ECO 450 Week 5 Mid-Term Exam Chapter 1 Through 7 – Strayer

ECO 450 Week 5 Mid-Term Exam Quiz – Strayer (All Possible Questions With Answers)

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Chapters 1 Through 7

ECO 450 Week 2 Quiz – Strayer

CHAPTER 1
Individuals and Government
TRUE/FALSE QUESTIONS
1. On average, persons in the United States devote more of their annual budgets to taxes than they do to food.
2. A universally observed function of government is the establishment of property rights.
3. The total share of GDP accounted for by government spending in the United States has declined significantly since 1980.
4. In 1929, the federal government spent more than was spent by state and local governments.
5. Since 1930, the percent of GDP devoted to government expenditures has more than tripled.
6. The costs imposed by government regulations on business firms are included in budget data on government expenditures.
7. Government consumption does not require resources to be reallocated from private to government use.
8. Since 1959, the percent of federal government expenditures devoted to transfers has increased by more than 50 percent.
9. Transfer payments, including Social Security and welfare and medical assistance, account for nearly 60 percent of federal government expenditures.
10. Interest on the federal government’s debt accounts for about 20 percent of federal government expenditure.
11. Federal grants-in-aid to state and local governments finance about 20 percent of annual spending by these governments.
12. The federal government allocates about 10 percent of its budget to Social Security.
13. State and local governments in the United States spend a bit more than one-third of their budgets on education.
14. Sales taxes account for about 22 percent of state and local government revenue in the United States.
15. The federal government obtains about half of its revenue annually from retail sales taxes.
16. State governments do not fund any part of Medicaid.
17. The social compact is an 18th century idea by political theorists.
18. The proportion of revenue received by the federal government from payroll taxes is higher than the proportion of revenue received by state and local governments from payroll taxes.
MULTIPLE CHOICE QUESTIONS
1. The real cost of government goods and services is:
a. money.
b. taxes.
c. the private goods and services foregone.
d. inflation.
2. If the economy is currently operating on a point on the production possibility curve for government goods and services versus private goods and services,
a. an annual increase in government goods and services can be obtained without any sacrifice of annual private goods and services.
b. it will be impossible to increase annual output of government goods and services.
c. a decrease in the annual output of government goods and services will have no effect on the annual output of private goods and services.
d. a decrease in the annual output of government goods and services will allow an increase in annual output of private goods and services.
3. Government goods and services are usually:
a. not rationed by prices.
b. sold in markets.
c. made available to persons according to their willingness and ability to pay.
d. financed by revenue obtained from sales.
4. Taxes:
a. are prices paid for the right to consume government goods and services.
b. are compulsory payments not directly related to the benefits received from government goods and services.
c. never affect economic incentives.
d. are used by private firms to raise revenue.
5. A mixed economy is one in which:
a. there are no markets.
b. government activity accounts for a significant proportion of the value of goods and services produced.
c. there is no government.
d. all goods and services are sold in markets.
6. Government purchases for consumption and investment:
a. are made to acquire resources necessary to produce government goods and services.
b. are designed to redistribute purchasing power among citizens.
c. have increased in importance as a percent of federal spending since 1959.
d. do not withdraw resources from private use.
7. Transfer payments by the federal government in the United States account for about:
a. 25 percent of federal government expenditures.
b. 10 percent of federal government expenditures.
c. 40 percent of GDP.
d. 60 percent of federal government expenditures.
8. Total annual expenditures by federal, state, and local governments in the United States in the 1990s accounted for roughly:
a. 20 percent of annual GDP.
b. 30 percent of annual GDP.
c. 50 percent of annual GDP.
d. 75 percent of annual GDP.
9. Federal government expenditures in the United States account for about:
a. 23 percent of annual GDP.
b. 33 percent of annual GDP.
c. 43 percent of annual GDP.
d. 53 percent of annual GDP.
10. About 80 percent of federal receipts are accounted for by:
a. corporate profits taxes.
b. sales taxes.
c. excise taxes.
d. payroll and personal income taxes.
11. If the economy is operating at full employment and using resources efficiently, then an increase in spending for homeland security this year will:
a. require that resources be reallocated to homeland security services without sacrificing any alternative goods and services.
b. be possible if resources are reallocated to homeland security services, but it will also mean that the output of some other goods and services will have to fall.
c. be impossible.
d. be possible only if there is an improvement in technology or more resources made available.
12. Which of the following is an example of a political institution?
a. a market
b. elections with winners determined by majority rule
c. representative government
d. both (b) and (c)

13. Nonmarket rationing means that:
a. those willing to pay can buy as much of a product as they choose.
b. prices are used to sell products.
c. goods and services are not rationed by prices.
d. willingness to pay is not a factor in determining who can enjoy a good or service.
e. both (c) and (d)
14. The U.S. economy is best characterized as a:
a. pure market economy.
b. socialist economy.
c. pure capitalistic, free-enterprise system.
d. mixed economy.
15. State and local government expenditure in the United States accounts for about:
a. 32 percent of GDP.
b. 22 percent of GDP.
c. 12 percent of GDP.
d. 7 percent of GDP.
16. Following the circular flow of a mixed economy, firms receive a flow of dollars from and send goods and services to:
a. Output Markets.
b. Input Markets.
c. Households.
d. Government.

17. Following the circular flow of a mixed economy, which entity or entities distribute resources?
a. Firms only.
b. Input Markets only.
c. Government and Households.
d. Households and Input Markets.

18. When has the U.S. experienced government expenditures in the range of 40% to 50% of GDP?
a. 2000 to 2009.
b. 1950 to 1959.
c. 1940 to 1949.
d. It has never happened.

19. In 2008, which country listed below has the highest percentage of government spending relative to GDP?
a. France.
b. Ireland.
c. Japan.
d. Canada.

20. The old-age dependency ratio is:
a. the proportion of the population that is 60 years or older over the proportion of the population that is less than 60 years of age.
b. the proportion of the population that is 65 years or older over the proportion of the population that is 15 to 64 years of age.
c. the proportion of the population that is 70 years or older over the proportion of the population that is 20 to 69 years of age.
d. the total government expenditure on programs for the elderly over the number of citizens that are 65 years or older.

ECO 450 Week 3 Quiz – Strayer

CHAPTER 2
Efficiency, Markets,
and Government
TRUE/FALSE QUESTIONS
1. The normative approach to public finance prescribes certain actions to achieve predetermined criteria.
2. Positive economic analysis is based on underlying value judgments.
3. “The government should abolish tariffs to achieve efficiency” is a normative statement.
4. It is possible for efficiency not to be attained even if all production is carried on without waste.
5. Efficiency is attained when resources are used each year in such a way that no further net gain is possible.
6. The efficient annual output of any given good is attained if that good is made available in amounts up to the point at which the total social benefit of the good equals the total social cost.
7. If the marginal social benefit of smoke detectors exceeds its marginal social cost, then additional net gains are possible from an increased annual smoke detector production.
8. Monopoly power causes losses in efficiency because the marginal social benefit of output exceeds its marginal social cost at the monopoly output.
9. Government regulations that require airlines to serve routes for which the maximum price that pas¬sengers are willing to pay for a trip fall short of the minimum price that sellers are willing to accept are likely to cause losses in efficiency.
10. Points lying below a utility possibility curve are efficient.
11. Government programs can achieve efficiency when the gains to gainers from those policies exceed the losses to those who bear the costs.
12. If the marginal social cost of beer production exceeds its marginal social benefit, then more than the efficient about of beer is being produced.
13. Efficient outcomes are often viewed as inequitable.
14. If it is not possible to make someone better off without harming another, then resource allocation is efficient.
15. Compensation criteria are used to argue that changes in resource allocation should be made if the gains to some groups outweigh the losses to others, even though compensation for losses is not actually made.
16. All points on a utility possibility curve are efficient but differ in terms of the distribution of well-being.
17. A tax on a product shifts the demand curve.
18. A government subsidized price for a commodity that is higher than the market driven price results in oversupply relative to the efficient allocation.
19. When comparing the allocation of two goods relative to two consumers with individual utility functions, multiple points of Pareto efficiency can exist.
MULTIPLE CHOICE QUESTIONS
1. Positive economics:
a. makes recommendations designed to achieve certain goals.
b. establishes cause-and-effect relationships between economic variables.
c. is based on value judgments.
d. can never be used to make predictions.
2. If the efficient output of a good is produced each week, then the:
a. marginal social benefit of the good equals its marginal social cost each week.
b. marginal social benefit of the good is at a maximum.
c. total social benefit of the good is at a maximum.
d. total social benefit of the good equals its total social cost.
3. If the marginal social benefit of a good exceeds the marginal social cost at the current monthly output, then:
a. it will be possible to make buyers of the good better off without harming sellers of the good.
b. it will be possible to make sellers of the good better off without harming buyers of the good.
c. either (a) or (b)
d. a reduction in monthly output will be required for efficiency.
4. The marginal social cost of bread exceeds the marginal social benefit at the current weekly output. Therefore,
a. the marginal net benefit of bread is positive.
b. the output of bread is efficient.
c. a reduction in weekly output of bread is necessary to achieve efficiency.
d. an increase in weekly output of bread is necessary to achieve efficiency.
5. The total social benefit of automobiles equals the total social cost at current annual output. Then it follows that:
a. the annual output of automobiles is efficient.
b. the annual output of automobiles exceeds the efficient amount.
c. less than the efficient annual output of automobiles is produced.
d. it is not possible to make buyers of automobiles better off without harming sellers.
e. both (a) and (d)
6. Eggs are sold in a perfectly competitive market. No persons other than the buyers and sellers of eggs are affected in any way when eggs are traded in the market. Then it follows that:
a. the price of eggs equals the marginal social cost of eggs.
b. the price of eggs equals the marginal social benefit of eggs.
c. the price of eggs exceeds the marginal social benefit of eggs.
d. both (a) and (b)
7. Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that:
a. the marginal social benefit of diamonds exceeds its marginal social cost.
b. the marginal social cost of diamonds exceeds its marginal social benefit.
c. the price of diamonds equals its marginal social cost.
d. the price of diamonds exceeds its marginal social benefit.
e. both (c) and (d)
8. Points on a utility possibility curve represent:
a. a given distribution of well-being between two persons.
b. an efficient allocation of resources.
c. the maximum well-being of any one person, given the resources available and the well-being of another person.
d. all of the above
9. If efficiency has been attained,
a. it will be possible to make any one person better off without harming another.
b. it will not be possible to make any one person better off without harming another.
c. perfect competition must exist.
d. the opportunity cost of any change in resource use must be zero.
10. A move from an inefficient resource allocation to an efficient one:
a. will always be unanimously approved, even if gainers do not compensate losers.
b. will be unanimously opposed.
c. will be unanimously approved if gainers compensate losers.
d. can never result in losers.
11. Which of the following is a normative statement?
a. When interest rates rise, the quantity of loanable funds demanded for new mortgages will decline.
b. To achieve efficiency, governments should prevent monopoly in markets.
c. Unemployment increases during a recession.
d. When governments increase income tax rates, people work less.
12. Normative economics:
a. is not based on underlying value judgments.
b. makes recommendations to achieve efficient outcomes.
c. establishes cause-and-effect relationships between economic variables.
d. makes “if…then” type statements and checks them against the facts.

13. The extra benefit on one more unit of a good or service is its:
a. marginal cost.
b. marginal benefit.
c. total benefit.
d. total cost.
14. If the efficient output of computers is achieved this year, then market price of computers is equal to:
a. the marginal social benefit of computers.
b. the marginal social cost of computers.
c. the total social cost of computers.
d. the total social benefit of computers.
e. both (a) and (b)
15. Suppose the efficient output currently prevails in the market for ice cream. A tax on ice cream con¬sumption will:
a. allow efficiency to continue to prevail in the market.
b. result in more than the efficient output in the market.
c. result in less than the efficient output in the market.
d. cause the marginal social cost of ice cream to exceed its marginal social benefit at the market equilibrium output.
16. Positive economics is:
a. an equity based approach in which income should be redistributed.
b. an objective approach without a particular goal based on underlying values.
c. a goal oriented approach based on desired policy outcomes.
d. a belief that governments can implement economic policies for the greater good of society.
17. Normative economics is:
a. completely free of any value system.
b. completely objective.
c. based on a a conscious effort to implement a particular social goal.
d. an approach that determines the effect of particular actions without judgment of the result being good or bad.
18. An efficient level of output means:
a. the total social benefit less the total social cost is maximized.
b. the total social benefit is below the total social cost.
c. the total social cost equals the total social benefit.
d. the total social benefit less the total social cost can be improved.
19. If a government desires to increase production beyond the current competitively determined efficient level, the government should:
a. tax the good.
b. subsidize the good at a price higher than its current price.
c. set the price below its current price.
d. impose a fixed fee whenever the good is purchased.
20. Pareto efficiency between two consumers is achieved:
a. only when the individual marginal rates of substitution are equal to the marginal rate of transformation.
b. only when the individual marginal rates of substitution are less than one, but not necessarily equal.
c. only when the individual marginal rates of substitution are greater than one and equal.
d. only when the individual marginal rates of substitution are equal.

CHAPTER 3
Externalities and
Government Policy
TRUE/FALSE QUESTIONS
1. If a negative externality exists for sales of gasoline in a competitive market, more than the efficient amount of gasoline will be sold per year.
2. If the marginal external cost of pollution increases with the annual output of polluting goods, then the total external cost will increase at a constant rate with annual output.
3. When a positive externality exists, benefit to third parties other than the buyers and sellers of a good will result from market exchange of the good.
4. The marginal external benefit of the sale of smoke detectors in a city declines with annual output. The total external benefit of smoke detectors will therefore eventually become zero.
5. When a negative externality exists, the marginal social cost of annual output sold in a competitive market will exceed the marginal social benefit of that output in equilibrium.
6. If a negative externality is associated with the sale of wood stoves, then the marginal private cost of those stoves is less than their marginal social cost.
7. If a positive externality is associated with college enrollment, then when college instruction is pro¬vided in a competitive market, the marginal social benefit of enrollment will exceed its marginal social cost in equilibrium.
8. At the current level of annual supply of inoculations against polio, the marginal external benefit of an inoculation is zero. To achieve efficiency, a corrective subsidy must be provided to those being inoculated.
9. To internalize an externality, a corrective tax must be set equal to the marginal external cost.
10. According to the Coase theorem, corrective taxes are necessary to internalize negative externalities when the transactions costs of exchanging property rights to use resources are zero.
11. The efficient amount of pollution abatement is likely to be 100 percent.
12. Pollution rights can be used to price the right to emit pollutants and to provide incentives to reduce emissions by profit-maximizing firms.
13. Emissions standards allow businesses to emit waste at zero cost until the limits set by the standards are reached.
14. The market for sulfur dioxide allowance trading has lowered the cost of achieving a given reduc¬tion in sulfur dioxide emissions by electric power-generating plants.
15. Command-and-control regulation to reduce emissions is likely to be a less costly way of reducing a given amount of emissions than tradeable emissions permits.
16. When negative externalities exist, perfectly competitive markets produce less than the efficient output.
17. A toll road used to subsidize public transportation in an effort to reduce pollution is an example of a corrective tax.
18. Assuming no externalities and a competitive environment, the marginal private cost is equal to the marginal social cost.
19. Assuming a negative externality, the price of a good will be lower than if the price was set in a competitive environment without an externality.
MULTIPLE CHOICE QUESTIONS
1. A negative externality results from the sale of firewood in competitive markets. Then it follows that:
a. the marginal private cost of firewood is less than its marginal social cost.
b. the marginal private cost of firewood exceeds its marginal social cost.
c. the marginal private benefit of firewood is less than its marginal social benefit.
d. the marginal private benefit of firewood exceeds its marginal social benefit.
2. If a negative externality prevails in a competitive market for air travel, then:
a. more than the efficient amount of annual air travel will be consumed in equilibrium.
b. less than the efficient amount of annual air travel will be consumed in equilibrium.
c. the marginal social cost of air travel will exceed its marginal social benefit in equilibrium.
d. both (a) and (c)
e. both (b) and (c)
3. A positive externality results from the purchase of smoke detectors. If smoke detectors are sold in a competitive market,
a. the marginal social benefit of smoke detectors is less than the marginal private benefit received by any consumer.
b. the marginal social benefit will exceed the marginal private benefit received by any consumer.
c. in equilibrium the marginal social cost of smoke detectors will equal the marginal social benefit.
d. in equilibrium the marginal social benefit of smoke detectors is zero.
4. The marginal external cost associated with air pollution increases with the annual output of a pollut¬ing industry. At the current competitive equilibrium level of output per year, the marginal external cost is $10 per unit of output. To achieve efficiency,
a. a corrective tax of $10 per unit of output is required.
b. a corrective tax of more than $10 per unit of output is required.
c. a corrective tax of less than $10 per unit of output is required.
d. a corrective subsidy of $10 per unit of output is required.
e. a corrective subsidy of less than $10 per unit of output is required
.
5. The marginal external cost associated with paper production is constant at $10 per ton per year. The competitive market equilibrium for paper production is currently 10 million tons per year. A corrective tax on paper production:
a. will collect $100 million annually.
b. will collect more than $100 million annually.
c. will collect less than $100 million annually.
d. will reduce annual damages to those other than buyers and sellers of paper to zero.
e. both (a) and (d)
6. The marginal external cost per unit of effluent discharged into a river by a perfectly competitive chemical industry is currently estimated to be $50 per ton per year. Which of the following state¬ments is true?
a. Efficiency can be achieved with a $50 per ton annual effluent charge.
b. At the competitive equilibrium output, the marginal social benefit of discharging effluent is $50.
c. Efficiency can be achieved by banning discharge of effluent.
d. At the efficient output, the marginal social benefit of discharging effluent will be zero.
7. Electric power is produced by an unregulated monopoly in a certain region. The monopolistic elec¬tric power company’s production of electricity results in $10 per kilowatt hour of pollution damage to parties other than the buyers of electricity in the region. To achieve efficiency,
a. a $10 per kilowatt hour corrective tax is required.
b. more than $10 per kilowatt hour corrective tax is required.
c. a $10 corrective subsidy is required.
d. less than $10 per kilowatt hour corrective tax is required.
8. The competitive market equilibrium price of sanitation services in a small town with no government-supplied sanitation services is $2 per trash pickup. There is a $1 marginal external benefit associated with each trash pickup. The elasticity of supply of trash pickups is infinite in the long run, implying a horizontal supply curve. To achieve the efficient output of sanitation services,
a. a corrective subsidy must increase the price received by suppliers to $3 per pickup.
b. a corrective subsidy must decrease the price paid by consumers of sanitation services to $1 per pickup.
c. a corrective tax of $1 per pickup is required.
d. a corrective subsidy must increase the price paid by buyers to $3 per pickup.
9. The current competitive market price of fish is $3 per pound. A chemical producer emits effluent into a lake used by a commercial fishing firm. Each ton of chemical output causes a 20-pound reduction in the annual catch of the fishing firm. Assuming that transactions costs are zero and the chemical firm has the legal right to dump effluent into the lake,
a. the fishing firm would be willing to pay up to $60 per ton of chemicals per year to induce the chemical firm to reduce chemical output.
b. the fishing firm would be willing to pay up to $3 per ton of chemicals per year to induce the chemical firm to reduce chemical output.
c. the chemical firm would never consider the damage caused by its effluent.
d. government intervention is required to achieve efficiency.
10. According to the Coase theorem, externalities can be internalized when transactions costs are zero through:
a. corrective taxes and subsidies.
b. effluent fees.
c. assigning property rights to resource use but outlawing their exchange.
d. assignment of property rights to use resources and allowing free exchange of assigned property rights.
11. Which of the following is true if a negative externality is associated with the sale of gasoline?
a. Third parties other than the buyers and sellers of gasoline receive benefits.
b. Third parties other than the buyers and sellers of gasoline bear costs.
c. The marginal social cost of gasoline exceeds its marginal private cost.
d. both (b) and (c)
12. If a positive externality prevails in the market for smoke detectors, then when the market is in equilibrium,
a. the marginal social benefit of smoke detectors exceeds the marginal social cost.
b. the marginal social cost of smoke detectors exceeds the marginal social benefit.
c. the marginal social cost of smoke detectors is equal to the marginal social benefit.
d. more than the efficient amount of smoke detectors is sold.
13. Regulations require that emissions of carbon monoxide be limited to 1,000 tons per 100 square miles for all regions of the nation. If the marginal external cost of the emissions varies among regions in the nation, then the regulations will:
a. achieve the efficient amount of pollution abatement.
b. achieve more than the efficient amount of pollution abatement.
c. achieve less than the efficient amount of pollution abatement.
d. be likely to achieve more than the efficient amount of abatement in some regions, but less than the efficient amount in others.
14. If the marginal costs of reducing emissions varies among regions, then regulations requiring all regions in a nation to reduce emissions by the same amount will achieve:
a. the efficient amount of pollution abatement.
b. more than the efficient amount of pollution abatement.
c. less than the efficient amount of pollution abatement.
d. more than the efficient amount of pollution abatement in some regions, but less than the efficient amount in other regions.
15. Which of the following is true about command-and-control regulation that allows businesses to emit pollutants up to a certain point and bans emissions after that limit is reached?
a. They are equivalent to emissions charges.
b. They make firms pay the marginal cost of the damages done by their emissions, no matter what the level.
c. They allow firms to emit some pollutants at zero charge.
d. They are likely to minimize the cost of achieving any given reduction in emissions.
16. Assuming a product can be manufactured competitively without any externalities at an efficient quantity of 1,000 units and an efficient price of $100.00 per unit, what efficient quantity-price combination would be consistent with a negative externality?
a. 1,000 units, $95.00 per unit price.
b. 950 units, $102.00 per unit price.
c. 900 units, $90.00 per unit price.
d. 1,100 units, $105 per unit price.
17. The effect of a negative externality is similar to:
a. A supply curve (marginal social cost) shifting to the left.
b. A supply curve (marginal social benefit) shifting to the right.
c. A demand curve (marginal social cost) shifting to the left.
d. A demand curve (marginal social benefit) shifting to the right.
18. Assuming a product can be manufactured competitively without any externalities at an efficient quantity of 1,500 units and an efficient price of $50.00 per unit, what efficient quantity-price combination would be consistent with a positive externality?
a. 1,500 units, $60.00 per unit price.
b. 1,300 units, $45.00 per unit price.
c. 1,600 units, $40.00 per unit price.
d. 1,700 units, $56.00 per unit price.
19. The effect of a positive externality is similar to:
a. A supply curve (marginal social cost) shifting to the left.
b. A supply curve (marginal social benefit) shifting to the right.
c. A demand curve (marginal social cost) shifting to the left.
d. A demand curve (marginal social benefit) shifting to the right.
20. Assuming a product can be manufactured competitively without any externalities at an efficient quantity of 500 units and an efficient price of $150.00 per unit, what efficient quantity-price net subsidy combination would be consistent with a corrective subsidy for a positive externality?
a. 500 units, $150.00 per unit price net subsidy.
b. 300 units, $120.00 per unit price net subsidy.
c. 600 units, $160.00 per unit price net subsidy.
d. 700 units, $100.00 per unit price net subsidy.

ECO 450 Week 4 Quiz – Strayer

CHAPTER 4
Public Goods
TRUE/FALSE QUESTIONS
1. Bread is an example of a good that is nonrival in consumption.
2. A pure public good is one for which it is easy to exclude consumers from benefits if they refuse to pay.
3. The marginal social cost of producing another unit of a pure public good will always be positive.
4. To obtain a demand curve for a pure public good, the marginal benefit of each consumer must be summed for each possible quantity produced per time period.
5. If the efficient amount of a pure public good is produced, each person consumes it up to the point at which his or her marginal benefit equals the marginal social cost of the good.
6. In a Lindahl equilibrium, each consumer of a pure public good consumes the same quantity and pays a tax share per unit of the good equal to his or her marginal benefit.
7. If the marginal social cost of a pure public good exceeds its marginal social benefit, additional units of the good can still be financed by voluntary contributions.
8. The free-rider problem is less acute in small groups than it is in large groups.
9. A congestible public good is one for which the marginal cost of allowing an additional consumer to enjoy the benefits of a given quantity is always zero.
10. Television programming is a good example of a price-excludable public good.
11. It is possible to price a pure public good and sell it by the unit.
12. The demand curve for a pure public good is obtained by adding the quantities demanded by each individual consumer at each possible price.
13. A Lindahl equilibrium usually has each participant paying the same tax share per unit of a public good even though their marginal benefit of that unit varies.
14. Internet service is an example of a price-excludable public good.
15. Clubs are a means of providing congestible public goods through markets.
16. A common way to fund a public good is through a government that raises funds through taxation.
17. Private education is an example of a price-excludable public good.
18. A congestible good has no limits in how much it can be consumed.
MULTIPLE CHOICE QUESTIONS
1. A pure public good is:
a. one that can easily be sold by the unit.
b. one that is nonrival in consumption.
c. one whose benefits are not subject to exclusion.
d. both (b) and (c)
2. The marginal cost of providing a certain quantity of a pure public good to an additional consumer after it is provided to any one consumer is:
a. zero.
b. positive and increasing.
c. positive and decreasing.
d. positive and constant.
3. The nonrival property of pure public goods implies that the:
a. benefits enjoyed by existing consumers decline as more consumers enjoy a given quantity of the good.
b. benefits enjoyed by existing consumers are unaffected as more consumers enjoy a given quan¬tity of the good.
c. good cannot be priced.
d. marginal cost of producing the good is zero.
4. The demand curve for a pure public good is:
a. a horizontal line.
b. obtained by adding the quantities individual consumers would purchase at each possible price.
c. obtained by adding the marginal benefit obtained by each consumer at each possible quantity.
d. the marginal cost curve for the pure public good.
5. The efficient output of a pure public good is achieved at the point at which:
a. the marginal benefit obtained by each consumer equals the marginal social cost of producing the good.
b. the sum of the marginal benefits of all consumers equals the marginal social cost of producing the good.
c. the marginal benefit of each consumer equals zero.
d. the marginal social cost of producing the good is zero.
e. both (c) and (d)

6. The monthly rental rate for a satellite dish antenna is $200. The maximum marginal benefit that any resident of a condominium community will obtain per month from the antenna is $50. There are 100 residents in the community, none of whom values the antenna at less than $25 per month. Assuming that the antenna is a pure public good for residents of the community,
a. each resident of the community will rent his own antenna.
b. it is inefficient for the community to rent an antenna.
c. it is efficient for the members of the community to rent an antenna for their common use.
d. it is efficient for each resident to rent his own antenna.
7. In a Lindahl equilibrium,
a. each consumer purchases a pure public good up to the point at which his or her marginal bene¬fit equals the marginal social cost of the good.
b. each person pays a tax per unit of the pure public good equal to his or her marginal benefit.
c. the sum of the marginal benefits of all consumers equals the marginal social cost of the good.
d. both (a) and (c)
e. both (b) and (c)
8. The free-rider problem:
a. becomes more serious as the number of persons involved in voluntarily financing a pure public good decreases.
b. becomes more serious as the number of persons involved in voluntarily financing a pure public good increases.
c. is independent of the number of persons involved in a scheme to voluntarily finance a pure public good.
d. does not prevent voluntary cooperation from efficiently providing pure public goods.
9. The marginal cost of making a given quantity of a congestible public good available to more con¬sumers is:
a. always zero.
b. positive and increasing.
c. positive and decreasing.
d. zero at first but eventually becomes positive and increasing.
10. Cable TV programming is an example of a:
a. congestible public good.
b. price-excludable public good.
c. pure public good.
d. pure private good.
11. A major distinction between pure public goods and pure private goods is that:
a. pure private goods can easily be priced and sold in markets.
b. pure public goods can easily be divided into units.
c. pure public goods can only be collectively consumed.
d. both (a) and (c)
12. The principle of nonexclusion for pure public goods means that the benefits of the good:
a. are shared.
b. can be priced.
c. cannot be withheld from consumers even if they refuse to pay.
d. are not reduced to any one consumer when a given quantity is consumed by another.
13. Which of the following is true in a Lindahl equilibrium for cooperative supply of a pure public good?
a. The sum of the tax shares per unit paid by each consumer is equal to the marginal social cost of the public good.
b. The sum of the tax shares per unit paid by each consumer is equal to the marginal social benefit of the good.
c. The sum of the tax shares per unit paid by each consumer is maximized.
d. both (a) and (b)
14. Which of the following is a good example of a congestible public good?
a. TV programming
b. a road
c. a loaf of bread
d. homeland security
15. Education is:
a. a pure public good.
b. a pure private good.
c. a good that has characteristics of both public goods and private goods.
d. not subject to the exclusion principle.
16. An example of an undesirable public good (or public “bad”) is:
a. government.
b. private trash hauling.
c. poor air quality.
d. private property.
17. Public transportation is:
a. a congestible good.
b. a pure private good.
c. a good without limits to the number of consumers who desire to use it.
d. not subject to the exclusion principle.
18. A baseball field is:
a. a pure public good.
b. a pure private good.
c. a good that has characteristics of both public goods and private goods.
d. not subject to the exclusion principle.
19. A means of creating a price-excludable public good is:
a. allowing food and beverages when entering.
b. requiring costly tickets.
c. to fund through taxation.
d. requiring identification.
20. A free concert in a public arena is:
a. a non-congestible public good.
b. a good that can be consumed by all.
c. a private good.
d. subject to consumption limits.

CHAPTER 5
Public Choice and the
Political Process
TRUE/FALSE QUESTIONS
1. A political equilibrium for a pure public good is generally independent of the collective choice rule used.
2. A voter’s most-preferred political outcome will change if, other things being equal, that person’s tax share per unit of the public good is changed.
3. A proposal is put forward to increase the number of police officers. You estimate that your mar¬ginal benefit from police protection just equals your tax per police officer at the number of officers that would constitute the police force if the proposal passes. You will therefore vote in favor of the proposal.
4. If all voters have the identical most-preferred political outcome, given their tax shares, then the political equilibrium under majority rule will be identical to the political equilibrium under unani¬mous consent.
5. The median voter is the one whose most-preferred political outcome is the median of the most-preferred outcome of all those voting.
6. If all voters have single-peaked preferences, a political equilibrium will not be possible under majority rule.
7. A person with multiple-peaked preferences is always made worse off as the quantity of a pure public good is increased, or decreased, once he or she attains his or her most-preferred political outcome.
8. Logrolling always succeeds in passing two paired issues that could not pass if voted on separately.
9. A bureaucrat who seeks to maximize the annual size of his budget each year will propose annual output levels corresponding to the amount for which MSB = MSC.
10. Political transactions costs are likely to be greater under unanimous consent than under majority rule.
11. Political externalities are likely to be negligible when collective choices are made under majority rule.
12. Unanimous consent is a collective choice rule that will protect the rights of minorities.
13. A person for whom the marginal benefit of a public good declines as more is made available has single-peaked preferences.
14. Cycling can occur in elections under majority rule if some voters have multiple-peaked prefer¬ences.
15. Special interest groups are more likely to gain income through the political process if they are a large percentage of the population.
16. A ration person’s most preferred political outcome is when the cost of the quantity of government-supplied goods is below the marginal benefit.
17. A budget-maximizing bureaucrat seeks funding levels where the total social cost equals the total social benefit.
18. Logrolling can allow more than one issue of minority interest to be passed.
MULTIPLE CHOICE QUESTIONS
1. A community currently hires 10 security guards per week to patrol their neighborhood. Each secu¬rity guard costs $300 per week. Assuming that the tax-sharing arrangement agreed to results in each of 300 voters paying the same tax share, each voter pays a weekly tax bill of:
a. $1.
b. $3.
c. $10.
d. $30.
2. A small community currently taxes residents to provide monthly community concerts. Voter A currently pays a tax per concert equal to $50 per month. This voter receives a marginal benefit of $75 at the current political equilibrium number of concerts per month. Voter A:
a. is the median voter.
b. would be made better off if the number of monthly concerts were increased.
c. would be made worse off if the number of monthly concerts were increased.
d. has achieved his most-preferred political outcome for monthly concerts.
3. A proposal to build new roads in a small town is up for a vote. Voter B estimates that his marginal benefit of roads at the proposed new level would be $80 per year. This voter will vote against the proposal:
a. no matter what her tax share.
b. if her tax share is $80.
c. if her tax share is less than $80.
d. if her tax share exceeds $80.
4. Currently eight security guards patrol a condominium community each week. The number of guards has been determined by majority rule. Each voter pays a tax share of $50 per guard. If Voter M is the median voter,
a. his marginal benefit from security guards is $50.
b. his marginal benefit exceeds that of any other voter.
c. the difference between his marginal benefit and $50 is at a maximum.
d. he would be made better off if more security guards were hired per week.
5. If all voters have single-peaked preferences, then under majority rule:
a. cycling of political outcomes can occur.
b. a political equilibrium exists.
c. the political equilibrium is the median most-preferred outcome.
d. both (b) and (c)
6. If a person has multiple-peaked preferences for a pure public good,
a. that person is always made worse off when moving away from his or her most-preferred polit¬ical outcome.
b. that person will become worse off at first, but then become better off, when moving away from his or her most-preferred political equilibrium.
c. the marginal benefit of the pure public good always declines for that person as more is made available.
d. both (b) and (c)
7. Implicit logrolling results when:
a. any two issues are paired on a ballot.
b. two voters succeed in pairing two issues on a ballot that can pass together but would fail indi¬vidually.
c. voters agree to trade votes on an issue.
d. the pairing of two issues on a ballot allows the achievement of efficiency.
8. Voter A will normally vote in favor of one security guard per week because his marginal benefit is $125 and his tax share is $100 per week. Voter A receives zero marginal benefit from one concert a week and would vote against it. Voter B receives $125 marginal benefit from one concert per week but no marginal benefit from one security guard. One concert per week also will fail to gain a majority when put to the vote. Assuming that both Voter A and Voter B will pay $100 per week in tax for each concert and each security guard,
a. they can both gain by engaging in logrolling on the two issues.
b. pairing the issues on one ballot will result in both Voter A and Voter B voting in favor of the combined issue.
c. pairing the issues on one ballot will result in both Voter A and Voter B voting against the com¬bined issue.
d. implicit logrolling will result in Voter A voting in favor of the combined issue, but in Voter B voting against it.
9. A voter may choose not to vote in an election between two alternatives because:
a. he or she is indifferent between the two alternatives.
b. his or her probability of influencing the result is zero.
c. his or her most-preferred alternative is far from the two offered on the ballot.
d. all of the above
10. If bureaucrats seek to maximize the size of their budgets, they will:
a. seek to fund levels of services up to the point at which MSC = MSB.
b. seek to fund levels of services for which TSB > TSC.
c. seek to fund levels of services for which MSC > MSB.
d. both (b) and (c)
11. The demand curve for a pure public good is:
a. obtained by adding the quantity demanded at each possible price for all consumers.
b. obtained by summing the marginal benefits of each consumer for each possible quantity.
c. always upward sloping.
d. always a flat line.
12. A voter’s most-preferred political outcome will be that for which the:
a. marginal benefit of a pure public good is equal to the voter’s tax share per unit.
b. total benefit per unit of a pure public good is equal to the voter’s tax share per unit.
c. difference between the marginal benefit of a pure public good and the voter’s tax share per unit is maximized.
d. marginal benefit of a pure public good is equal to zero, no matter what the voter’s tax share per unit.
13. If all voters have single-peaked preferences for a pure public good, then the political equilibrium under majority rule:
a. cannot be defined.
b. is the median outcome.
c. is the median most-preferred outcome of all voter’s voting.
d. will not change if tax shares change.
14. Which of the following collective choice rules is likely to have the lowest political externalities?
a. two-thirds majority rule
b. simple majority rule
c. plurality rule
d. unanimous consent
15. Which of the following collective choice rules is likely to incur the highest political transactions costs?
a. two-thirds majority rule
b. simple majority rule
c. plurality rule
d. unanimous consent
16. If the marginal social benefit of one more unit of a good is 10 and the marginal social cost of one more unit of a good is 11, then:
a. the output of the good is efficient.
b. a bureaucrat can still increase the bureau’s budget.
c. a bureaucrat can increase the bureau’s budget if the total social cost exceeds the total social benefit.
d. a bureaucrat can increase the bureau’s budget if the total social cost is below the total social benefit.
17. The plurality rule is:
a. a collective bargaining rule.
b. a rule that is guaranteed to have majority decision.
c. a means of determining between only two possible outcomes.
d. a rule that cannot lead to a minority decision.
18. Arrow’s impossibility theorem states:
a. a unique political equilibrium for a public choice never exists.
b. a unique political equilibrium for a public choice cannot exist under majority rule.
c. a unique political equilibrium can exist if there is majority rule and multi-peaked preferences.
d. a unique political equilibrium for a public good cannot exist under unanimous consent.
19. Suppose tax shares are evenly distributed for a particular service at the amount of $100.00 per person. Which taxpayer suffers a political externality based on the taxpayer’s marginal benefit for the service?
a. Taxpayer A has a marginal benefit of $100.00.
b. Taxpayer B has a marginal benefit of $200.00.
c. Taxpayer C has a marginal benefit of $90.00.
d. Taxpayers B and C.
20. A public choice is:
a. free of any political interaction or process.
b. by majority rule only.
c. one made through political interaction of many people according to established rules.
d. by unanimous consent only.

CHAPTER 6
Cost-Benefit Analysis and Government Investments
TRUE/FALSE QUESTIONS
1. A cost-effective program mix is one that accomplishes a given mission at minimum cost.
2. Cost-benefit analysis is a technique for determining the net benefits of alternative government projects.
3. An increase in the profits of gasoline dealers on an improved road is a benefit of the road project.
4. If increases in agricultural land values are viewed as a benefit of an irrigation project, then the market value of projected increased crops should also be included as a benefit of the project.
5. The social rate of discount must equal the opportunity cost of funds used to finance a project.
6. If a project has a B/C ratio of 0.9, its approval will result in net benefits to citizens of the nation.
7. The benefits of widening a road consist only of the cost savings to existing users of the road.
8. If the benefits of a new bridge exceed the costs, then there will be a net social gain from building the bridge.
9. If the marginal social cost of a new road exceeds its marginal social benefit, then building the road will result in a net social gain.
10. The higher the social rate of discount, the more government projects for which benefits will exceed costs.
11. A lower discount rate favors more capital-intensive investments that yield net benefits further into the future.
12. The present value of a stream of net benefits for 20 years will be less than the sum of those benefits unless the social rate of discount is zero.
13. Building a new sports stadium results in food sales at the facility. These food sales should be con¬sidered a benefit of the new stadium.
14. Program budgeting seeks to group agencies with similar purposes for budgeting, independent of the government department to which they belong.
15. Cost-benefit analysis can be viewed as a way of minimizing the cost of any given government output.
16. Assuming costs are paid immediately, an increase in the social discount rate will lower the benefit-cost rate.
17. The marginal rate of technical substitution (where the slope of the isocost and isoquant lines are equal) is the ratio of the prices of the two goods.
18. The marginal rate of technical substitution is the slope of the isoquant line.
MULTIPLE CHOICE QUESTIONS
1. In program budgeting, an agency’s program is:
a. its mission.
b. a combination of government activities designed to produce a distinguishable output.
c. its output.
d. the cost of its output.
2. Program budgeting differs from line budgeting in that:
a. all agencies with similar missions are budgeted for together, irrespective of the government department to which they belong.
b. proposed expenditures in a given government department are compared only with other pro¬grams in the same department.
c. a computer program is used.
d. the effect of programs on the distribution of income is explicitly considered.
3. The mission of a government agency is:
a. its program.
b. its output.
c. its cost.
d. a measure of the inputs it uses.
4. Assuming a full-employment economy, which of the following should not be included as a benefit of a government project to build a new highway when doing a cost-benefit analysis?
a. the income of construction workers employed to build the highway
b. the value of the time saved on trips between points to be served by the new highway
c. the increase in retail sales at sites bordering the highway
d. both (a) and (c)
5. A cost-benefit analysis of an irrigation project shows that the ratio of the discounted present value of benefits to costs is less than one. This implies that:
a. the net benefit of the project is positive.
b. the net benefit of the project is negative.
c. efficiency can be attained by undertaking the project.
d. the project will redistribute income to the poor.
6. The social rate of discount is currently 10 percent. This implies that:
a. all government projects will yield a 10-percent return.
b. the opportunity cost of funds for all government projects is 10 percent.
c. more capital-intensive projects will be ranked over less capital-intensive projects.
d. the opportunity cost of funds for all government projects is 20 percent.
7. The social rate of discount used in cost-benefit analysis measures the:
a. benefits of a project.
b. cost of a project.
c. rate of return on the project.
d. opportunity cost of displaced private saving or investment.
8. Suppose that a business investment is subject to a 50-percent tax but that the return to private savings is not taxed. The after-tax rate of return on business investment is currently 9 percent. If a proposed government project is predicted to displace business investment, then the social rate of discount is:
a. 9 percent.
b. 18 percent.
c. 36 percent.
d. infinite.
9. A proposed road improvement project is expected to increase pollution in an urban area. The pollu¬tion damage should:
a. be considered a cost of the project.
b. be considered a benefit of the project.
c. not be considered in evaluation of the project.
d. be used as a justification to increase the social rate of discount.
10. A new road will lower the cost of a trip between two cities from $20 to $10. Currently, 100,000 trips per year are made between the two points. The benefit of the new road will:
a. be $1 million per year.
b. exceed $1 million per year.
c. be less than $1 million per year.
d. accrue only to current users.
11. Program budgeting is a way to:
a. minimize the cost of producing a given amount of government services.
b. rank projects according to their marginal net benefits.
c. maximize the output of government.
d. increase government spending.
12. Cost-benefit analysis is a way to:
a. minimize the cost of producing a given amount of government services.
b. rank projects according to their marginal net benefits.
c. maximize the output of government.
d. increase government spending.
13. If the social rate of discount falls, then the efficient amount of government capital spending will:
a. increase.
b. decrease.
c. be unaffected.
d. fall to zero.
14. A government agency has a new hydroelectric project that will take 15 years to build before it pro¬vides any benefits. The net present value of the project will be highest under which of the following discount rates?
a. 0 percent
b. 1 percent
c. 3 percent
d. 5 percent
15. Which of the following techniques is used by economists to value years of life saved by a highway safety program?
a. measuring the increased income that it allows
b. trying to get those affected by the improved safety to reveal their willingness to pay for the reduced risk of death
c. either (a) or (b)
d. none of the above, because economists believe that it is impossible to put a value on life
16. If the quantity of good A is on the vertical axis and the quantity of good B is on the horizontal axis, the slope of the corresponding isocost line is:
a. the price of good B divided by the price of good A.
b. the negative of the price of good B divided by the price of good A.
c. the price of good A divided by the price of good B.
d. the negative of the price of good A divided by the price of good B.
17. If the quantity of good A is on the vertical axis and the quantity of good B is on the horizontal axis, the marginal rate of technical substitution of the corresponding isoquant line is:
a. the marginal product of good B divided by the marginal product of good A.
b. the negative of the marginal product of good B divided by the marginal product of good A.
c. the marginal product of good A divided by the marginal product of good B.
d. the negative of the marginal product of good A divided by the marginal product of good B.
18. If the quantity of good A is on the vertical axis and the quantity of good B is on the horizontal axis, then the cost-effective mix between the two goods occurs when:
a. the slope of the associated isoquant line equals the price of A divided by the price of B.
b. the marginal rate of technical substitution equals the price of A divided by the price of B.
c. the marginal rate of technical substitution equals the price of B divided by the price of A.
d. either (a) or (c).
19. The process of taking a previous period’s budget and making minor changes to produce the current year’s budget is called:
a. zero based budgeting.
b. enumerated budgeting.
c. developmental budgeting.
d. incremental budgeting.
20. The nominal interest rate is:
a. the real rate of interest when there is inflation.
b. less than the real rate of interest when there is inflation.
c. inflation adjusted.
d. not adjusted by inflation.

CHAPTER 7
Government Subsidies and
Income Support for the Poor
TRUE/FALSE QUESTIONS
1. The poverty threshold is independent of the size of a family and the age of a household head.
2. The rate of poverty has increased in the United States since 1959.
3. In calculating the official poverty rate, cash transfers to the poor are included in their income, but in-kind transfers are not.
4. All persons in the United States with income below the poverty level are eligible for TANF or for SSI transfers designed to assist the poor.
5. The cash benefit and eligibility for payments under TANF varies considerably from state to state.
6. Cash transfers currently account for much less of the total transfers to the poor than in-kind transfers do.
7. Medicaid is likely to result in incentives for recipients to consume medical services up to a point at which the marginal social cost of such services exceeds their marginal benefit.
8. Supplemental Nutrition Assistance (formerly called food stamps) lower the price of food to recipients.
9. A person receiving a lump-sum annual transfer is likely to work less than would otherwise be the case.
10. The annual income guarantee under a negative income tax is $10,000 per family of four. This transfer declines by 50 cents for each dollar of annual earnings. The transfer received by a family of four will decline to zero when its annual earnings is $20,000.
11. The Earned Income Tax Credit (EITC) is a way of subsidizing those who are unable to work and have no earnings.
12. The Earned Income Tax Credit (EITC) is a form of wage-rate subsidy that increases the incomes of low-income people with earnings.
13. The Earned Income Tax Credit (EITC) is a form of negative tax that increases the incomes of workers with earnings but is eventually phased out to zero as earnings rise above a certain level.
14. Medicaid is jointly financed by the federal government and the state governments in the United States and now absorbs more than 20 percent of state government budgets.
15. Since TANF has been introduced in the United States, welfare caseloads have declined and labor force participation of less-skilled single mothers has increased.
16. A two-person household headed by a person over 65 is classified as poor at the same level as a two-person household not headed by an elderly person.
17. The poverty threshold stays constant from year to year.
18. Less than one-third of the people classified as poor in the United States are children.

MULTIPLE CHOICE QUESTIONS
1. In the United States, the poverty threshold is:
a. the same for all households of a given size independent of the age of the household head.
b. the cost of a minimally accepted diet for persons in the family.
c. three times the cost of a minimally accepted diet for persons in the family, for families with household heads under the age of 65.
d. five times the cost of a minimally accepted diet for persons in the family, for families with household heads under the age of 65.
2. Government transfers to the poor in the United States:
a. are always in the form of cash.
b. are available to all persons whose income is below the poverty threshold.
c. succeed in eliminating poverty in the United States.
d. are available only to poor persons who fall into certain demographic categories.
3. The most expensive program of assistance to the poor in the United States in recent years has been:
a. TANF.
b. Supplemental Nutrition Assistance (formerly called food stamps).
c. Medicaid.
d. public housing.
4. Cash transfers are:
a. the dominant method of providing assistance to the poor in the United States.
b. included in the income of recipients when calculating the official poverty rate.
c. available only to the elderly in the United States.
d. both (a) and (b)
5. If the supply of medical services is perfectly elastic, then the effect of Medicaid is to:
a. increase the market price of medical services.
b. result in the efficient amount of medical services.
c. cause recipients to consume medical services beyond the point at which their marginal benefits per year equal the marginal social costs of medical services.
d. both (a) and (c)
6. The Supplemental Nutrition Assistance (formerly called food stamps):
a. reduces the market price of food to those eligible for Supplemental Nutrition Assistance.
b. is likely to increase the market price of food to all consumers.
c. is likely to increase food purchases by recipients but not other purchases.
d. is likely to increase both food and nonfood purchases by recipients.
7. The value of a price-distorting subsidy for a three-bedroom apartment is $100 per month. This means that the person choosing to live in an apartment of that size would have to pay an extra $100 per month at the market rent. Then it follows that:
a. that person would be worse off if she received a cash subsidy of $100 per month.
b. that person would be better off if she received a cash subsidy of $100 per month.
c. that person would be just as well off if she received a cash subsidy of less than $100 per month.
d. both (b) and (c)
8. Suppose a welfare recipient is given a cash grant that increases his monthly income. That grant will never be taken away no matter how much the recipient earns. The grant will result in a(n):
a. substitution effect favorable to work.
b. substitution effect unfavorable to work.
c. income effect favorable to work.
d. income effect unfavorable to work.
9. A welfare recipient receives a cash transfer of $100 per week. This grant is not reduced if the recipient earns less than $20 per week. However, after the recipient earns more than $20 per week, the grant is reduced by 66 cents for each dollar of earnings. The cash transfer will be reduced to zero if the recipient earns:
a. $151.52 per week.
b. $171.52 per week.
c. $131.52 per week.
d. $100.00 per week.
10. An income guarantee of $10,000 per year for all families is established with a phase-out rate of benefits of 50 cents per dollar of earnings. Then it follows that:
a. only families with earnings of less than $10,000 per year will receive transfers.
b. all families with earnings of less than $20,000 per year will receive transfers.
c. all families with income of less than $30,000 per year will receive transfers.
d. all families will receive transfers.
11. The Earned Income Tax Credit (EITC) is:
a. a transfer to low-income people who are unable to work.
b. a flat grant that increases by $4,000 the income of all workers below the poverty level.
c. a subsidy to the poor who have low earnings that increases as they earn more, reaches a maxi¬mum, and then is phased out to zero as earnings increase above a certain maximum.
d. available to all persons whose incomes are below the poverty level, whether they work or not.
12. The Earned Income Tax Credit (EITC):
a. is a negative tax that transfers income to the poor who have earnings.
b. can increase the incomes of those eligible by as much as 40 percent.
c. is never phased out as the earnings of the recipients increase.
d.both (a) and (b)
13. Which of the following is true about Temporary Assistance to Needy Families (TANF)?
a. It is an entitlement program administered by the federal government.
b. It provides temporary and limited support for poor families through federal grants to state governments.
c. State governments determine eligibility for its benefits and administer it.
d. both (b) and (c)

14. Under Temporary Assistance to Needy Families (TANF),
a. federal spending is capped and is allocated to states as a block grant.
b. federal spending is an open-ended entitlement program that requires federal payments to all eligible recipients who meet means and status tests.
c. the states do not determine eligibility and benefit levels; instead, the federal government sets these levels as national standards.
d. recipients are not required to work and will receive benefits as long as they meet a means test.

15. Which of the following is true about the Medicaid program in the United States?
a. It is entirely financed by the federal government.
b. It is a means-tested entitlement program that mandates payment for medical services, mainly to those with low incomes.
c. It is jointly financed by the federal and state governments and is absorbing a significant share of the state government budgets.
d. both (b) and (c)
16. In the United Stated, which of the following years had the highest poverty rate?
a. 2000
b. 1993
c. 1980
d. 1873

17. Temporary Assistance to Needy Families (TANF) replaced:
a. no existing programs.
b. one existing program.
c. two existing programs.
d. three existing programs.

18. Medicaid was enacted by Congress in:
a. 1965.
b. 1972.
c. 1977.
d. 1980.

19. Why rely on the government to aid the poor rather than private charities?
a. The government can establish uniform standards for eligibility.
b. Voluntary donations will most likely be inadequate.
c. The government will most likely be able to meet all needs to the satisfaction of all citizens.
d. both (a) and (b)

20. An EITC program is more likely to encourage working when compared to NIT program because:
a. participants are guaranteed income even if they are not working.
b. participants must work to receive benefits.
c. participants are eligible for work training.
d. participants receive a wage rate subsidy.