correct Answer:
private and government health insurance.
Question 12
What is the moral hazard associated with third party payment for health services?
Answer
Correct
Answer:
The recipient of services tends to have more services than what is needed
relative to the efficient level of services.
Question 13
A proportional income tax has an average tax rate that:
Answer
Correct Answer:
always equals the marginal tax rate.
Question 14
A tax on real estate is a:
Answer
Selected Answer:
selective wealth tax.
Correct Answer:
selective wealth tax.
Question 15
If the average tax rate under a progressive tax rate structure is 35%, a possible marginal tax
rate is:
Answer
Correct Answer:
42%.
Question 16
3 out of 3 points
A 5-percent retail sales tax on all consumer purchases in a state is imposed. The sales tax is:
Answer
Correct Answer:
a flat-rate tax.
Question 17
Taxes:
Answer
Selected Answer:
are compulsory payments associated with certain activities.
Correct Answer:
are compulsory payments associated with certain activities.
Question 18
Which of the following countries has the highest average tax rate relative to GDP?
Answer
Correct Answer:
Sweden
Question 19
The efficiency-loss ratio relative to tax is:
Answer
Selected Answer:
the excess burden divided by the tax revenue.
Correct Answer:
the excess burden divided by the tax revenue.
Question 20
If a lump-sum tax is imposed, the slope of the new budget line relative to the budget line
prior to the tax:
Answer
Selected Answer:
remains unchanged.
Correct Answer:
remains unchanged.
Question 21
3 out of 3 points
Viewed from origin a price distorting tax creates a new budget line with a ______ slope relative to
the budget line without the tax.
Answer
Selected Answer:
more steep
Correct Answer:
more steep
Question 22
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 23
Other things being equal, the more inelastic the demand for a taxed good,
Answer
Selected Answer:
the greater the portion of the tax paid by buyers.
Correct Answer:
the greater the portion of the tax paid by buyers.
Question 24
The supply of new cars is perfectly elastic. A $400 per car tax is levied on buyers. As a result of the
tax,
Answer
Correct Answer:
the price paid by buyers, including the tax, will increase by $400.
Question 25
3 out of 3 points
The federal government, its agencies, and the Federal Reserve System:
Answer
Selected Answer:
hold between 15 and 25 percent of the outstanding federal debt.
Correct Answer:
hold between 15 and 25 percent of the outstanding federal debt.
Question 26
The National Income and Product Accounts budget balance reflects:
Answer
Correct Answer:
new debt resulting from a federal budget deficit.
Question 27
The total dollar value of the federal debt outstanding is:
Answer
Correct Answer:
less than 50 percent of GDP.
Question 28
The debt of state and local governments is mostly:
Answer
Selected Answer:
external.
Correct Answer:
external.
Question 29
If the federal government runs a surplus consistently, then which of the following is likely to
occur?
Answer
Correct Answer:
The gross federal debt will decrease.
Question 30
An increase in government borrowing has no effect on the willingness of citizens to save or
on the demand for credit. Increased borrowing to cover deficits will therefore:
Answer
Correct Answer:
increase interest rates.