Chapter 12

Practice Quiz
The Public Sector
1. Since 1975, total government expenditures as a percentage of GDP in the United States
have
a. grown from one-third to about 40 percent.
b. remained at about one-third.
c. grown from one-fourth to one-half.
d. grown from one-quarter to one-third.
ANS:
b. See Exhibit 1 in the text.
2. Which of the following accounted for the second largest percentage of total federal
government expenditures in recent years?
a. Income security.
b. National defense.
c. Interest on the national debt.
d. Education and health.
ANS:
b. See Exhibit 2 in the text.
3. Which of the following contributed the second largest percentage of total federal
government expenditures in recent years?
a. Interest on the national debt.
b. Education and health.
c. National defense.
d. Income security.
ANS:
d. See Exhibit 2 in the text.
4. Which of the following countries devotes about the same percentage of its GDP to
taxes as the United States?
a. Sweden.
b. Italy.
c. United Kingdom.
d. Japan.

ANS:
d. See Exhibit 5 in the text.
5. The poor should not pay income taxes. This statement reflects which of the
following principles of taxation?
a. Fairness of contribution
b. Benefits received
c. Inexpensive to collect
d. Ability to pay
ANS:
d. Since the poor lack the ability to pay, the tax system should be designed so they pay
less tax than people with higher incomes.
6. Some cities finance their airports with a departure tax. Every person leaving the city by
plane is charged a small fixed dollar amount that is used to help pay for building and
running the airport. The departure tax follows the
a. benefits-received principle.
b. ability-to-pay principle.
c. flat-rate principle.
d. public-choice principle.
ANS:
a. Those persons who are gaining the most from the airport are the ones who are paying
the most for it.

7. Which of the following statements is true?

a. The most important source of tax revenue for the federal government is individual
income taxes.
b. The taxation burden, measured by taxes as a percentage of GDP, is lighter in the United
States than in most other advanced industrial countries.
c. Both (a) and (b).
d. Neither (a) nor (b) are true.
ANS:
c. All of the answers are true. See Exhibits 4 and 5.
8. Which of the following statements is true?
a. A sales tax on food is a regressive tax.
b. The largest source of federal government tax revenue is individual income taxes.
c. The largest source of state and local government tax revenue is sales taxes.
d. All the above are true statements.

ANS:
d. All the answers are true statements.
9. A tax that is structured so that people with higher incomes pay a larger percentage of
their income for the tax than do people with smaller incomes is called a (an)
a. income tax.
b. regressive tax.
c. property tax.
d. progressive tax.
ANS:
d. Answer income tax is not specific; regressive tax is the opposite principle, and
property tax is based on property not income.
10. Generally, most economists feel that a ______type of income tax is a fairer way to
raise government revenue than a sales tax.
a. regressive
b. proportional
c. flat-rate
d. progressive
ANS:
d. A progressive tax is argued to be fair because people with higher incomes pay more
tax.
11. The federal personal income tax is an example of a (an)
a. excise tax.
b. proportional tax.
c. progressive tax.
d. regressive tax.
ANS:
c. Since the marginal tax rate increases with income, the federal personal income tax is a
progressive tax.
12. A 5 percent sales tax on food is an example of a
a. flat tax.
b. progressive tax.
c. proportional tax.
d. regressive tax.

ANS:
d. A sales tax on food is a regressive tax because people with higher incomes do not
spend proportionately more on food.
13. Margaret pays a local income tax of 2 percent, regardless of the size of her income.
This tax is
a. proportional.
b. regressive.
c. progressive.
d. a mix of (a) and (b).
ANS:
a. Less tax is paid by a regressive tax and more tax is paid by a progressive tax as
peoples incomes rise.
14. Which of the following statements relating to public choice is true?
a. A low voter turnout may result when voters perceive that the marginal cost of voting
exceeds its marginal benefit.
b. If the marginal cost of voting exceeds its marginal benefit, the vote is unimportant.
c. Special-interest groups always cause the will of a majority to be imposed on a
minority.
d. All of the above are true.
ANS:
a. This is the rational ignorance public choice theory.
15. According to the shortsightedness effect, politicians tend to favor projects with
a. short-run benefits and short-run costs.
b. short-run benefits and long-run costs.
c. long-run benefits and short-run costs.
d. long-run benefits and long-run costs.
ANS:
b. Since politicians run for re-election in a short period of time, short-run benefits gain
among current voters, while future generations pay most of the costs.