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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 Co-Insurance.

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.

ECO 405 Week 11 Quiz – Strayer University New

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 Co-Insurance.

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.

ECO 405 Week 9 Quiz – Strayer University New

ECO/405 Week 9 Quiz – Strayer

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Quiz 8 Chapter 11 and 12

Economic Growth: Why Is The Economic Road So Bumpy?

Multiple Choice Questions

1. Which Of The Following Is Consistent With Economic Growth?
A. Lower Unemployment
B. Increased Gdp
C. Increased Aggregate Demand
D. Increased Sales
E. All Of The Above

2. Why Is Economic Growth An Important Economic And Social Issue?
A. Economic Growth Leads To Improvements In Our Standard Of Living
B. Lower Levels Of Unemployment And Poverty Can Be Achieved Through Economic Growth
C. A Growing Economy Provides Consumers With More Choices And Opportunities
D. All Of The Above
E. Economic Growth Is Not An Important Economic Issue

3. Which Of The Following Statements Is About Economic Growth?
A. Economic Growth Is A Short-Run Process
B. Growth Of An Economy Is Generally A Smooth Process That Occurs Over Time
C. Economic Growth Is A Long-Run Process Resulting From The Compounding Of Many Events
D. To Measure Economic Growth, Economists Analyze Changes In The National Debt
E. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth

4. Which Of The Following Is The Most Commonly Used Measurement Of Economic Growth? Changes In
A. Real Gdp
B. The Money Supply
C. Nominal Gdp
D. The Federal Government Debt
E. The Level Of International Trade

5. Why Do Small Differences In Economic Growth Rates Today Result In Significant Differences In The Level Of Economic Activity In The Future?
A. Growth Rates Discount Over Time
B. Economic Growth Compounds Year After Year
C. Economics Grow In An Arithmetic Fashion
D. Business Cycles Are Less Likely At Higher Rates Of Growth
E. All Of The Above

6. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country A’s Level Of Real Gdp After 3 Years?
A. $1,000
B. $1,050
C. $1,158
D. $1,500
E. $2,500

7. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country B’s Level Of Real Gdp After 3 Years?
A. $1,000
B. $1,100
C. $1,210
D. $1,300
E. $1,331

8. Of The Following, Which Of The Following Values Most Closely Approximates The Average Annual Rate Of Growth For The U.S. Economy Since 1960?
A. 1.65%
B. 10.22%
C. 5.35%
D. 4.02%
E. 3.26%

9. Which Decade Resulted In The Lowest Average Annual Rate Of Economic Growth In The U.S.?
A. 1950s
B. 1960s
C. 1970s
D. 1980s
E. Unknown

10. Which Of The Following Decades Had The Highest Average Annual Rate Of Economic Growth In The U.S.?
A. 1930s
B. 1960s
C. 1970s
D. 1980s
E. 1990s

11. What Term Is Used To Describe An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run Trend?
A. Economic Depression
B. Economic Boom
C. Business Cycle
D. Recession
E. Diminishing Returns

12. Which Of The Following Is Not A Phase Of Every Business Cycle?
A. Trough
B. Expansion
C. Contraction
D. Depressions
E. Peak

13. Which Of The Following Lists The Four Phases Of The Business Cycle In The Correct Sequence?
A. Expansion, Peak, Contraction, Trough
B. Expansion, Contraction, Peak, Trough
C. Expansion, Peak, Contraction, Depression
D. Expansion, Peak, Depression, Trough
E. Peak, Recession, Trough, Depression

14. Which Phase Of The Business Cycle Best Describes An Economy That Is Experiencing A Positive Rate Of Economic Growth?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

15. When The Economy Ends An Expansion, It Enters Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

16. A Decline In The Level Of Economic Activity Occurs During Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

17. When Economic Output Hits A Short-Run Economic Low, The Economy Is In Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

18. An Exceptionally Strong And Prolonged Contraction Is Known As
A. A Trough
B. A Recession
C. An Economic Bust
D. A Super Contraction
E. A Business Cycle

19. The Last Depression Experienced By The U.S. Economy Occurred
A. During The 1970s
B. In 1982
C. During The 1930s
D. Between 1974-1975
E. In 1990

20. What Is The Average Length Of A Typical Business Cycle In The Modern U.S. Economy?
A. 12 Months
B. 36 Months
C. 60 Months
D. 95 Months
E. 120 Months

21. Which Group Is Responsible For Announcing The Dates For Each Phase Of A U.S. Business Cycle?
A. The Federal Reserve
B. The National Bureau Of Economic Research
C. The Department Of Commerce
D. The Bureau Of Labor Statistics
E. The Federal Business Cycle Committee

22. The Most Commonly Used Tool To Forecast Future Changes In Economic Activity Is The
A. Leading Economic Indicators Index
B. Supply Of Money
C. Unemployment Rate
D. Lagging Economic Indicators Index
E. Federal Budget Deficit

23. The Economic Variables That Make Up The Leading Economic Indicators Index Tend To Move In The ______ Direction As Overall Economic Output And Do So _____ Changes In Real Gdp.
A. Opposite; Prior To
B. Same; After
C. Opposite; After
D. Same; Prior To
E. Same; Simultaneously As

24. Which Of The Following Is Not About Business Cycles?
A. All Business Cycles Have Four Distinct Phases
B. The Average Length Of A U.S. Business Cycle Is About 60 Months
C. Since 1960, The U.S. Has Experienced Six Complete Business Cycles
D. The Last Economic Depression In The U.S. Occurred In The 1930s
E. The Turning Points Of A Business Cycle Can Be Easily Predicted

25. What Do You Call Business Cycle Theories Based On The Belief That Economic Activity Follows General Trends Of Optimism And Pessimism?
A. Theories Of Expectations
B. Real Business Cycle Theories
C. Theories Of Innovation
D. Theories Of Externalities
E. Sunspot Theories

26. Which Of The Following Economists Is Associated With The Business Cycle Theory Of Innovations?
A. John Maynard Keynes
B. William Stanley Jones
C. Joseph Schumpeter
D. Ansel Sharp
E. Adam Smith

27. Monetary Theories Of The Business Cycle Postulate That Cycles Are Strongly Influenced By The Policy Actions Of The
A. U.S. Congress
B. Federal Reserve
C. World Trade Organization
D. National Bureau Of Economic Research
E. U.S. Department Of Commerce

28. Which Of The Following Focuses Primarily On Aggregate Supply Variables?
A. Theory Of Expectations
B. Exogenous Theories
C. Monetary Theories
D. Real Business Cycle Theories
E. Jevons’ Sunspot Theory

29. What Was The First Theory Put Forth By An Economist To Explain The Phenomena Of Business Cycles?
A. Inventory Theory
B. Schumpeter’s Theory Of Innovation
C. Real Business Cycle Theories
D. Theory Of Expectations
E. Jevons’ Sunspot Theory

30. What Are The Two Primary Determinants Of Economic Growth?
A. The Availability Of Resources And Productivity Factors
B. Technology And Money
C. The Quantity Of Capital And The Quantity Of Money
D. The Ability To Trade And The Size Of The Labor Force
E. Comparative Advantage And The Law Of Diminishing Returns

31. What Is The Result Of A Growing Labor Force?
A. Lower Rates Of Interest In The Capital Market
B. Higher Rates Of Unemployment
C. The Economy’s Production Possibilities Curve Shifts Outward
D. The Economy’s Production Possibilities Curve Shifts Inward
E. The Economy’s Rate Of Growth Must Slow To Accommodate More People

32. Which Of The Following Terms Is Used To Describe The Purchase Of Capital?
A. Savings
B. Consumption
C. Technology
D. Investment
E. Production

33. Why Does Spending On Capital Tend To Increase Economic Growth More Than Spending Of Consumption Goods? Because
A. Capital Lasts Longer Than Consumer Goods
B. Capital Can Be Used To Produce Future Goods And Services
C. Capital Puts Technology To Use
D. People Prefer To Invest In Capital In Order To Generate Income
E. Capital Purchases Are Taxed At A Lower Rate Than Consumption Purchases

34. What Was The Primary Opportunity Cost Of The Former Soviet Union’s Policy To Heavily Invest In Capital For Economic Growth?
A. An Inability To Trade With Other Nations
B. Democracy
C. Foregone Consumer Goods
D. Technological Innovations
E. Foregone Military Goods

35. Initially 10 Workers Produce 100 Units Of Output In An Economy. The Next Year, 20 Workers Produce 250 Units Of Output In The Same Economy. Productivity In The Economy Has
A. Doubled
B. More Than Doubled
C. Increased
D. Decreased
E. Not Changed

36. Which Of The Following Is The Best Definition Of “Productivity”?
A. A Measurement Of How Efficiently Resources Are Converted Into Goods And Services Through A Production Process
B. A Measurement Of How Technology Increases The Ability Of An Economy To Produce Goods And Services
C. The Ratio Of Inputs To Output
D. The Quantity Of Goods And Services Produced During A Given Period Of Time By Labor
E. The Total Output Produced In An Economy Given Its Set Of Resources And The Current State Of Technology

37. How Do You Calculate The Average Product Of Labor?
A. Total Quantity Of Inputs Divided By Total Output
B. The Average Number Of Workers Times The Average Level Of Output Produced
C. Total Output Produced Divided By Total Units Of Labor Employed
D. Total Units Of Labor Employed Divided By The Total Output Produced
E. The Average Number Of Labor Units Employed Times The Quantity Of Capital Employed

38. In An Economy, 100 Workers Can Produce 500 Units Of Output And 110 Workers Produce 600 Units Of Output. Which Of The Following Is ? The Average Product With
A. 100 Workers Is 500
B. 100 Workers Is 5
C. 110 Workers Is 600
D. 10 Workers Is 100
E. Both A) And C)

39. In An Economy, 10 Workers Can Produce 500 Units Of Output And 20 Workers Produce 800 Units Of Output. Which Of The Following Is ? The Average Product With
A. 10 Workers Is 500
B. 10 Workers Is 5
C. 20 Workers Is 800
D. 20 Workers Is 300
E. 20 Workers Is 40.

40. What Is Technology?
A. The Tools Of Production
B. The Human Input Of Production
C. Computers, Robots, And Factories
D. The Means And Methods Of Production
E. The Mix Of Labor And Capital Used In Production

41. Which Of The Following Is Cited As Contributing To The Recent Slowdown In Economic Growth?
A. Slower Rates Of Technological Advancement
B. Changes In Composition Of The Labor Force
C. Low Rates Of Saving And Investment
D. Government Regulation And Public Debt
E. All Of The Above

42. How Has The Increasing Importance Of The U.S. Service Sector Contributed To The Slowdown In Economic Growth?
A. Services Are Less Important To The Economy Than Goods
B. The Productivity Of The Service Sector Is Hard To Accurately Measure
C. Most Investment Takes Place In The Goods Producing Sector Of The Economy
D. Services Cannot Be Easily Exported To Foreign Nations
E. Technological Advances Have Had A Smaller Impact On The Service Sector

43. What Is The “Crowding Out” Effect?
A. Consumption Spending Is Reduced Because Of Spending On Capital
B. Capital Spending Is Reduced Because People Purchase Great Quantities Of Consumer Goods
C. Private Investment Is Reduced Because Government Borrowing Diverts Dollars Away
D. Government Spending Creates A Larger Demand For Capital Goods
E. Savings Is Insufficient To Support The Level Of Capital Investment In The Economy

44. Which Of The Following Is A “Pro-Growth” Economic Policy?
A. Raising The Tax On Capital Gains
B. Encouraging People To Save Less
C. Reducing Public Dollars Available For Education
D. Investing In Human Capital
E. None Of The Above

45. How Much Does The Federal Government Spend Annually On Research And Development?
A. Less Than 1% Of Gdp
B. About 10% Of Gdp
C. More Than 25% Of Its Budget
D. Zero
E. Exactly 5% Of Its Budget

46. Which Theories Concerning The Business Cycle Focus On Factors Outside Of The Economy?
A. Expectations Theories
B. Inventory Theories
C. Exogenous Theories
D. Monetary Theories
E. Theories Of Innovation

47. The Economic Growth Of An Economy Is Generally Measured By Examining Changes In
A. Employment
B. Real Gdp
C. Income
D. Government Revenues
E. Current Gdp

48. Which Of The Following Statements Is ?
A. The U.S. Economy Grew At A Higher Rate In The 1980s Than It Did In The 1960s
B. The Leading Economic Indicators Index Is Useful For Predicting Economic Recessions, But Not Economic Expansions
C. The Economist Most Often Associated With Theories Of Innovation Used To Explain Business Cycles Is Milton Friedman
D. A Small Reduction In Economic Growth Can Have Large Long-Run Effects On Real Gdp
E. All Of The Above Statements Are

49. How Many Complete Business Cycles Has The U.S. Experienced Since 1960?
A. 7
B. 1
C. 12
D. 2
E. 23

50. Relative To The Past, Business Cycles In The U.S. Are Becoming
A. Shorter In Duration
B. More Severe
C. Longer In Duration
D. (A) And (B)
E. Non-Existent

51. Which Of The Following Is Responsible For Officially Tracking The Index Of Leading Economic Indicators?
A. The U.S. Department Of Commerce
B. The Conference Board
C. The Bureau Of Labor Statistics
D. The Council Of Economic Advisors
E. The Federal Reserve Board Of Governors

52. Which Of The Following Is Not A Component Of The Index Of Leading Economic Indicators?
A. Stock Market Prices
B. An Index Of Consumer Expectations
C. New Building Permits Granted
D. Real Money Supply
E. None Of The Above. All Are Part Of The Index

53. In Response To An Economic Recession, Monetary Theories Of The Business Cycle Predict That The Federal Reserve Would
A. Increase The Supply Of Money To Create An Expansion
B. Reduce The Supply Of Money To Create An Expansion
C. Raise Interest Rates To Increase Real Economic Growth
D. Increase The Demand For Money To Bring About Economic Growth
E. Lower Taxes To Avoid A Full Depression

54. Which Famous Economist Is Associated With The Sunspot Theory Of Business Cycles?
A. Joseph Schumpeter
B. Milton Friedman
C. William Stanley Jevons
D. John Maynard Keynes
E. Charles Alan Register

55. Which Set Of Theories Can Be Used To Explain All Business Cycles?
A. Exogenous Theories
B. Theories Of Innovation
C. Inventory Theories
D. Monetary Theories
E. None Of The Above. No One Theory Can Explain Every Business Cycle

56. For An Economy To Expand Its Investment In The Production Of Capital Goods, It Must
A. Enhance Its Current Level Of Technology
B. Forego Some Production Of Consumer Goods And Services
C. Expand Its Geographic Territory
D. Increase Its Real Supply Of Money
E. Reduce The Level Of Savings By Consumers

57. The Quantity Of Capital In The U.S. Economy Has Grown At A Rate ________ The Growth In The Labor Force.
A. Slower Than
B. About The Same As
C. Faster Than
D. Only Half As Much As
E. Unknown

58. Human Capital Refers To
A. Foregone Earnings Of Students Enrolled In College
B. Money Required To Enroll In Educational Programs
C. Slaves Owned By Capitalists
D. Skills And Training That Increase A Worker’s Productivity
E. Factories And Equipment Owned By Workers

59. The First Decade Of The 21st Century Has Been Characterized By ______.
A. A Booming Economy Through The Period
B. A Recession At The Start Of The Decade, Followed By A Slow Recovery And Then A Second Recession
C. Stagflation
D. One Recession Followed By An Unprecedented Economic Boom
E. None Of The Above

60. Which Of The Following Statements Is ?
A. In The Foreseeable Future, Real Gdp Will Grow Slower Than The U.S. Population
B. Based On Past Economic Performance, It Is Likely That Standards Of Living In The U.S. Will Fall During The Early Part Of The 21st Century
C. Real Per Capita Gdp Will Likely Increase In The Near Future Due In Part To The Slowdown In The Rate Of Population Growth
D. In Economics, The Past Is A Very Poor Predictor Of The Future
E. The Rate Of Economic Growth Does Not Affect Individual People

Questions 61 – 65 Refer To The Graph Below.

61. An Economy’s Production Possibilities Curve Will Shift Out The Farthest In 2017 If It Chooses To Operate At Which Point In 2012?
A. A
B. B
C. C
D. F
E. E

62. An Increase In Labor Resources Will Cause Which Of The Following Shifts On The Graph?
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

63. Economic Growth Is Represented On The Graph As A Movement From
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

64. An Increase In Productivity Is Consistent With Which Of The Following Movements?
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

65. A Movement From Point D To Point C Is Consistent With
A. An Increase In Capital Goods Without A Decrease In Consumer Goods
B. Technological Change Between 2012 And 2017
C. An Increase In Productivity Between 2012 And 2017
D. All Of The Above
E. None Of The Above

Questions 66 – 70 Refer To The Graph Below.

66. An Economic Expansion Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

67. An Economic Contraction Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

68. A Peak In The Business Cycle Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

69. A Trough In The Business Cycle Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

70. The Straight Line On The Graph Represents
A. An Economic Expansion
B. An Economic Contraction
C. A Business Cycle
D. A Long-Run Growth Trend
E. A Boom Period

71. The Longest Sustained Period Of Economic Growth In Modern U.S. History Occurred During The
A. 1920s
B. 1950s
C. 1960s
D. 1980s
E. 1990s

72. Which Of The Following Factors Was Not One Of The Reasons Why A Recession Started In 2008?
A. The Collapse Of A Speculative Bubble In The Real Estate Market
B. A Spike In Interest Rates
C. A Significant Rise In The World Price Of Oil
D. A Series Of Financial Fraud Schemes In The Financial Industry
E. All Of The Above

73. The Decline That Occurred In Real Gdp In The Fourth Quarter Of 2008 Was ________ .
A. The Smallest Decrease On Record
B. The Average Reduction
C. Smaller Than The Decrease In The Third Quarter
D. The Largest In Over 50 Years
E. There Was No Decline In Real Gdp During 2008
74. Which Of The Following Contributed To The Inflation-Free Economic Expansion Of The 1990s And Early 2000s?
A. Fed Policies To Raise Interest Rates
B. An Increase In Aggregate Supply
C. Improvements In Productivity
D. Improvements In Technology
E. All Of The Above

75. Productivity Gains In The 1990s Were A Result Of Which Of The Following?
A. Capital Investment
B. Improved Labor Quality
C. Technological Progress
D. Increased Use Of Computers
E. All Of The Above

76. Saving In An Economy Is Important For Economic Growth Because
A. If Households Don’t Save, They Cannot Consume In The Future
B. Without Saving, Aggregate Demand Increases
C. One Person’s Saving Is Another Person’s Consumption
D. It Is The Source Of Funds For Investment
E. Of None Of The Above; Saving Is Not Important For Economic Growth

77. Which Of The Following Is Not Something That Will Increase Economic Growth?
A. Expenditures On Research And Development
B. Increased Education
C. Using Resources To Develop Additional Capital
D. Replacing Old Machinery
E. All Of The Above Will Increase Economic Growth

78. According To Real Business Cycle Theory, The Primary Factor That Increases Aggregate Supply Is
A. Savings
B. Increases In The Size Of The Labor Force
C. Technological Improvements
D. Government Spending
E. Reductions In Regulation

True / False Questions

79. Economic Growth Is Necessary To Create New Jobs, Increase Incomes, And Raise Standards Of Living.

80. Economic Growth Is An Important Social Issue, But It Is Not Related To Other Problems Such As Unemployment And Poverty.

81. Economists Consider Economic Growth As A Short-Run Process.

82. Between 1960 And The Mid-1990s, The American Economy More Than Tripled Its Level Of Real Gdp.

83. During The Past Three Decades, The U.S. Economy Experienced Significant Periods Of Growth Without Interruption.

84. Even Small Differences In Growth Rates Can Result In Significant Gaps In Gdp Between Two Countries Over The Long Run.

85. Economic Growth Compounds Over Time.

86. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth.

87. U.S. Economic Growth Rates In The 1990s Have Been Higher Than Those Experienced In The 1960s.

88. An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run Trend Is Called A Business Cycle.

89. Every Business Cycle Has Four Distinct Phases; Expansion, Peak, Contraction, And Trough.

90. Strong Economic Expansions Are Sometimes Referred To As Economic Booms.

91. Another Name For The Trough Of A Business Cycle Is Recession.

92. Each Phase Of A Business Cycle Has Approximately The Same Duration.

93. Since Wwii, The Average Length Of A Typical U.S. Business Cycle Is Approximately 60 Months.

94. Given Modern Data Collection Techniques, It Is Very Easy To Identify When The Economy Is About To Move Into The Next Phase Of A Business Cycle.

95. In The U.S., The Official Dates For Each Phase Of A Business Cycle Are Determined After The Fact By The National Bureau Of Economic Research (Nber).

96. The Index Of Leading Economic Indicators Is Used By Economists To Forecast Changes In Economic Performance Over Time.

97. The Components Of The Index Of Leading Economic Indicators Tend To Change Prior To Changes In The Economy As A Whole.

98. The Components Of The Index Of Leading Economic Indicators Lead Changes In The Aggregate Economy, But Move In An Opposite Direction.

99. Economists Have Agreed Upon One Widely Accepted Theory To Explain Business Cycle Behavior.

100. Expectations About The Future Influence The Economic Decisions That People Make Today.

101. Joseph Schumpeter Theorized That Business Cycles Were Determined Primarily By Long-Run Waves Of Innovation.

102. Monetary Theories Of Business Cycles Are Based On How The Federal Reserve Manages The Money Supply In Response To Changing Economic Conditions.

103. Real Business Cycle Theorists Postulate That Economic Fluctuations Are Primarily Due To Changes In Aggregate Demand.

104. Jevons’ Sunspot Theory Of The Business Cycle Is Widely Used By Economists Today To Forecast Future Levels Of Economic Activity.

105. The Primary Determinants Of Economic Growth Include The Availability Of Resources And Productivity Factors.

106. As An Economy’s Labor Force Increases In Size, Its Production Possibilities Frontier Shifts Outward.

107. The U.S. Labor Force Has Not Grown Substantially During The Past Four Decades.

108. The Term Investment Is Used To Describe The Purchase Of Consumer Goods By Households In The Economy.

109. Investments In Capital Goods Increase An Economy’s Ability To Produce Consumer Goods In The Future.

110. In Recent Years, Capital Has Grown At A Slower Rate Than The Labor Force Within The U.S. Economy.

111. Productivity Is A Measure Of How Efficiently Resources Are Converted Into Goods And Services Through A Production Process.

112. The Total Output Produced Divided By The Total Units Of Labor Employed Is Called The Average Product Of Labor.

113. Productivity Is Not Influenced By The Law Of Diminishing Returns.

114. The Average Level Of Educational Attainment In The U.S. Has Been Gradually Declining Since The Mid-1970s.

115. Technology Refers To The Means And Methods Of Production.

116. On Average, The U.S. Economy Has Grown About 3.12% Annually Since 1960.

117. The U.S. Economy Grew At A Faster Rate In The 1980s Relative To The 1960s.

118. In The 1990s, The U.S. Economy Grew At An Average Annual Rate Of Only 2.1%.

119. The Rate Of Technological Growth In The U.S. Economy Is Higher Today Than It Was In The 1960s.

120. Capital Accumulation In An Economy Is Dependent Upon Savers To Provide Funds For Investors.

121. The Increasing Importance Of The Service Sector In The American Economy May Lead To An Overestimation Of Economic Growth.

122. Some Forms Of Government Regulation Of Business May Reduce Productivity And Therefore Contribute To The Slowdown Of Economic Growth.

123. “Crowding Out” Occurs When Government Borrowing To Finance Its Debt Diverts Funds Away From The Private Sector.

123. The Size Of The American Economy Will Double Within The Next Ten Years.

125. Currently, The Population Of The U.S. Is Growing At A Faster Rate Than Real Gdp Is Growing.

126. To Stimulate Additional Economic Investment, Some Policy Makers Favor Increasing The Tax Rate On Capital Gains.

127. Government Policies That Subsidize Higher Education Should Stimulate Labor Productivity And Enhance Long-Run Economic Growth.

128. The U.S. Government Spends Less Than 1% Of Gdp On Research And Development Each Year.

129. In Economics, The Past Is A Very Poor Predictor Of The Future.

130. The Slowdown In The Rate Of Population Growth Has Increased The Growth Rate In The Real Per Capita Gdp For The U.S.

131. The Rate Of Economic Growth Affects Everyone Living In An Economy.

132. Most Economic Forecasts Of The Near Future Predict That The Standard Of Living In The United States Will Fall.

133. One Strategy To Promote Economic Growth Is To Encourage People To Save More.

134. Savings Can Only Occur When The Economy Is In The Expansion Phase Of A Business Cycle.

135. A Reduction In Savings Will Lead To A Reduction In The Level Of Investment.

136. The Average Annual Rate Of Growth For The U.S. Economy During The Twentieth Century Was Between 3% And 3.5%.

137. The Most Important Determinants Of Economic Growth Are The Availability Of Resources And Productivity Factors.

138. Close Examination Of The Recent History Of Real Gdp In The U.S. Reveals That The Rate Of Economic Growth Has Been Diminishing Over Time.

Chapter 12

Money, Banking, And The Financial System: Old Problems With New Twists

Multiple Choice Questions

1. Commercial Banks Operate
A. By Attracting Deposits And Making Loans
B. Both Pay And Charge Interest
C. By Engaging In Financial Intermediation
D. All Of The Above
E. Under The Control Of State Governments

2. Commercial Banks
A. Attract Deposits By Offering To Pay Interest
B. Sell New Issues Of Stocks And Bond
C. Operate On A Non-Profit Basis
D. Attract Deposits By Offering Free Toasters
E. None Of The Above

3. Commercial Banks
A. Started By Offering Credit To Wealthy Landowners
B. Began As Goldsmiths That Provided Receipts To Customers Who Stored Their Gold With The Goldsmith
C. Operate In Both The Primary And Secondary Financial Markets
D. Operate Only In Cities With Major Financial Markets
E. Began In Germany

4. A Financial Intermediary
A. Seeks Deposits
B. Makes Loans
C. Matches Up Savers And Borrowers
D. All Of The Above
E. Operates In Between Two Banks

5. Investment Banks
A. Make Loans To Individual Households To Buy Houses And Cars
B. Work With Corporations To Finance Their Operations Through Primary Financial Markets
C. Work With Corporations To Finance Their Operations Through Secondary Financial Markets
D. Work With Investments From Private Individuals
E. None Of The Above

6. A Stock Is
A. A Financial Instrument That Provides Ownership Rights To Shareholders
B. A Financial Instrument That Provides Annual Payments Of Interest
C. A Financial Instrument That Is Traded Only In Primary Financial Markets
D. A Financial Instrument That Is Bought And Sold By Commercial Banks
E. All Of The Above

7. A Dividend
A. Must Be Paid By A Commercial Banks
B. Must Be Paid By Corporations To Owners Of The Company’s Stock
C. Is A Distribution Of A Corporation’s Profits To Stockholders
D. Is A Financial Instrument That Is Bought And Sold By Commercial Banks
E. None Of The Above

8. Corporations Raise Funds In
A. The Money Market
B. The Primary Financial Market
C. The Secondary Financial Market
D. Both The Primary And Secondary Financial Markets
E. None Of The Above

9. When A Person Buys A Stock On A Stock Exchange They Are Participating In
A. The Money Market
B. The Primary Financial Market
C. The Secondary Financial Market
D. Both The Primary And Secondary Financial Markets
E. None Of The Above

10. Insurance Policies
A. Require An Initial, One-Time Payment By Policy Holders But No Further Outlay
B. Make Payments To Policy Holders On A Monthly Basis
C. Require A Regular Payment Of Insurance Premiums By Policy Holders
D. Require An Initial Payment And Regular Payments Of Insurance Premiums By Policy Holders
E. None Of The Above

11. The Financial Crisis Of 2008 Affected
A. Only Commercial Banks
B. Only Investment Banks
C. Only Insurance Companies
D. All Of The Above
E. The Revenues Of Only State Governments

12. In The Early Years Of The American Republic, The First Bank Of The United States Was Established Through The Efforts Of
A. Thomas Jefferson
B. George Washington
C. James Madison
D. Alexander Hamilton
E. Aaron Burr

13. During Most Of The 1800s, The Federal Monetary Authority Was Called
A. The Bank Of America
B. The Bank Of Washington
C. The First National Bank
D. The Third Bank Of The United States
E. None Of The Above

14. Throughout The History Of The U.S., Until The Creation Of The Federal Reserve System In 1913, The Monetary System Was
A. Characterized By A Series Of Panics And Periods Of Instability
B. Under The Control Of The Second Bank Of The United States
C. The Product Of The Work Of President Andrew Jackson
D. Based Upon The English System
E. Under The Supervision Of The Us Mint

15. Prior To The Creation Of The Federal Reserve System, The Money Supply
A. Was Very Stable And Highly Valued
B. Was Comprised Of Currency Printed By The Department Of The Treasury
C. Was Produced By Local Banks And Often Traded At A Discount
D. Was Available Only To Bank Depositors
E. Was Comprised Of Gold

16. Money Serves As
A. A Unit Of Account
B. A Store Of Value
C. A Medium Of Exchange
D. All Of The Above
E. An Emblem Of Personal Wealth

17. When You Use Dollar Bills To Pay For A Purchase At A Store, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. All Of The Above

18. When You Compare A Dollar’s Worth Of Apples To A Dollar’s Worth Of Oranges, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. A Measure Of Wealth

19. If You Keep Some Cash In A Safe Place So That You Have It To Use Later, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. All Of The Above

20. Banking Regulation Is Intended To Prevent
A. Bank Failures
B. Excess Bank Profits
C. Bank Losses
D. Banks From Selling Securities
E. Banking Monopolies

21. The Gramm-Leach-Bliley Act Allows Banks To
A. Sell Insurance
B. Underwrite Insurance
C. Sell Securities
D. Invest In Real Estate
E. Do All Of The Above

22. Money Is “Liquid” Because
A. It Loses Value With Inflation
B. Coins Can Be Melted To Use Their Metal To Make Goods
C. It Serves As A Measure Of Value
D. It Does Not Have To Be Sold To Buy Goods And Services
E. It Is A Valuable Asset

23. Which Of The Following Is Of A Fractional Reserve Banking System?
A. Banks Must Hold All Of Depositors’ Deposits In Their Vaults
B. Banking Is Only A Fraction Of The Services Banks Provide To Their Customers
C. Banks Lend Out Part Of Their Depositors’ Deposits
D. The Reserve Ratio Is 100%
E. Banks May Not Hold Excess Reserves

24. If The Reserve Ratio Is 10% And A New Demand Deposit Of $10,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $1,000
B. $9,000
C. $10,000
D. $90,000
E. $100,000

25. If The Reserve Ratio Is 10% And A New Demand Deposit Of $5,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $500
B. $4,500
C. $5,000
D. $45,000
E. $50,000

26. If The Reserve Ratio Is 20% And A New Demand Deposit Of $10,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $1,500
B. $10,000
C. $15,000
D. $40,000
E. $50,000

27. Money Does Not Serve As A
A. Medium Of Exchange
B. Store Of Value
C. Measure Of Value
D. Price Index
E. It Serves As All Of The Above

28. M1 Includes
A. Currency And Coins In Circulation, Traveler’s Checks, Demand Deposits At Commercial Banks, And Other Checkable Deposits
B. Currency And Coins In Circulation, All Demand Deposits, And All Time Deposits
C. All Demand Deposits And All Time Deposits
D. Just Currency And Coins In Circulation
E. None Of The Above

29. Banks Make Loans From Their
A. Required Reserves
B. Excess Reserves
C. Net Worth
D. U.S. Government Securities
E. None Of The Above

30. Which Of The Following Is Among The Assets Of A Commercial Bank?
A. Demand Deposits
B. Net Worth
C. Any Liability
D. Loans And Investments
E. Time Deposits

31. M2 Includes
A. M1, Plus Savings And Time Deposits Of Small Denomination, And Money Market Mutual Funds
B. M1 Plus Savings And Time Deposits Of Large Denomination (Over $100,000)
C. M1 Plus Banks Acceptances And Treasury Bills
D. M1 Plus Currency And Demand Deposits
E. None Of The Above

32. The Basic Money Supply Is
A. Composed Of Small Denomination Time Deposits Plus Coin And Currency Held By The Nonbank Public
B. Composed Of Assets That Are Completely Liquid And Easily Accessible
C. Our Broadest Measure Of Money
D. Simply The Coins And Currency Held By The Nonbank Public
E. None Of The Above

33. Excess Reserves Refer To
A. Reserves That Banks Are Required By Law To Hold
B. The Major Assets Of The Bank
C. Reserves A Bank Holds In Case Of Unexpected Case Needs
D. Reserves Over And Above The Bank’s Required Reserves
E. None Of The Above

34. The Money Multiplier Is
A. 1/R
B. Er
C. R/E
D. E/R
E. 1+1/Er

35. Suppose The Legal Reserve Requirement Is 0.20, And A Bank Has Excess Reserves Of $1,000,000. The Ultimate Increase In The Money Supply Will Be
A. $2,000,000
B. $200,000
C. $800,000
D. $5,000,000
E. $500,000

36. The Inflation Rate And The Growth In The Money Supply Are
A. Usually Inversely Related
B. Usually Directly Related
C. Never Directly Related
D. Not Related To One Another
E. Negatively Related

37. Who Controls The Aggregate Volume Of Demand Deposits In The Banking System?
A. The U.S. Treasury
B. The Federal Reserve Board Of Governors
C. Congress
D. Bankers
E. The President Of The United States

38. To Reduce Inflationary Pressures, The Federal Reserve Authorities Should
A. Sell Government Securities, Raise Reserve Requirements, And Lower The Discount Rate
B. Sell Government Securities, Lower Reserve Requirements, And Lower The Discount Rate
C. Buy The Government Securities, Raise Reserve Requirements, And Raise The Discount Rate
D. Sell Government Securities, Raise Reserve Requirements, And Raise The Discount Rate
E. Buy Government Securities, Decrease Reserve Requirements, Decrease The Discount Rate

39. If The Open Market Committee Of The Federal Reserve Sells Securities, This Action Will
A. Decrease The Money Supply
B. Increase The Money Supply
C. Reduce The Reserve Requirement
D. Decrease The Discount Rate
E. Do None Of The Above

40. When A Central Bank Wants To Increase The Money Supply, It
A. Sells Bonds
B. Buys Bonds
C. Sells Good And Services
D. Buys Goods And Services
E. Does None Of The Above

41. The Federal Reserve Can Decrease The Supply Of Money By
A. Selling U.S. Government Securities
B. Buying U.S. Government Securities
C. Selling Goods And Services
D. Buying Goods And Services
E. Decreasing The Reserve Requirement

42. The Federal Open Market Committee (Fomc) Is Highly Concerned With
A. The National Unemployment Rate
B. The Growth Of Real Gdp
C. Interest Rates
D. The Level Of The Stock Market
E. All Of The Above

43. When The Open Market Committee (Fomc) Purchases Government Securities, Their Actions Are An Attempt To
A. Raise Interest Rates
B. Lower Interest Rates
C. Reduce Borrowing
D. Raise The Inflation Rate
E. Influence Voters In The Next Presidential Election

44. When The Fed Increases The Money Supply, It Generally Has The Effect Of
A. Making Banks More Profitable
B. Increasing The Value Of Stocks
C. Lowering Interest Rates
D. Lowering The Inflation Rate
E. Increasing The Size Of Bank Deposits

45. When The Fed Wishes To Increase The Money Supply, It Can Do So By
A. Purchasing Government Securities Through Open Market Operations
B. Lowering The Discount Rate
C. Reducing The Reserve Requirement
D. All Of The Above
E. Increasing The Size Of Bank Deposits

Questions 46 – 49 Refer To The Graph Below.

46. Suppose That The Fed Has Increased The Money Supply. This Is Shown In The Diagram By
A. Q1 To Q0
B. Q0 To Q1
C. Ms1
D. Ms2
E. None Of The Above

47. Based On The Diagram, The Opportunity Cost Of Money Is Higher If
A. The Interest Rate Is I0
B. The Interest Rate Is I1
C. The Money Supply Is Curve Ms1
D. The Money Supply Is Curve Ms2
E. The Opportunity Cost Of Money Is Not Shown In The Diagram

48. A Shift From Ms1 To Ms2 Would Be The Result Of
A. An Increase In Aggregate Demand
B. An Increase In Aggregate Supply
C. A Decision By The Fed To Purchase Government Securities By The Fomc
D. A Decision By The Fed To Sell Government Securities By The Fomc
E. A Change In The Stock Market

49. If The Fed Wanted To Stimulate Business Investment, It Could Do So By
A. Increasing Interest Rates From I1 To I0
B. Decreasing The Money Supply From Ms2 To Ms1
C. Increasing The Money Supply From Ms1 To Ms2
D. Raising The Reserve Requirement
E. Increasing The Discount Rate

50. The Equation Of Exchange Is
A. Mp = Qv
B. Mv = Pq
C. M = V/Pq
D. P = Q/Mv
E. Pv = Qm

51. The Value Of Money Varies
A. Directly With The Interest Rate
B. Directly With The Price Level
C. Directly With The Volume Of Employment
D. Inversely With The Price Level
E. With None Of The Above

52. According To The Equation Of Exchange,
A. The Right-Hand Side Will Equal The Left-Hand Side Only If Velocity Does Not Change From Year To Year
B. Velocity Must Be Constant
C. An Increase In The Quantity Of Money Will Lead To An Increase In The Price Level, Other Things Constant
D. Prices Cannot Change
E. All Of The Above

53. The Quantity Theory Of Money Emphasizes
A. Government Taxation Policies
B. Government Spending Policies
C. Labor Productivity
D. Changes In The Money Supply
E. None Of The Above

54. A Key Assumption In The Quantity Theory Of Money Is That
A. The Supply Of Money Is Increasing At A Constant Rate
B The Price Level Is Stable Over Long Periods Of Time
C. The Level Of Output Of Goods And Services Changes Frequently In Response To Changes In Velocity
D. The Velocity Of Money Is Constant
E. None Of The Above

55. The Residential Housing Market Saw Remarkable Increases In
A. Housing Prices At The End Of The 1990’s And Through The First Half Of The 2000’s
B. Housing Prices At The End Of The 1980’s And Beginning Of The 1990’s
C. Foreclosure Rates At The End Of The 1990’s And Through The First Half Of The 2000’s
D. Foreclosure Rates At The End Of The 1980’s And Beginning Of The 1990’s
E. Both A And C

56. The Growth In The Residential Real Estate Market Is Largely A Product Of
A. A Large Increase In The Demand For Housing
B. An Unexpected Growth In Us Population
C. A Decline In Housing Prices
D. A Tightening Of Government Policies That Restrict Homeownership
E. A Decrease In Mortgage Availability

57. The Federal National Mortgage Association (Or Fannie Mae) Was Created To
A. Make Mortgages Hard To Obtain
B. Make Mortgages Less Likely To Go Into Foreclosure
C. Make A Larger Market In Mortgages By Establishing A Secondary Financial Market In Mortgages
D. Make Mortgages Available To New Immigrants To The Us
E. None Of The Above

58. A Mortgage Backed Security Is
A. A Share Of Common Stock Based Upon Home Mortgages
B. A Financial Instrument That Reduces Risk By Pooling Together A Large Number Of Mortgages Into One Asset
C. A Financial Instrument Developed To Reduce Liquidity In The Housing Market
D. A Financial Instrument That Is The Combination Of Only Subprime Mortgages
E. All Of The Above

59. A Subprime Mortgage
A. Made Obtaining A Mortgage Easier For Low Income Households
B. Is A Mortgage That Does Not Meet The Requirements For A Conventional Mortgage
C. Is Usually Structured As An Adjustable Rate Mortgage
D. All Of The Above
E. Is No Different From A Conventional Mortgage

60. A Collateralized Debt Obligation (Or Cdo)
A. Is Generally Riskier Than A Single Debt Of An Equal Value
B. Sells For A Lower Price Than Re-Sales Of Individual Mortgages That Comprise Them
C. Is Sold In The Primary Financial Market
D. Is A Financial Instrument That Obscures The Underlying Risks Of The Mortgages That Comprise Them
E. Is Always A Bad Financial Investment

61. The Interest Rate On An Adjustable Rate Mortgage (Arm) Is
A. Set To Equal The Fed Funds Rate
B. Adjusted On A Daily Basis
C. Set To Rise At The End Of Every Year For The Life Of The Mortgage
D. Adjusted Periodically Based Upon Current Market Conditions
E. Adjusted Based Upon The Value Of The House Purchase

62. Home Equity Loans
A. Allow A Home Owner To Recapture Some Of The Increase In The Value Of Their Home Without Selling The Home
B. A Way For Homeowners To Issue Stock, Or Equity, In Their Home
C. Only Used When Home Prices Are Increasing
D. A Way For The Market To Eliminate Paper Profits
E. None Of The Above

63. Besides Homeowners, Who Attempted To Profit From Increasing Home Prices During The Housing Bubble In The Early Part Of The 2000s?
A. Large Corporations
B. Speculators
C. Foreign Investors
D. Individuals Who Had Low Incomes
E. All Of The Above

64. A Credit Default Swap
A. Is What Happens When Homeowners Swap Their Mortgages With Their Neighbors
B. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Make Even More Money
C. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Reduce The Risk Of An Increase In Mortgage Foreclosures
D. Is A Way For Investors To Increase The Risks To Homeowners
E. Exists Only In Markets With Subprime Mortgages

65. Assets That Are “Marked To Market” Will Be Priced At
A. Their Original Purchase Price
B. Their Original Purchase Price Less The Depreciation Of The Asset
C. A Price That Is Equal To The Original Purchase Price Plus The Rate Of Inflation
D. A Price That Is Based Upon The Asset’s Current Market Value
E. A Price Determined In The Stock Market

66. Many Large Banks And Wall Street Investment Firms Got Into Financial Problems Due To
A. Investments In Subprime Mortgages
B. Required Payments On Credit Default Swaps
C. Failures Of Collateralized Debt Obligations Resulting From Home Foreclosures
D. Having To Mark Down A Significant Number Of Their Assets Due To The “Mark To Market” Accounting Requirement
E. All Of The Above

67. The Federal Government Stepped In During 2008 To Prevent Several Commercial Banks And Investment Banks From Failing Based Upon The Idea That
A. They Were “Too Big To Fail”
B. Any Business Failure Would Hurt Shareholders
C. These Banks Made Large Political Contributions And This Was A Way For Politicians To Pay Them Back
D. Government Would Make Large Profits By Doing So
E. None Of The Above

68. In Late 2008, The Us Treasury Department Began
A. Closing Banks That Were Not Following Regulations
B. To Implement The Troubled Asset Relief Program (Tarp)
C. Raising Interest Rates To Stimulate The Economy
D. Engaging In Open Market Operations
E. To Implement The Opening Of A New Bank Of The United States

69. Each Of The Following Is A Financial Intermediary Except
A. Commercial Banks
B. Investment Banks
C. Insurance Companies
D. Credit Unions
E. All Of The Above Are Financial Intermediaries

70. A Capital Gain Exists
A. When One Political Party Increases The Number Of Its Members In Congress
B. When An Interest Payment Is Made
C. When The Price Of An Asset Goes Up
D. When The Price Of An Asset Exceeds The Price Paid For It
E. When Taxes Are Paid On The Asset

71. Liquidity Of An Asset Increases When
A. It Is Easier To Convert The Asset Into Cash
B. The Asset’s Value Is Below Its Original Price
C. The Asset Is Purchased
D. The Asset Depreciates
E. The Asset Is Put On The Market

72. When A Share Of Stock Is Sold On The New York Stock Exchange, It Is Traded
A. In A Prime Financial Market
B. In A Primary Financial Market
C. For A Promise To Pay A Fixed Return
D. To Another Stock Exchange
E. In A Secondary Financial Market

73. The Financial Crisis That Began In 2008 Is A Result Of All Of The Following Except
A. The Bursting Of The Dot.Com Bubble
B. Problems In The Residential Real Estate Market
C. Changes In Accounting Rules About Asset Valuation
D. Large Firms Taking On Assets Whose Value Was Not Well Determined
E. Policies That Allowed Many Unqualified Homebuyers To Receive Mortgages That They Could Not Pay

74. Historically, Many Commercial Banks Began As
A. Coffee Houses And Taverns Where Stocks Were Traded
B. Jewelry Stores That Specialized In The Sale Of Precious Stones
C. Businesses That Engaged In Small Loans
D. Goldsmiths That Held Stores Of Gold For Their Customers
E. None Of The Above

75. An Increase In The Reserve Requirement Can
A. Decrease Interest Rates
B. Increase Liquidity
C. Decrease The Money Supply
D. Increase The Money Supply
E. Decrease The Profits Of Banks

True / False Questions

76. Commercial Banks Are Financial Intermediaries But Insurance Companies Are Not.

77. Investment Banks Assist Corporations In Issuing Stocks And Bonds In The Primary Financial Market.

78. Silversmiths Became Banks When They Started Lending Out Money Based Upon The Excess Silver That They Held For Their Customers.

79. Residential Real Estate Is Generally Considered To Be More Liquid Than A Savings Account.

80. The Us Has, Over Its History, Had Only One National Bank, That Is, A Bank Of The United States.

81. The Most Important Function Of Money Is As A Medium Of Exchange.

82. If The Supply Of Money Decreases, The Value Of A Dollar Increases.

83. The Key To The Federal Reserve’s Control Over The Money Supply Is Its Ability To Create Money By Making Loans.

84. A Commercial Banking System With Excess Reserves Has The Ability To Create Money In The By Making Loans.

85. A Credit Union, Unlike A Bank, Is Not A Financial Intermediary, Since It Is A Cooperative Banking Venture.

86. In The U.S. Banking System, The Ratio Of A Bank’s Reserves And Its Outstanding Deposits Is Usually Less Than One.

87. During Inflationary Periods, The Federal Reserve Should Lower The Discount Rate So That Member Banks May More Easily Obtain Needed Reserves To Enable Them To Increase Their Loans.

88. The Money Supply Consists Primarily Of Gold, Silver, And Other Metals Held By The Government.

89. Monetary Policy Refers To Control Of The Money Supply By The Federal Reserve Authorities.

90. Appropriate Federal Reserve Actions To Combat Inflation Are An Increase In The Discount Rate, An Increase In The Reserve Ratio And The Sale Of Government Securities.

91. The Reserve Ratio Is The Rate Of Interest Charged Commercial Banks When They Borrow From The Federal Reserve.

92. During Inflationary Periods, The Federal Reserve Should Buy Securities So That Commercial Banks Will Have More Reserves To Loan Out.

93. One Of The Main Functions Of Banks Is To Create Money.

94. When A Bank Makes A Loan To One Of Its Customers, It Increases Its Liabilities.

95. The Maximum Demand Deposit Creation Possible From A New Deposit Is Derived From The Equation D = E X 1/R.

96. The Discount Rate Is The Ratio Of Demand Deposits To Reserves That Banks Have To Maintain.

97. Policy Actions That Affect Changes In The Growth Rate Of The Money Supply To Keep Interest Rates At Levels That Promote Economic Stability And Growth Are Called “Fine Tuning” Policies.

98. The Issue Of The Appropriate Monetary Policy Target Has Been Resolved To The Satisfaction Of All Policy Makers.

99. The Quantity Theory Of Money States That Increases In The Money Supply Cause Increases In Both The Price Level And Output.

100. A Credit Union Is A Cooperative Banking Venture Where The Members Or Owners Of The Organization Have A Common Employer Or Union.

101. The Main Purpose Of The Fed Is To Control The Rate Of Interest.

102. The Annual Growth Rate In The Money Supply Has Been Held Constant By The Federal Reserve.

103. The Quantity Theory Of Money Stresses The Importance Of The Velocity Of Money.

104. The Money Multiplier Is Derived From The Legal Reserve Requirement.

105. An Increase In The Supply Of Money Will Decrease Interest Rates.

106. The Federal Reserve Open Market Committee’s Primary Function Is To Open New Banks.

107. The Discount Rate Charged By The Federal Reserve, Is Lower For More Creditworthy Banks.

108. Any Time The Discount Rate Increases, The Money Supply Also Increases.

109. If The Required Reserve Ratio Is Increased By The Fed, One Could Assume That The Fed Is Attempting To Control Inflation.

110. Prior To The Enactment Of The Monetary Control Act Of 1980, State-Chartered Banks Had The Option Of Whether Or Not They Wanted To Be A Member Of The Federal Reserve System.

111. Interest Rates Increase Or Decrease So That An Equilibrium Exists In The Money Market.

112. The Federal Government, Through The Work Of Agencies Like The Federal National Mortgage Association, Has Worked To Increase The Supply Of Funds Available To Mortgage Lenders.

113. A Policy Implemented By The Clinton Administration Resulted In Tighter Financial Requirements For Less Creditworthy Borrowers, So That Financial Markets Were Less Risky.

114. A Subprime Mortgage Is A Mortgage Issued To A Highly Qualified Borrower At Reduced Interest Rates.

115. Subprime Mortgages And Home Equity Loans Contributed Little To The Increase In The Demand For Residential Real Estate, Increasing Prices Dramatically.

116. A Homeowner Whose House Is Worth $500,000 But Who Owes $600,000 On Their Mortgage Is A Good Candidate For A Home Equity Loan, So That The Homeowner Can Build Their Equity.

117. Collateralized Debt Obligations Are A Way That Lenders Can Reduce The Risk Of Individual Mortgage Lending.

118. Collateralized Debt Obligations Always Exclude Subprime Mortgages, Because These Are Too Risky For Most Investors.

119. A Credit Default Swap Is One Way That Lenders Can Offset Some Of The Risks Associated With Investing In Subprime Mortgages.

120. A Number Of Banks Encountered Problems Because A Change In Accounting Rules Required Firms To Mark Assets At Their Original Purchase Price.

121. Borrowers Who Obtain A Mortgage Will Always Find That Their Mortgage Payments Rise Over Time.

122. The Definition Of The Money Supply Called M1 Includes All Of The Assets Included In The Definition Of M2.

123. An Increase In The Required Reserve Ratio Will Allow Banks To Create Less Money.

124. The Open Market Committee Of The Federal Reserve System Meets Regularly To Determine The Required Reserve Ratio.

125. Because Of Recent Changes In The Regulatory System, Commercial Banks Are Able To Offer A Smaller Variety Of Financial Products And Services Than In The Past.

126. The Distinctions Between Commercial Banks And Other Financial Institutions Has Blurred In Recent Years.

127. Large Corporations Enter The Secondary Financial Market To Provide Themselves Adequate Liquidity To Conduct Their Day To Day Operations.

128. Stockholders Can Receive A Capital Gain When They Purchase A Financial Asset.

129. Stocks And Bonds Are Essentially Interchangeable Financial Assets, Since Owners Of Both Of These Instruments Receive Regular Interest Payments.

130. When Ben Bernanke Became Fed Chairman, The Federal Reserve Began Explicitly Announcing Money Supply Targets.

ECO 405 Week 8 Quiz – Strayer University New

ECO/405 Week 8 Quiz – Strayer

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Quiz 7 Chapter 10

Chapter 10

Competition In The Global Marketplace: Should We Protect Ourselves From International Trade?

Multiple Choice Questions

1. Which Of The Following Statements Is Most Accurate?
A. Historically, There Has Been Conflict Between Groups Wanting To Suppress Trade And Groups Wanting To Peg Exchange Rates
B. Since The Late 1940s, Import Restrictions Have Fallen
C. Resentment Of Imports Always Increases During Economic Expansions
D. The U.S. Government Engaged In A Free Trade Campaign Up To The End Of World War Ii
E. None Of The Above

2. Which Of The Following Is Part Of The “Protectionist” Perspective On International Trade?
A. Imports Are Responsible For Crowding Out Domestic Goods From The Market And Thereby Reduce American Jobs
B. Trade Restrictions Are Needed To Protect Key Industries Vital To National Security
C. Imports Should Be Restricted To Remedy The Balance Of Trade Deficit
D. Both (A) And (C)
E. All Of The Above

3. In A Free Market, Who Benefits From Voluntary Exchange?
A. Buyers
B. Sellers
C. Both Buyers And Sellers
D. The Government Only
E. Nobody

4. Why Is International Trade Important? International Trade
A. Increases The Variety And Availability Of Consumer Goods In An Economy
B. Expands The Production Possibilities Of A Nation’s Economy
C. Increases An Economy’s Gdp
D. Allows Nations To Specialize In The Production Of Goods According To Comparative Advantage
E. Does All Of The Above

5. Which Of The Following Is Not Used As A Protectionist Argument?
A. Imports Crowd U.S. Goods Out Of The Market
B. Imports Reduce The Demand For Domestic Labor Leading To Higher Unemployment
C. Our Industries Cannot Compete Successfully Against Those In Other Countries That Pay Much Lower Wages
D. Imports Raise Living Standards Above What They Would Otherwise Be
E. All Of The Above Are Used As Protectionist Arguments

6. The Fundamental Reason Countries Engage In Trade Is That
A. It Enables Each Country To Improve Its Standard Of Living
B. Domestic Markets Are Continually Shrinking
C. Powerful Special Interest Groups Benefit From Exchange
D. Trade Allows Countries To Save Some Of Their Resources For The Future
E. All Of The Above

7. Omega Can Produce Either Two Microcomputers Or Ten Tv Sets. Alpha Can Produce One Microcomputer Or Five Tv Sets. Which Of The Following Statements Is Correct?
A. Alpha Has A Comparative Disadvantage In Producing Both Products
B. Both Countries Have A Comparative Advantage In Producing Microcomputers
C. The Countries Are Unlikely To Engage In Trade In These Two Items
D. Labor Costs Are Obviously Too High In Alpha
E. All Of The Above

8. Which Of The Following Will Give Rise To U.S. Demand For Foreign Exchange?
A. U.S. Sales Of Airplanes To Japanese Buyers
B. U.S. Investments Abroad
C. U.S. Purchases Of French Perfume
D. Both (B) And (C)
E. All Of The Above

9. A Country Has A Comparative Advantage In The Production Of Any Good That It Can Produce
A. At A Lower Absolute Cost Than Can Other Countries
B. With Less Labor Than Can Other Countries
C. With A Smaller Sacrifice Of Some Alternative Good Or Service Than Can Other Countries
D. For Export
E. All Of The Above

10. Which Of The Following Is Not A Reason That Countries Have Comparative Advantages In The Production Of Some Goods And Comparative Disadvantages In The Production Of Other Goods? Differences In
A. Technological “Know-How.”
B. Exchange Rates
C. Literacy Rates
D. Natural Resources
E. Labor Force Quality

Questions 11 – 15 Refer To The Graph Below.

11. Assuming An Initial Combination Of 75 Million Loaves Of Bread And 150 Million Gallons Of Milk, The Country Represented Would Refuse To Enter Into Any Trade Relationships In Which The Cost Of Importing
A. Bread Exceeds Two Gallons Of Milk Per Loaf
B. Milk Exceeds One Loaf Of Bread Per Gallon
C. Milk Exceeds Two Loaves Of Bread Per Gallon
D. Both (A) And (B)
E. None Of The Above

12. The Opportunity Cost Of A Million Gallons Of Milk Is How Many Millions Of Loaves Of Bread For This Country?
A. 0.5
B. 1
C. 2
D. 150
E. 300

13. The Opportunity Cost Of A Million Loaves Of Bread Is How Many Millions Of Gallons Of Milk For This Country?
A. .5
B. 1
C. 2
D. 150
E. 300

14. If This Country Has A Comparative Advantage In The Production Of Bread And Produces Only Bread While Trading With Another Country For Milk, Which Of The Following Is Of Its Consumption Possibilities Curve?
A. It Shifts Out Parallel To The Ppc
B. Its Vertical Intercept Increases
C. Its Horizontal Intercept Increases
D. All Of The Above
E. None Of The Above

15. If This Country Has A Comparative Advantage In The Production Of Milk And Produces Only Milk While Trading With Another Country For Bread, Which Of The Following Is Of Its Consumption Possibilities Curve?
A. It Shifts Out Parallel To The Ppc
B. Its Vertical Intercept Increases
C. Its Horizontal Intercept Increases
D. All Of The Above
E. None Of The Above

Questions 16 – 20 Refer To The Graph Below.

16. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. If Consumption Along The Curve A1b Is Possible With Trade, Alpha Must Have A Comparative Advantage In The Production Of
A. Bread
B. Milk
C. Both Bread And Milk
D. Neither Bread Nor Milk
E. It Cannot Be Determined With The Information Given

17. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. With No Trade, Alpha’s Consumption Possibilities Curve Is
A. Ab
B. A1b
C. Cb
D. C1b
E. Cc1

18. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. The Cost Of Producing Bread In Alpha (In Terms Of Millions Of Gallons Of
Milk) Is
A. .5
B. 1
C. 2
D. 100
E. 200

19. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. For Alpha To Be Willing To Trade Milk For Bread, A Million Loaves Of Bread Would Have To Cost Less Than
A. 0.5 Million Gallons Of Milk
B. 1 Million Gallons Of Milk
C. 2 Million Gallons Of Milk
D. 0.5 Million Loaves Of Bread
E. Alpha Would Not Trade Milk For Bread

20. If Alpha Produces 100 Million Loaves Of Bread, With Trade (And Consumption Possibilities Curve A1b) It Can Consume How Many Gallons Of Milk?
A. 0
B. 100
C. 200
D. 300
E. 400

21. An Exchange Rate Is
A. The Price Of One Country’s Currency In Terms Of The Monetary Units Of Another Country
B. The Rate At Which One Good Exchanges For Another
C. The Price Of Gold In Terms Of The U.S. Dollar
D. The Fee Charged For Exchanging One Currency For Another
E. None Of The Above

22. Which Of The Following Demands Kenyan Shillings?
A. U.S. Importers Of Kenyan Goods
B. U.S. Investors In Kenya
C. U.S. Tourists Visiting Kenya
D. All Of The Above
E. None Of The Above

23. Which Of The Following Supplies Kenyan Shillings?
A. U.S. Exporters To Kenya
B. Kenyan Tourists Returning Home
C. U.S. Importers Of Kenyan Goods
D. All Of The Above
E. None Of The Above

24. The Largest Part Of U.S. Demand For Foreign Currencies Arises From
A. Increases In Investments Abroad
B. Imports Of Merchandise
C. Gifts That Persons In The U.S. Sent Abroad
D. Foreign Aid Transfers From The U.S. To Developing Countries
E. None Of The Above

25. The Largest Part Of The U.S. Supply Of Foreign Currency Arises From
A. Investments Made By Foreigners In The U.S
B. Exports Of Merchandise
C. Net Investment Income
D. Gifts That Persons Abroad Send Persons In The U.S
E. None Of The Above

Questions 26 – 30 Refer To The Graph Below.

26. In Equilibrium, The Price Of A British Pound, In Terms Of U.S. Dollars, Is
A. $1.50
B. $1.25
C. $.8
D. $.67
E. None Of The Above

27. In Equilibrium, The Price Of A U.S. Dollar, In Terms Of British Pounds, Is
A. $1.50
B. $1.25
C. $.8
D. $.67
E. None Of The Above

28. Which Of The Following Could Cause An Increase In The Equilibrium Exchange Rate?
A. An Increase In U.S. Investment In Britain
B. An Increase In U.S. Imports From Britain
C. An Increase In The Number Of U.S. Tourists Traveling To Britain
D. All Of The Above
E. None Of The Above

29. Pegging The Exchange Rate At $1.25
A. Imposes A Price Floor
B. Results In A Balance Of Payments Problem
C. Will Increase British Demand For U.S. Exports
D. Will Increase U.S. Demand For British Imports
E. Will Do Of The Above

30. Pegging The Exchange Rate At $1.25 Will Result In
A. A Shortage Of ≤20 Million Pounds Per Month
B. A Surplus Of ≤20 Million Pounds Per Month
C. A Shortage Of ≤40 Million Pounds Per Month
D. A Surplus Of ≤40 Million Pounds Per Month
E. None Of The Above

Questions 31 – 35 Refer To The Graph Below.

31. If D And S Are The Relevant Supply And Demand Curves, An Increase In Nigerian Travelers To The U.S. Would Result In Which Of The Following Changes In The Graph? A Movement From
A. S To S1
B. S1 To S
C. R1 To R
D. Q2 To Q1
E. Q To Q

32. Which Of The Following Could Cause A Shift In The Supply Curve From S To S1? An Increase In
A. U.S. Exports To Nigeria
B. Nigerian Exports To The U.S
C. U.S. Travelers To Nigeria
D. All Of The Above
E. None Of The Above

33. An Increase In U.S. Investment In Nigeria Will Have Which Effect On R? It Will
A. Increase
B. Decrease
C. Remain The Same
D. Be Pegged At R1
E. Not Be Able To Be Determined

34. If D And S Are The Relevant Demand And Supply Curves, Pegging The Exchange Rate At R1. Will Result In
A. A Shortage Of Q2q Niara Per Month
B. A Surplus Of Q2q Niara Month
C. A Shortage Of Q2q1 Niara Per Month
D. A Surplus Of Q2q1niara Pounds Per Month
E. None Of The Above

35. If D And S Are The Relevant Demand And Supply Curves, Pegging The Exchange Rate At R1
A. Imposes A Price Floor
B. Results In A Balance Of Payments Problem
C. Will Increase British Demand For U.S. Exports
D. Will Increase U.S. Demand For British Imports
E. Will Do All Of The Above

36. Import Restrictions, Like Tariffs And Quotas, Can Protect Domestic Jobs
A. At A Low Price
B. By Changing The Consumption Tastes Of Domestic Buyers
C. At A High Price
D. Without Any Effect On An Economy
E. By Changing The Structure Of The Economy

37. Free Trade Can Result In What Impact On An Economy?
A. A Net Increase Or Decrease In Overall Employment
B. A Reduction In The Efficiency Of An Economy
C. Free Trade Always Harms An Economy
D. Free Trade Always Increases Total Employment
E. No Impact At All

38. The Exchange Rate Ceiling On The Dollar Price Of The Pound Will Result In
A. A Surplus Of Pounds
B. A Balance Of Payments Deficit
C. A Balance Of Payments Surplus
D. An Increase In U.S. Exports To Great Britain
E. Undervaluation Of The Dollar Relative To The Pound

39. Which Of The Following Curves Represents The Maximum Combination Of Goods And Services That Can Be Consumed In An Economy When All Its Resources Are Efficiently Used?
A. Market Demand Curve
B. Production Possibilities Curve
C. Market Supply Curve
D. Consumption Possibilities Curve
E. Resource Possibilities Curve

40. With International Trade, Which Of The Following Curves For An Economy Will Shift Outward?
A. Consumption Possibilities
B. Production Possibilities
C. Demand
D. Supply
E. Marginal Revenue

41. A Nation That Enjoys A Lower Opportunity Cost In The Production Of Goods, Relative To Another Nation, Is Said To Have A(N)
A. Market Advantage
B. Absolute Advantage
C. Comparative Advantage
D. Relative Cost Advantage
E. Production Advantage

42. Suppose That On Mars, Martians Must Give Up 2 Widgets To Produce 1 Gadget. On Venus, Venusians Must Give Up ½ Widget To Produce 1 Gadget. Which Of The Following Is ?
A. Venus Has A Comparative Advantage In Gadgets
B. Mars Has A Comparative Disadvantage In Gadgets
C. Venus Should Specialize In Gadgets And Trade With Mars For Widgets
D. Mars Should Specialize In Widgets And Trade With Venus For Gadgets
E. All Of The Above

43. The Price Of One Nation’s Currency In Terms Of Another Is Called
A. The Exchange Rate
B. The International Trade Rate
C. A Tariff
D. A Balance Of Trade Account
E. The Capital Account

44. Assuming Everything Else Constant, An Increase In The Demand For Russian Rubles Will
A. Reduce The Price Of Rubles
B. Increase The Exchange Rate For Rubles
C. Cause A Surplus Of Rubles
D. Reduce Exports To Russia
E. All Of The Above

45. Economists Generally Agree That International Trade Restrictions
A. Improve Economic Well-Being And The General Standard Of Living
B. Generate Significant Costs To Consumers In The Form Of Higher Prices And Reduced Quantity Of Goods
C. Increase Gross Domestic Product And Lower The Rate Of Unemployment In The Long Run
D. Are Important To The Overall Health Of The Economy
E. Reduce The Severity Of Business Cycles By Limiting Recessions

46. The Primary Factor Affecting The Demand For Any Nation’s Currency Is
A. The Nation’s Current Standing With The United Nations
B. The Demand For The Products Produced By That Nation
C. The Size Of The Nation’s Domestic Economy
D. The Amount Of Gold Reserves Held By That Nation
E. None Of The Above

47. Which Of The Following Are Forms Of International Trade Restrictions?
A. Tariffs
B. Quotas
C. Voluntary Restraint Agreements
D. All Of The Above
E. None Of The Above

48. What Do You Call Taxes Placed On Imports?
A. Tariffs
B. Quotas
C. Voluntary Restraint Agreements
D. Exchange Rates
E. Dumping Taxes

49. Which Of The Following Will Occur When A Tariff Is Placed On Imported Sugar?
A. The Price Of Imported Sugar Will Rise
B. The Price Of Domestic Sugar Will Rise
C. The Price Of Imported And Domestic Sugar Will Rise
D. The Price Of Sugar Will Fall
E. More Sugar Will Become Available In The Marketplace

50. Which Of The Following Is A Statement?
A. Quotas Increase The Availability Of Imported Goods
B. Tariffs Reduce The Price Of Domestically Produced Goods
C. Unlike Tariffs, Quotas Will Reduce The Price Of Imports
D. Quotas Result In Greater Profits For Foreign Producers
E. A $1,000 Tariff On Japanese Cars Will Result In A $1,000 Increase In Their Price

51. A Tariff Leads To A Leftward Shift Of The _______Curve, Resulting In ______ Prices And __________ Imports.
A. Demand; Lower; Greater
B. Supply; Lower; Lower
C. Supply; Higher; Lower
D. Demand; Higher; Lower
E. Consumption Possibilities; Higher; Lower

52. Which Of The Following Will Not Result From A Tariff?
A. Higher Import Prices
B. Higher Prices Of Goods For Consumers
C. Less Availability Of Goods For Consumers
D. Price Increases For Exported Goods
E. Import Duty Revenue For The Government

53. When A Quota Is Enforced On An Imported Good, The Supply Curve For That Good
A. Shifts To The Left
B. Becomes Horizontal At The Import’s Price
C. Becomes Vertical At The Quota Limit
D. Shifts To The Right
E. Becomes Non-Existent

54. Which Of The Following Statements About Quotas Is ? Quotas
A. Reduce The Availability Of Imported Goods For Consumers
B. Reduce The Profits Of Foreign Producers
C. Increase The Price Of Imports
D. Increase The Price Of Domestically Produced Substitutes
E. Are Used As A Means To Restrict International Trade

55. Which Of The Following Is A Likely Result Of A Country Engaging In Free Trade?
A. Jobs Are Lost In The Export Sector
B. Jobs Are Gained In The Import Sector
C. The Price Of Imports Falls
D. Product Variety Decreases
E. All Of The Above

56. Protecting An Industry That Is Vital To National Security From International Competition Is
A. The Infant Industry Argument
B. An Economic, Rather Than Political, Argument
C. The Key Industry Argument
D. An Argument Against Protectionism
E. None Of The Above

57. A New Industry Producing Cutting-Edge Products Should
A. Be Protected From International Competition, According To The Key Industry Argument
B. Be Protected From International Competition, According To The Infant Industry Argument
C. Not Be Protected Until Later Stages, When The Market Is Fully Developed
D. Not Be Protected, According To The Infant Industry Argument
E. None Of The Above

58. Environmental Damage Must Be Addressed In International Trade Agreements When A Country’s Actions Create
A. Property Rights
B. Negative Externalities
C. Positive Externalities
D. Private Goods
E. Military Output

59. Which Of The Following Is Used As An Argument Against Free Trade By Protectionists?
A. Environmental Quality
B. Human Rights
C. Infant Industries
D. Key Industries
E. All Of The Above

60. Which Of The Following Statements Regarding Human Rights And International Trade Is Correct?
A. Protectionists Believe Free Trade Leads To Exploitation Of Workers In Ldcs
B. Free Trade Advocates Believe It Is Efficient To Exploit Workers In Ldcs
C. Protectionists Believe Free Trade Leads To Increased Opportunity For Poor Workers
D. Free Trade Advocates Believe Trade Decreases Job Growth In Ldcs
E. The Wto Estimates That Free Trade Has Led To An Increase In Poverty Rates In Ldcs

61. What Do You Call It When Producers Sell Abroad At A Price Below Their Cost Of Production Or Their Domestic Price?
A. Limit Pricing
B. Voluntary Restraint Of Trade
C. Price Discrimination
D. Dumping
E. Gouging

62. Which Organization Is Charged With Settlement Of International Trade Disputes?
A. The Wto
B. The Eu
C. Nafta
D. Gatt
E. The Un

63. What Do You Call An Alliance Of Nations That Share Common External Tariffs? A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

64. Which Of The Following Best Describes Nafta? It Is A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

65. Most __________ Have Been Banned Under The World Trade Organization.
A. Tariffs
B. Voluntary Restraint Agreements
C. Quotas
D. Import Duties
E. Customs Unions

66. The European Union Is An Example Of A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

67. The Multi-National Currency Adopted By Members Of The European Union Is Called The
A. Euro
B. Dollar
C. Ruble
D. Franc
E. Peso

68. Which Of The Following Statements Is ?
A. The Euro Increases The Cost Of International Trade Between Members Of The European Union
B. The European Union Is A Free Trade Zone And Not A Customs Union
C. The Euro Reduces The Cost Of Trade Between Members Of The European Union
D. Common Market Treaties Are Becoming Less Popular Around The World
E. All Of The Above Statements Are

69. In Which Part Of The Globe Are You Most Likely To Find Nations Belonging To A Common Market Treaty?
A. North America
B. Asia
C. Europe
D. Africa
E. Everywhere

70. Which Of The Following Statements About Nafta Is ?
A. Nafta Is A Free Trade Zone And Not A Customs Union
B. Canada, Mexico, And The U.S. Are The Only Three Members Of Nafta
C. It Is Difficult To Empirically Measure The Economic Effects Of Nafta On The U.S. Economy
D. In The Long Run, Nafta Will Increase The Number Of Low-Paid Jobs In The U.S
E. Nafta Is Based On The Belief That Nations, In The Aggregate, Gain Economically From Free International Trade

71. What Have Researchers Concluded About The Net Effect Of Nafta On The Number Of Jobs In The U.S. Economy?
A. Nafta Has Increased The Number Of U.S. Jobs
B. Nafta Has Had No Effect On The Number Of U.S. Jobs
C. Nafta Has Significantly Reduced The Number Of U.S. Jobs
D. The Number Of U.S. Jobs Has Increased In Some Sectors Of The Economy, While In Other Sectors It Has Reduced The Number Of Jobs
E. No One Has Examined This Issue Yet

72. What Should Happen Once The Euro Has Been Completely Integrated Into The Economies Of The European Union (Eu)?
A. International Trade Between Eu Members Will Increase Due To Lower Transaction Costs Of Trade
B. Consumer Prices Will Increase And Income Will Fall
C. Trade Between Eu Members Will Decrease Due To The Increased Costs Of Using A Multi-National Currency
D. Eu Members Will Only Trade With Other Members And Stop Trading With The Rest Of The World
E. None Of The Above

73. Which Of The Following Is A Customs Union Of Nations?
A. Nafta
B. Wto
C. Eu
D. Gatt
E. Un

74. Which Of The Following Established A Free Trade Zone?
A. Eu
B. Gatt
C. Un
D. Wto
E. Nafta

75. Since The Introduction Of The General Agreement On Tariffs And Trade (Gatt) In The 1940s,
A. Tariffs And Import Quotas Have Increased Dramatically
B. Tariffs Around The World Have Fallen From An Average Of 40% To About 4%
C. Common Market Treaties Have Become More Difficult To Negotiate And Enforce
D. The Imposition Of Tariffs Has Been Declared To Be “Unfair” In Most Situations
E. Dumping Has Become A Widespread Practice Between Member Nations

76. The United States Currently Enforces An Embargo Against
A. Cuba
B. Saudia Arabia
C. The European Union
D. A) And B) Only
E. All Of The Above

77. Embargos
A. Are Import Quotas Set To 0
B. Are Export Quotas Set To 0
C. May Be Imposed For Political Reasons
D. May Be Imposed For Economic Reasons
E. All Of The Above

78. Outsourcing Is The Practice Of
A. Obtaining Raw Materials From Suppliers In Other Countries
B. Manufacturing Product In Another Country By Opening A Factory In That Nation
C. Purchasing Customer Services From Suppliers In Another Country Where The Costs Of These Services Are Lower Than Domestic Suppliers
D. Selling Goods To Another Country
E. Answers B And C Are Both Examples Of Outsourcing

79. The World Trade Organization, Or Wto, Has Been Unpopular With Many Environmentalists Because
A. It Produces A Great Deal Of Pollution
B. It Does Not Do Enough In Its Activities To Enforce Pollution Regulations
C. It Is Allowing Pollution Rights Licenses To Be Sold By Nations To One Another
D. It Encourages Developing Nations To Emphasize Jobs At The Expense Of Environment
E. The Wto Does Not Have A Pollution Control Agency

True / False Questions

80. Protectionists Want To Reduce Foreign Competition With U.S. Goods And Services.

81. Support For Protectionism Increases During Economic Expansions.

82. Free Traders Maintain That World Output Is Greatest If All Countries Are Free To Engage In Voluntary Exchanges.

83. A Country Should Strive To Export More Than It Imports Over Time.

84. Engaging In Exchange Enables A Country To Shift Its Production Possibilities Curve Outward.

85. Countries Should Trade For Goods In Which They Have A Comparative Advantage.

86. If A Country Has A Comparative Advantage In The Production Of One Good, It Must Have A Comparative Disadvantage In The Production Of Some Other Good.

87. It Is Efficient For An Economy To Save Service Jobs By Preventing Outsourcing.

88. An Exchange Rate Is The Price Of One Country’s Currency In Terms Of The Currency Of Another.

89. A Country’s Population As A Whole Will Benefit From Import Restrictions.

90. Everyone In The Economy Benefits From Free Trade.

91. For Many Years, U.S. Citizens Have Earned More Investment Income Abroad Than Foreigners Have Earned In The U.S.

92. Foreign Investment In The U.S. Provides Foreign Currencies To Import Goods.

93. Trade Deficits Are Important Only To The Extent That They Lead To Overall Balance Of Payments Problems.

94. To Preserve Jobs In The U.S., The U.S. Should Enact Legislation Lowering The Quantities Of Japanese Autos That It Imports.

95. Engaging In Trade Allows A Country To Shift Its Consumption Possibilities Curve Outward But Leaves Its Production Possibilities Curve Unchanged.

96. In Terms Of The Value Of Jobs Saved, The Voluntary Restrictions On Japanese Cars Imported To The U.S. In The Early 1980s Were Efficient.

97. Free Trade Would Reduce U.S. Well-Being Because We Could Not Compete With The Low-Wage Countries Of The World.

98. International Trade Makes It Possible For An Economy To Shift Its Production Possibilities Curve Outward.

99. As With Trade Between Regions Of One Country, Trade Between Countries Benefits Both.

100. Since Resources Are Sent Out Of The Country, International Trade Generally Results In A Reduction In An Economy’s Gdp.

101. International Trade Increases The Variety And Availability Of Consumer Goods In An Economy.

102. Free Trade Arguments Are Sound Only If Trade Is Between Countries Whose Workers Earn Roughly The Same.

103. Trade Between Individuals In Two Different Countries Would Not Occur Unless Both Parties Believed That It Made Them Better Off.

104. Tariffs Increase Both The Price Of Imports And Domestically Produced Goods.

105. A $100 Per Unit Tariff On South African Diamonds Will Increase The Price By $100.

106. Both Tariffs And Quotas Result In Higher Prices And Lower Quantities For Consumers.

107. Foreign Producers Who Hold Quota Rights May Earn Greater Profits With The Imposition Of A Quota.

108. A Voluntary Restraint Agreement Is A Quota Without The Force Of Law.

109. Quotas Result In Lower Prices Of Both Imported And Domestically Produced Goods.

110. All Forms Of International Trade Restrictions Result In Higher Prices And Lower Quantities Of Goods For Domestic Consumers.

111. Pegging The Exchange Rate Will Eliminate Balance Of Payment Deficits.

112. Pegging The Exchange For French Francs Below Its Equilibrium Level Will Generate A Shortage Of Francs.

113. Nafta Is A Customs Union Between The U.S., Canada, And Mexico.

114. The European Union Is A Free Trade Area.

115. International Trade Disputes Between Nations Are Settled Through The Actions Of The World Trade Organization.

116. Dumping Occurs When Producers Sell Abroad At A Price Below The Cost Of Production.

117. Dumping Is Not Considered An Unfair Trade Practice In Most Parts Of The World.

118. Members Of The Wto Must Agree To Treat All Other Members As Equals And Provide Them With “Most Favored Nation” Status.

119. The Wto Prohibits Member Nations From Imposing Tariffs On Other Members.

120. There Is More International Trade Today Than At Any Time In The Past.

121. Since The 1940s, Tariffs Around The World Have Fallen From An Average Of 40 Percent.

122. The Euro Will Increase The Transaction Costs Of Trade Between Nations Who Are Members Of The European Union (Eu).

123. The Euro Will Be Integrated Into The Economies Of Western Europe With Very Few Costs.

124. Common Market Treaties Are Decreasing In Popularity And Importance Around The World.

125. Most Tariffs Have Been Outlawed By The World Trade Organization (Wto).

126. Very Few Members Of The World Trade Organization (Wto) Are Also Members Of A Common Market Treaty.

127. Today, Custom Unions Or Free Trade Zones Can Be Found On Every Populated Continent Of The World.

128. In The Short-Run, Common Market Treaties Such As Nafta Both Create And Destroy Jobs In Member Nations.

129. In Recent Years, “Protectionists” Have Won The Battle With “Free Traders.”

130. An Embargo Occurs When One Nation Volunteers To Restrict Its Exports Of A Product.

131. The Intent Of An Embargo Is To Raise The Price Of A Country’s Exports.

ECO 405 Week 5 Quiz – Strayer University New

ECO/405 Week 5 Quiz – Strayer

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Chapter 06

The Economics Of Education: Crisis And Reform

Multiple Choice Questions

1. According To The Census Bureau, High School Graduates Can Expect To Earn How Much During Their Working Years?
A. $45,000
B. $1.2 M
C. $2.1 M
D. $2.5 M
E. $4.4 M

2. According To The Census Bureau, A College Education Adds How Much To Earnings Over A Person’s Work-Life?
A. Nearly $1m
B. $2.1 M
C. $2.5m
D. $4.4 M
E. Over $5 M

3. According To The Census Bureau, Someone With A Professional Degree Can Earn Approximately How Much During A Typical Work-Life?
A. $1 M
B. $1.2 M
C. $2.5 M
D. $4.4 M
E. Over $5m

4. Where Did U.S. Eighth Grade Students Rank Internationally In Terms Of Average Math Scores In 2007?
A. At The Top
B. Second
C. Near The Middle
D. Next To The Bottom
E. At The Bottom

5. Where Did U.S. Eighth Grade Students Rank Internationally In Terms Of Average Science Scores In 2007?
A. At The Top
B. Second
C. In The Middle
D. In The Bottom Half
E. At Bottom

6. Which Of The Following Is An Important Difference Between The United States And Other Countries In Terms Of Their K-12 Education System?
A. The United States Spends Less On Education Per Pupil Than Most Other Countries
B. The United States Spends A Higher Percentage Of Its Gdp On Education Than Other Countries
C. The United States Has A Shorter School Year Than Most Other Countries
D. The United States Has A Purely Private Market For Education
E. All Of The Above

7. About How Much Does The United States Spend On Education, Per Pupil?
A. $6,000
B. $7,000
C. $8,000
D. $9,000
E. $10,000

8. Approximately What Percent Of Its Gdp Does The United States Spend On Education?
A. 2.0
B. 3.0
C. 3.9
D. 4.2
E. 5.3

9. Which Of The Following Best Describes The U.S. K-12 Educational System?
A. It Is Largely Private
B. It Is Mainly Private With Some Public Education
C. It Is About Half Public And Half Private
D. It Is Predominantly Public
E. It Is Exclusively Public

10. Which Of The Following Is Of The U.S. K-12 Education System Relative To The K-12 Education System Of Other Developed Countries?
A. It Has Lower Expenditures Per Pupil And Lower Achievement
B. It Has Lower Expenditures Per Pupil And Higher Achievement
C. It Has Higher Expenditures Per Pupil And Lower Achievement
D. It Has Higher Expenditures Per Pupil And Higher Achievement
E. It Has Equivalent Expenditures Per Pupil And Achievement

11. In 2003, Approximately What Percent Of School Aged Children Attended Public Schools?
A. 90%
B. 75%
C. 50%
D. 25%
E. 10%

Questions 12 – 17 Refer To The Graph Below.

12. What Assumption Is Shown By The Fact That Mpc = Msc On The Graph?
A. This Graph Is For Public Education
B. There Are No Positive Externalities Associated With Education
C. Education Has Positive Spillover Benefits For Society
D. The Market Will Produce The Socially Optimal Quantity Of Education
E. This Graph Illustrates A Private Market For Education

13. What Is This Family’s Willingness To Pay For A First Year Of Education?
A. $0
B. $4,000
C. $6,000
D. $8,000
E. $10,000

14. What Is The Equilibrium Level Of Education In This Market?
A. 0 Years
B. 1 Year
C. 12 Years
D. 16 Years
E. Between 12 And 16 Years

15. What Tuition Would Result In The Family Demanding 16 Years Of Education?
A. $0
B. Less Than $4,000
C. $4,000
D. $6,000
E. $10,000

16. Which Of The Following Is For The First Years Of Education?
A. Mpb < Mpc B. Mpb > Mpc
C. Msb > Msc
D. Msb < Msc
E. Mpb = Msb

17. Which Of The Following Is For The 16th Year Of Education?
A. Mpb < Mpc B. Mpb > Mpc
C. Msb > Msc
D. Msb < Msc E. Mpb = Msb Questions 18 – 23 Refer To The Graph Below. 18. For Which Level Of Education Is The Family’s Mpb > Mpc?
A. 1 Year
B. Between 0 And E1 Years
C. Between E1 And E* Years
D. Exactly E1 Years
E. Exactly E* Years

19. The Negative Slope Of The Demand Curve Shows That
A. The Marginal Cost Of Education Increases As More Is Purchased
B. The Marginal Benefit Of Education Increases As More Is Purchased
C. The Marginal Benefit Of Each Additional Year Of Education Decreases
D. There Are Positive Spillover Benefits Of Education
E. Tuition Can Be Raised Above T1 Dollars

20. The Socially Optimal Level Of Education
A. Is 0 Years
B. Is 1 Year
C. Is E1 Years
D. Is E* Years.
E. Cannot Be Determined From The Diagram.

21. For Which Year Of Education Is The Family’s Mpb < Mpc? A. 0 Years B. 1 Year C. E1 Years D. E* Years E. None Of The Above 22. The Slope Of The Supply Curve Indicates That The A. Marginal Cost Of A Year Of Education Is Constant B. Marginal Benefit Of An Additional Year Of Education Increases C. Marginal Benefit Of An Additional Year Of Education Is Constant D. Marginal Benefit Of An Additional Year Of Education Increases E. Cost Of Education Is Subsidized By The Public 23. In The Diagram, The Equilibrium Level Of Education Is A. 0 Years B. 1 Year C. E1 Years D. E* Years E. Between E1 And E* Years 24. What Happens To The Marginal Benefit Of Education As A Child Gets More Schooling? It Will A. Increase B. Decrease C. Stay The Same D. Become Infinite E. Become Negative 25. Which Of The Following Is A Benefit Of Increased Education? A. Improved Literacy B. Increased Earnings C. Improved Health D. Greater Satisfaction E. All Of The Above 26. A Family’s Demand For Education For A Child Reflects The Family’s A. Income B. Preferences For Education C. Mpb Received From The Education D. Opportunity Cost Of Tuition E. All Of The Above 27. Which Of The Following Happens As Tuition Increases? A. The Demand For Education Increases B. The Demand For Education Decreases C. The Supply Of Education Increases D. The Years Of Education Demanded Fall E. The Cost Of Education Increases 28. The Supply Of Private Education Is Represented By A. The Mpb Curve B. The Mpc Curve C. The Msc Curve D. The Msb Curve E. None Of The Above 29. An Increase In The Demand For Education Will A. Increase The Supply Of Education B. Decrease The Equilibrium Tuition C. Decrease The Equilibrium Quantity Of Education D. Increase The Equilibrium Quantity Of Education E. Shift The Demand Curve For Education To The Left 30. A Decrease In The Cost Of Education Will A. Increase The Supply Of Education B. Increase The Equilibrium Tuition C. Decrease The Equilibrium Quantity Of Education D. Increase The Equilibrium Quantity Of Education E. Shift The Demand Curve For Education To The Left 31. Which Of The Following Will Decrease The Equilibrium Quantity Of Education In A Market? A. An Increase In The Demand For Education B. A Decrease In The Demand For Education C. A Decrease In Production Costs D. An Increase In The Supply Of Education E. None Of The Above 32. An Increase In Family Income Will A. Increase The Demand For Education B. Decrease The Demand For Education C. Increase The Quantity Of Education Supplied D. Increase The Quantity Of Education Demanded E. Decrease The Equilibrium Level Of Tuition 33. An Increase In The Marginal Benefit Of Education Will Cause Which Of The Following? A. The Demand Curve For Education Shifts Right B. The Demand Curve For Education Shifts Left C. The Supply Curve For Education Shifts Right D. The Supply Curve For Education Shifts Left E. The Equilibrium Number Of Years Of Education Will Decrease 34. The Creation Of New Learning Technologies Will Cause Which Of The Following To Decrease? A. The Demand For Education B. The Supply Of Education C. The Cost Of Education D. The Equilibrium Quantity Of Education E. The Number Of Children In School   35. If The Earnings Expected From A College Education Increase, It Will Lead To An Increase In A. The Demand For K-12 Education B. The Supply Of K-12 Education C. The Cost Of Education D. The Teacher Salaries E. All Of The Above 36. Education Is Said To Be Which Of The Following? A. Individually Consumed B. Individually Produced C. A Semi-Private Good D. A Private Good E. A Public Good 37. I Benefit Because You Become More Educated. This Is An Example Of A A. Negative Externality In Consumption B. Spillover Cost C. Positive Externality In Production D. Positive Externality In Consumption E. Negative Externality In Production 38. As The Number Of Years Of Education Increases, The Spillover Benefits Will A. Increase B. Decrease C. Stay The Same D. Become Negative E. None Of The Above 39. Which Of The Following Is An Example Of A Possible Spillover Benefit From Education? A. An Improved Democratic Process B. Improved Health C. Improved Public Safety D. More Charitable Giving E. All Of The Above 40. Students Learn About Health And Nutrition In School. This Provides A A. Positive Externality In Production B. Positive Externality In Consumption C. Negative Externality In Production D. Negative Externality In Consumption E. Cost To Society 41. Marginal Social Benefits Equal A. Mpb + Spillover Benefits B. Mpb – Spillover Benefits C. Mpcs D. Total Benefits + Positive Externalities In Consumption E. None Of The Above 42. With Positive Externalities In Consumption, The Market Equilibrium Quantity Will Be A. Greater Than Socially Optimal B. Less Than Socially Optimal C. Equal To The Socially Optimal Level D. Higher Than Otherwise E. None Of The Above 43. Educated Citizens Are More Likely To Be Informed Voters. This Is An Example Of A A. Positive Externality In Production B. Positive Externality In Consumption C. Negative Externality In Production D. Negative Externality In Consumption E. Cost To Society. 44. To Be Socially Optimal, Education Should Be Provided To The Point Where A. Mpb = Mpc B. Mpb = Msc C. Msb = Mpc D. Msb = Msc E. Mpb = Msb   45. The Existence Of Spillover Benefits Results In An Equilibrium Quantity In The Market That Is Socially Optimal. A. Higher Than B. Lower Than C. Equal To D. Better Than E. More Expansive Than 46. The Argument For Government Provision Of Education Hinges On The Existence Of A. Spillover Costs. B. Spillover Benefits. C. Voucher Programs. D. Negative Externalities In Production. E. Negative Externalities In Consumption Questions 47 – 50 Refer To The Graph Below. 47. The Socially Optimal Years Of Education Is A. 1 B. Between 1 And 11 C. 11 D. 12 E. 16 48. What Is The Equilibrium Number Of Years Of Education The Market Will Provide? A. 0 B. 1 C. 11 D. 12 E. 16 49. Which Of The Following Government Actions Will Move The Market Equilibrium To The Socially Optimal Number Of Years Of Education? A. A Tax On Education Equal To $1,000 B. A Tax On Education Equal To $3,000 C. A Tuition Subsidy Equal To $1,000 D. A Tuition Subsidy Equal To $3,000 E. Government Provision Of All Education 50. A Tuition Subsidy Of $6,000 Would Lead To A. The Socially Optimal Quantity Of Education B. Greater Than The Socially Optimal Quantity Of Education C. Less Than The Socially Optimal Quantity Of Education D. More Public Education E. A Budget Surplus Questions 51 – 54 Refer To The Graph Below. 51. The Socially Optimal Level Of Education Is A. 0 B. Between 0 And E1 C. E1 D. E2 E. E3 52. The Market Equilibrium Level Of Education Is A. 0 B. Between 0 And E1 C. E1 D. E2 E. E3 53. A Tuition Subsidy Equal To How Much Will Move The Market To The Socially Optimal Level Of Education? A. T3 – T2 B. T2 – T1 C. T3 – T1 D. T1 E. T2 54. A Tuition Subsidy Equal To T3 Would Result In Which Of The Following? A. The Socially Optimal Quantity Of Education B. Greater Than The Socially Optimal Quantity Of Education C. Less Than The Socially Optimal Quantity Of Education D. More Public Education E. A Budget Surplus 55. Greater Segregation Along Racial Lines Is A Likely Result Of A. Purely Private K-12 Education B. No Public K-12 Education C. Voucher Programs D. Tuition Subsidies E. All Of The Above 56. A Purely Private K-12 System Will Lead To A. Lower Private Costs B. Increased Public Costs C. Decreased Racial Segregation D. Increased Inequality E. Greater Social Benefits 57. In A Purely Private K-12 Education System, Spaces Would Be Allocated Based On A. Ability B. Equity C. Income D. Geographic Boundaries E. None Of The Above 58. In The Existing Public K-12 Education System, Spaces Are Allocated Based On A. Ability B. Equity C. Income D. Geographic Boundaries E. None Of The Above 59. A Program To Provide Public Funding For Students In Poor Performing Public Schools To Attend Other Schools Is Known As A. A Voucher Program B. A Charter School C. A Tuition Tax D. A Welfare Program E. Privatization 60. The Current K-12 Education System Can Be Described As A. Private B. Centralized C. Decentralized D. State Owned E. None Of The Above 61. Centralized Planning Leads To Which Of The Following? A. Limited Consumer Choice B. Decreased Quality C. Increased Prices D. Lack Of Responsiveness E. All Of The Above 62. Schools In Which Parents Or Other Groups Were Permitted To Create A New School With State Funding And Were Given Control Over Operations Are Known As A. Private Schools B. Voucher Schools C. Magnet Schools D. Experimental Schools E. Charter Schools 63. The Empirical Evidence Of The Effectiveness Of Voucher Programs Is Best Described As A. Positive B. Negative C. Inconsistent D. Substantial E. Nonexistent 64. Which Of The Following Is An Argument Against Voucher Programs? A. Cream Skimming B. Reduced Social Segregation C. Decreased Efficiency D. Increased Special Education E. All Of The Above 65. The Cream Skimming Argument Says That The Students Who Choose A Voucher Program Will Be A. Higher Income B. Lower Income C. Higher Achieving D. Non-Minority E. None Of The Above 66. Poor Students Are Less Likely To Participate In Voucher Programs Because Of A. Less Information B. Higher Transportation Costs C. Fewer Financial Resources D. A Weaker Tradition Of Education E. All Of The Above 67. Private School Cost Per Pupil Is Lower Because Of A. Fund Raising B. Private Contributions C. Student Fees D. Volunteer Labor E. All Of The Above 68. What Is The Relationship Between School Funding And Student Achievement? A. Positive B. Negative C. Mixed D. Unrelated E. Inverse 69. What Is The Relationship Between Student Achievement And Teacher Pay? A. Positive B. Negative C. Mixed D. Unrelated E. Inverse 70. What Is The Relationship Between Teacher Pay And A Shortage Of Teachers? A. Positive B. Negative C. Mixed D. Unrelated E. Direct 71. Public Schools Must Pay For Which Of The Following Expenses That Private Schools Do Not? A. Transportation B. Food C. Special Education D. All Of The Above E. None Of The Above 72. A Reduction In Class Size Should Be Undertaken As Long As The Marginal Benefit Of The Decrease Is A. Positive B. Negative C. Greater Than The Marginal Cost D. Less Than The Marginal Cost E. Increasing 73. Decreasing Average Class Size Without Changing Teacher Pay Leads To A. Lower Quality Teachers B. A Surplus Of Teachers C. Lower Costs Per Pupil D. Increased Segregation E. All Of The Above 74. Which Of The Following Statements Does Not Enjoy Widespread Agreement? A. Achievement Per Dollar In U.S. Education Is Too Low B. Reform Of The U.S. Education System Is Necessary To Maintain High Level Human Capital C. Smaller Class Sizes Can Improve Student Performance D. Voucher Programs Are The Most Effective Way To Improve The U.S. Education System E. Increased Teacher Pay Increases Teacher Quality 75. Education Could Be Considered A Semi-Private Good, Since A. There Are Spillover Benefits To Other Members Of Society Resulting From The Education Of A Child B. Education Of The Population Improves Everyone’s Lives Since It Results In Greater Productivity And Income For All Members Of Society C. There Are Benefits To Society From Education, Since It Reduces The Crime Rate D. Education Produces Positive Externalities To Society E. All Of The Above 76. If Government Wishes To Increase The Quantity Of Higher Education Consumed, What Can Be Done To Accomplish This? A. Charge Tuition That Is Below The Full Costs Of Providing The Educational Services B. Operate Public Colleges C. Provide Reduced Tuition To Students D. Any Of The Above Alternatives Would Increase The Consumption Of Education E. The Government Should Not Attempt To Increase Education, Since It Is A Private Good 77. Studies Of Voucher Programs Indicate That The Effects Of Vouchers On Student Achievement A. Are Small But Have Negative Impact On Student Performance B. Are Received Primarily By African-American And Economically Disadvantaged Children C. Have Yet To Be Examined In Large-Scale Programs D. Both B And C E. None Of The Above 78. Research On The Effects Of Charter Schools Show A. There Are Significantly Positive Impacts On Student Performance B. There Are Significantly Negative Impacts On Student Performance C. There Are Mixed Results, With Positive Impacts In Some Schools And Negative In Others D. Research Has Yet To Be Undertaken On These New Types Of Schools E. None Of The Above True / False Questions 79. A College Education Does Not Improve Earnings Over A High School Degree. 80. A Master’s Degree Increases Lifetime Earnings Over A Bachelor’s Degree By $2.5m Over High School Graduates. 81. More Education Will Increase The Revenue A Worker Adds To A Firm. 82. Improved Education Will Lead To Higher Economic Growth In A Country. 83. American High School Graduates Outperform All Other Countries On Math And Science Exams. 84. The Length Of The School Year In The United States Is Longer Than In Most Other Developed Countries. 85. The United States Spends Over $8,000 Per Pupil On Secondary Education. 86. The United States Is Toward The Middle Of Countries In Rankings Of Percent Of Gdp Per Capita Spent On Education. 87. Ninety Percent Of School-Aged Children Attend Public Schools In The United States. 88. There Are Approximately 50 Million School-Aged Children In The United States. 89. The Marginal Benefit Of Education Increases As A Student Completes More Years Of Education. 90. More Education Leads To Improved Decision-Making In Families. 91. The Move From Illiteracy To Literacy Has High Marginal Benefits. 92. A Family’s Demand For Education Comes From Its Marginal Private Benefits. 93. The Demand Curve For Education Has A Positive Slope. 94. Lower Tuition Rates Lead To Less Education. 95. Without Public Schools, There Would Be No K-12 Education. 96. Without Market Provision Of Education, There Is No Mechanism For Quality Control. 97. A Family Will Purchase Private Education As Long As The Mpb > Mpc.

98. Increased Income Will Increase The Demand For Education.

99. New Learning Technologies Will Increase The Cost Of Providing K-12 Education.

100. Everyone Agrees That Education Provides Significant Positive Spillover Benefits.

101. Years Of Education Completed Are Negatively Related To Criminal Activities.

102. The Greatest Positive Externalities Accrue In The Early Years Of K-12 Education.

103. Msb Of Education = Mpb + Positive Externalities.

104. If There Are Positive Externalities From Education, The Market Will Not Produce The Socially Optimal Level Of Education.

105. The Government Can Increase The Equilibrium Quantity Of Education In A Market Through Tuition Subsidies.

106. A Significant Positive Externality Of Education Would Support The Argument Against Public Education.

107. Public K-12 Education Facilitates Equal Opportunity.

108. A Purely Private K-12 Education System Would Increase Existing Segregation.

109. Markets Ration Education Based On A Price/Quality Trade-Off.

110. Public Schools Ration Education Based On A Price/Quality Tradeoff.

111. Voucher Programs Fund Students To Attend Poor Performing Schools.

112. Charter Schools Are Privately Funded And Community Controlled.

113. High-Income Students And Their Families Are More Likely To Benefit From Voucher Programs.

114. Voucher Programs Have Been Accused Of “Cream Skimming.”

115. The Costs Of Private Schools Are Greater Than Their Tuition.

116. Private Schools Must Pay Some Types Of Costs That Public Schools Do Not.

117. Economists Agree That Voucher Programs Improve K-12 Education.

118. Smaller Class Size Increases Student Achievement.

119. Higher Teacher Salaries Do Not Change Student Achievement.

120. The Achievement Of Low-Income Students Improves More With Smaller Class Sizes, Relative To Higher Income Students.

121. Smaller Class Size Is Always Cost-Effective.

122. Increased School Funding Increases Student Achievement.

123. Increasing Teachers’ Salaries Does Not Affect Student Achievement.

124. The Opportunity Cost Of Becoming A Teacher Is The Salary Of Similarly Trained Professionals.

125. Increased Spending On K-12 Education Is Certain To Be Cost-Effective.

126. The United States’ K-12 Education System Has An Efficient Level Of Achievement Per Dollar Spent.

127. Increased Competition In K-12 Education Can Lead To An Improved Education System.

128. Targeting Increased Funding To Programs For Disadvantaged Children Is The Most Cost-Effective.