Question 1

A worker earns $2,000 per month before taxes. He pays $140 per month payroll tax on those wages. In addition, the income taxes on those wages are $360 per month. On retirement, the worker receives a Social Security pension of $750 per month. Which of the following statements is true?

a. The worker's gross replacement rate is 50 percent.
b. The worker's net replacement rate is 50 percent.
c. The worker's net replacement rate is 38 percent.
d. The worker's net replacement rate is 75 percent.

Question 2

The Social Security Act was implemented in the United States in:

a. 1927.
b. 1935.
c. 1947.
d. 1965.

Question 3

The gross replacement rate:
a. measures a worker's monthly retirement benefit divided by monthly earnings before taxes in the year prior to retirement.
b. measures a worker's monthly retirement benefit divided by monthly earnings after taxes in the year prior to retirement.
c. is an increasing function of gross monthly earnings prior to retirement.
d. is independent of gross monthly earnings prior to retirement.

Question 4
Social Security tax rates can be reduced if:
a. taxable wages decline.
b. the retirement age is lowered.
c. the retirement age is raised.
d. the work force decreases in size.

Question 5
The Social Security retirement system:
a. is a fully funded pension system.
b. is a tax-financed system that pays benefits from taxes that are invested to return principal and interest to workers when they retire.
c. is a tax-financed retirement system that finances pensions by taxing workers each year and transferring the bulk of revenues obtained directly to retirees.
d. does not use taxes on workers to pay pensions to retirees.

Question 6
The induced-retirement effect of the Social Security pension system induces workers to:

a. save less for retirement.
b. save more for retirement.
c. reduce savings for retirement to zero.
d. work more after retirement.

Question 7
Which of the following is true about the Medicare program in the United States?

a. It is only available to those who pass a means test.
b. It is available to all citizens over the age of 65.
c. The costs are completely financed by fees paid by insurees.
d. It places no limits on reimbursement to medical care providers.

Question 8
The percent of total health care costs in the United States paid for by governments is approximately:

a. 90 percent.
b. 45 percent.
c. 25 percent.
d. 10 percent.

Question 9
The government program that provides the health insurance to the poor in the United States is called:

a. national health insurance.
b. Medicare.
c. Medicaid.
d. employer-provided health insurance.

Question 10
Under national health insurance as operated in Great Britain,

a. the British system pays fees equal to half of the costs of services provided to them.
b. general practice physicians are paid on a per-patient rather than on a per-unit-of-service basis.
c. patients requiring surgery can pick their surgeons and can usually obtain the surgery in a matter of days, even if it is not an emergency.
d. there are no government limits on health care spending by hospitals.

Question 11
Most of the medical bills of Americans in the United States are paid by:

a. the patients.
b. private and government health insurance.
c. charities.
d. Medicaid.

Question 12
What is the moral hazard associated with third party payment for health services?

a. The recipient of the service is not as informed as the provider of the service.
b. The recipient of services tends to decline more services than they should.
c. The recipient of services tends to have more services than what is needed relative to the efficient level of services.
d. There is no moral hazard.

Question 13
A proportional income tax has an average tax rate that:

a. always is less than the marginal tax rate.
b. always exceeds the marginal tax rate.
c. equals the marginal tax rate at first and then becomes less than the marginal tax rate.
d. always equals the marginal tax rate.

Question 14
A tax on real estate is a:

a. general wealth tax.
b. general consumption tax.
c. selective wealth tax.
d. selective income tax.

Question 15
If the average tax rate under a progressive tax rate structure is 35%, a possible marginal tax rate is:

a. 30%.
b. 25%.
c. 42%.
d. not able to be determined.

Question 16

A 5-percent retail sales tax on all consumer purchases in a state is imposed. The sales tax is:

a. a flat-rate tax.
b. a tax with a regressive rate structure.
c. levied on an income base.
d. all of the above

Question 17
Taxes:
a. are voluntary payments to governments.
b. are unlikely to affect market supply and demand.
c. never affect efficiency in the allocation of resources.
d. are compulsory payments associated with certain activities.

Question 18
Which of the following countries has the highest average tax rate relative to GDP?

a. Japan
b. Sweden
c. Iceland
d. United Kingdom

Question 19
The efficiency-loss ratio relative to tax is:

a. the deadweight loss less the tax revenue.
b. the deadweight loss divided by the tax revenue reduced by one.
c. the excess burden divided by the tax revenue.
d. None of the above.

Question 20
If a lump-sum tax is imposed, the slope of the new budget line relative to the budget line prior to the tax:

a. remains unchanged.
b. increases.
c. decrease.
d. can increase and decrease in different regions.

Question 21

Viewed from origin a price distorting tax creates a new budget line with a ______ slope relative to the budget line without the tax.

a. less steep
b. more steep
c. similar
d. varying

Question 22
A $0.30 per unit tax is imposed on a good that reduces the quantity supplied and demanded by 1000 units. What is the deadweight loss (ignore price elasticities)?

a. $300.00
b. $100.00
c. $150.00
d. Cannot be determined.

Question 23
Other things being equal, the more inelastic the demand for a taxed good,

a. the greater the portion of the tax paid by sellers.
b. the greater the excess burden of the tax.
c. the greater the portion of the tax paid by buyers.
d. the less the portion of a tax on sellers that can be shifted to buyers.

Question 24
The supply of new cars is perfectly elastic. A $400 per car tax is levied on buyers. As a result of the tax,

a. the price received by sellers will fall by $400.
b. the price paid by buyers, including the tax, will increase by $400.
c. the quantity of cars sold per year will be unchanged.
d. the excess burden of the tax will be zero.
e. both (c) and (d)

Question 25

The federal government, its agencies, and the Federal Reserve System:

a. are not permitted to hold outstanding federal debt.
b. hold 50 percent of the outstanding federal debt.
c. hold between 15 and 25 percent of the outstanding federal debt.
d. hold 75 percent of the outstanding federal debt.

Question 26
The National Income and Product Accounts budget balance reflects:

a. an inflation-adjusted budget balance less social security surplus.
b. new debt resulting from a federal budget deficit.
c. the real budget balance.
d. the nominal budget balance.

Question 27
The total dollar value of the federal debt outstanding is:

a. more than 50 percent of GDP.
b. more than 100 percent of GDP.
c. less than 50 percent of GDP.
d. less than 10 percent of GDP.

Question 28
The debt of state and local governments is mostly:

a. internal.
b. external.
c. owed to citizens of other nations.
d. worthless.

Question 29
If the federal government runs a surplus consistently, then which of the following is likely to occur?

a. National saving will decline.
b. The gross federal debt will increase.
c. The gross federal debt will decrease.
d. Market equilibrium interest rates are likely to rise as a result of the surpluses.

Question 30
An increase in government borrowing has no effect on the willingness of citizens to save or on the demand for credit. Increased borrowing to cover deficits will therefore:

a. reduce interest rates.
b. increase interest rates.
c. have no effect on interest rates.
d. not require increased taxes in the future.