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ECO CH 16

True/False
Indicate whether the sentence or statement is true or false.
 

1. 

Many people can use public goods at the same time without reducing the benefit each person receives.
 

2. 

The government exercises its role in the area of demerit goods by requiring all taxpayers to support them.
 

3. 

Social insurance programs are financed by taxes paid by workers and employers.
 

4. 

Medicaid provides payments for medical care to workers injured on the job.
 

5. 

Public-assistance programs make payments to people in need, regardless of whether they paid taxes into the program.
 

6. 

The federal budget is based on a fiscal year, rather than a calendar year.
 

7. 

Deficit spending decreases the national debt.
 

8. 

The federal government borrows money by selling securities to individuals and businesses.
 

9. 

The federal government has never had a budget surplus.
 

10. 

The aging of the baby boom generation has no effect on government spending.
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

11. 

In the past 50 years, government has
a.
become less important to the economy.
b.
grown considerably.
c.
decreased in size.
d.
played a smaller role in people's lives.
 

12. 

Since 1929, the number of civilian workers employed by the government has
a.
doubled.
c.
decreased.
b.
increased about sixfold.
d.
remained about the same.
 

13. 

As federal funds diminished in the 1970s, state and local governments increased spending for
a.
public-works projects.
c.
salaries for members of Congress.
b.
national defense.
d.
expenses of the State Department.
 

14. 

Which of the following is an example of a public-works project?
a.
supermarket
c.
shopping mall
b.
movie theater
d.
high school
 

15. 

Total government expenditures including purchases, interest payments, and transfer payments represent what percentage of GDP?
a.
about 20 percent
c.
more than 33 percent
b.
more than 50 percent
d.
less than 10 percent
 

16. 

One of the public goods that only the federal government provides is
a.
education.
c.
roads.
b.
national defense.
d.
law-enforcement agencies.
 

17. 

Museums, ballets, and classical music concerts are examples of
a.
merit goods.
c.
externalities.
b.
demerit goods.
d.
welfare.
 

18. 

Public-assistance programs and social insurance programs are examples of ways that the government
a.
provides public goods.
c.
promotes economic stability.
b.
redistributes income.
d.
regulates economic activity.
 

19. 

The federal government's requirement that factories reduce pollution is an example of
a.
regulating economic activity.
c.
providing public goods.
b.
redistributing income.
d.
promoting economic stability.
 

20. 

Which social insurance program extends payments for medical care to workers injured on the job?
a.
Social Security
c.
worker's compensation
b.
Medicaid
d.
Medicare
 

21. 

Who submits the federal budget to Congress?
a.
the President
c.
the Treasury Department
b.
the Office of Management and Budget
d.
state and local governments
 

22. 

For the federal government, the fiscal year extends from
a.
January 1 to December 31 of the same year.
b.
April 1 to March 31 of the next year.
c.
July 1 to June 30 of the next year.
d.
October 1 to September 30 of the next year.
 

23. 

Among the federal government's largest expenditures are
a.
social insurance programs.
c.
pollution control.
b.
schools.
d.
national parks.
 

24. 

The largest state and local government expenditure is
a.
state courts.
c.
education.
b.
highways.
d.
state parks.
 

25. 

When a budget deficit occurs, the government must raise extra funds through
a.
collecting taxes.
c.
paying off bonds.
b.
selling securities.
d.
increasing the national debt.
 

26. 

Most local, state, and federal government revenues come from
a.
taxes.
c.
selling securities.
b.
tariffs.
d.
buying securities.
 

27. 

Paying a gasoline tax is an example of a
a.
tax based on the ability-to-pay principle.
b.
proportional tax.
c.
personal income tax.
d.
tax based on the benefits-received principle.
 

28. 

A tax on property to support a local school system is an example of a
a.
tax based on the ability-to-pay principle.
b.
regressive tax.
c.
proportional tax.
d.
tax based on the benefits-received principle.
 

29. 

Which of the following is a progressive tax?
a.
excise tax.
c.
income tax.
b.
sales tax on food.
d.
customs duty.
 

30. 

An example of a regressive tax is a(n)
a.
excise tax.
c.
tax deduction.
b.
sales tax on food.
d.
customs duty.
 

Completion
Complete each sentence or statement.
 

31. 

In recent years the number of ____________________ in the federal government has increased.
 

 

32. 

Some economists believe the increase in government spending is due to the increased demand for government services to even out ____________________.
 

 

33. 

Schools and highways are examples of _________________________.
 

 

34. 

People who believe that government has grown too large want the ____________________ to provide many goods and services.
 

 

35. 

____________________ is a government program that provides health care for the aged.
 

 

36. 

Because people who use highways buy more gasoline, the taxes on gasoline are based on the _________________________.
 

 

37. 

Property taxes are based on the _________________________.
 

 

38. 

Federal income tax is a ____________________ because the higher your income, the higher the percentage you pay in taxes.
 

 

39. 

A ____________________ takes the same percentage of all incomes.
 

 

40. 

A sales tax on food is a ____________________ because it takes a larger percentage of lower incomes than higher incomes.
 

 

Matching
 
 
Match each item with the correct statement below.
a.
public-works projects
b.
Medicare
c.
civilian workers
d.
private sector
e.
taxation
 

41. 

part of a nation's economy that is privately owned
 

42. 

government employees who are not part of the military
 

43. 

government program that provides health care for the aged
 

44. 

collection of money by the government to pay for public services
 

45. 

publicly used facilities built by a government with public money
 
 
Match each item with the correct statement below.
a.
public goods
b.
income redistribution
c.
Social Security
d.
Medicaid
e.
externalities
 

46. 

federal program that provides monthly payments to people who are retired or unable to work
 

47. 

economic by-products that affect an uninvolved third party
 

48. 

goods or services that the government supplies to its citizens
 

49. 

public-assistance program that provides free health care for low-income and disabled persons
 

50. 

government activity that takes income from some people through taxation and uses it to help citizens in need
 
 
Match each item with the correct statement below.
a.
fiscal year
b.
budget deficit
c.
deficit financing
d.
national debt
e.
budget surplus
 

51. 

when the amount of government receipts is larger than its expenditures
 

52. 

total amount of outstanding debt for the federal government
 

53. 

year by which accounts are kept
 

54. 

when the amount of government spending exceeds its receipts
 

55. 

government policy of spending more money than it is able to bring in through revenues
 
 
Match each item with the correct statement below.
a.
benefits-received principle
b.
ability-to-pay principle
c.
proportional tax
d.
progressive tax
e.
regressive tax
 

56. 

tax that takes a larger percentage of higher incomes than lower incomes
 

57. 

system of taxation in which those who do not use a service do not pay taxes for it
 

58. 

tax that takes a larger percentage of lower incomes than higher incomes
 

59. 

principle of taxation in which those with higher incomes pay more taxes than those with lower incomes, regardless of the services they use
 

60. 

tax that takes the same percentage of all incomes
 



 
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