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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 producegovernment 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
percentof annual GDP.
c. 50
percentof 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.
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