Name: __________________________  Date: _____________

1.	As a result of the Affordable Care Act passed in 2010:	
A)	insurance companies are allowed to discriminate against those with medical conditions that are too expensive to treat.	
B)	individuals who cannot afford health insurance have all been enrolled in Medicaid.	
C)	individuals who can afford health insurance must purchase it or pay a penalty.	
D)	the government is no longer attempting to control the costs of providing medical care.	

2.	The goal of public finance is to:	
A)	understand the proper role of corporations in the economy.	
B)	understand the proper role of the government in the economy.	
C)	determine the best way to increase government's role in the economy.	
D)	determine the best way to decrease government's role in the economy.	

3.	The goal of public economics, or public finance, is to answer which question?	
A)	How might the government intervene in the economy and what are the likely effects?	
B)	Why do profit-maximizing firms attempt to set marginal revenue equal to marginal cost?	
C)	How are the terms of trade determined when countries choose to engage in international trade?	
D)	What are the goals and tools of macroeconomic policy?	

4.	Government intervenes in a market economy to:	
A)	create externalities.	
B)	prevent competition.	
C)	enhance economic efficiency.	
D)	achieve perfect income equality.	

5.	Suppose Juan values a slice of pizza at $1.50, but the pizza shop is unwilling to sell a slice of pizza for less than $2.00. These values imply that:	
A)	it is efficient for the shop to sell a slice of pizza to Juan for $1.50.	
B)	it is efficient for the shop to sell a slice of pizza Juan for $2.00.	
C)	the shop needs to produce more efficiently in order to lower the price.	
D)	it is not efficient for the shop to sell a slice of pizza to Juan.	

6.	Suppose Ali values a slice of pizza at $1.50, but the pizza shop is unwilling to sell a slice of pizza for less than $1.00. These values imply that it is efficient for the shop to sell a slice of pizza to Ali for any price:	
A)	greater than or equal to $1.50.	
B)	greater than or equal to $1.00 and less than or equal to $1.50.	
C)	less than or equal to $1.00.	
D)	less than or equal to $1.00 and greater than or equal to $1.50.	

7.	Suppose a student values a textbook at $50, and the publisher is unwilling to sell the textbook at a price lower than $30. What price will lead to an efficient transaction between the student and publisher?	
A)	a price of $0	
B)	any price greater than $0 and less than $30	
C)	any price greater than or equal to $30 and less than or equal to $50	
D)	any price greater than $50	

8.	Suppose a consumer values a certain 19-inch television set at $150, and the seller is unwilling to sell the set for less than $200. These values imply that:	
A)	it is efficient for the seller to charge a price of $0.	
B)	it is efficient for the seller to charge any price greater than $0 and less than $150.	
C)	it is efficient for the seller to charge any price greater than or equal to $150 and less than or equal to $200.	
D)	it is not efficient for a transaction to take place.	

9.	Suppose you hear someone argue that the proper role of government is to increase the size of the pie. Which justification for government intervention in the economy is this person referring to?	
A)	increasing equality in the economy	
B)	promoting social justice	
C)	improving efficiency	
D)	preventing competition	

10.	Suppose the government proposes a program that will transfer income from one group to another. The goal of this government intervention in the marketplace is best characterized as:	
A)	redistribution.	
B)	increasing market efficiency.	
C)	correcting a market failure.	
D)	achieving competitive equilibrium.	

11.	If the competitive equilibrium does not lead to the efficiency-maximizing outcome, then government intervention:	
A)	will increase efficiency.	
B)	will reduce efficiency.	
C)	may increase or decrease efficiency.	
D)	will not affect efficiency.	

12.	Suppose government proposes taxing Peter to pay Paul. The goal of this intervention could be best characterized as an attempt to achieve:	
A)	redistribution.	
B)	efficiency.	
C)	market failure.	
D)	competitive equilibrium.	

13.	The equity–efficiency trade-off means that the result of obtaining __________ in equality is also to obtain __________ in the so-called size of the pie.	
A)	no change; a decrease	
B)	no change; an increase	
C)	a decrease; a decrease	
D)	an increase; a decrease	

14.	Suppose the government taxes the rich to distribute money to the poor. Which of the following is an example of an efficiency loss?	
A)	Rich people take home less of the money from their jobs because of the tax.	
B)	Rich people don't work as hard because of the tax.	
C)	Poor people are better off because of the redistribution.	
D)	Poor people work just as hard because they still need to make ends meet.	

15.	An intervention in which government establishes a federally funded health care service for everyone and pays doctors and medical practitioners directly is called:	
A)	private provision with public financing.	
B)	restriction or mandate of private sale or purchase.	
C)	subsidy.	
D)	public provision.	

16.	Both the federal and state governments collect fees for each gallon of gasoline sold. This is an example of which type of government intervention?	
A)	restriction of private sale or purchase	
B)	taxation	
C)	subsidy	
D)	public provision	

17.	Which type of government intervention can be used to lower the price for private sales or purchases of underproduced goods?	
A)	public financing of private provision	
B)	restrictions or mandates of private sale or purchase	
C)	taxes	
D)	subsidies	

18.	Veterans receive health benefits directly through hospitals owned and operated by the Veterans Health Administration. This is an example of:	
A)	public financing of private provision.	
B)	restriction or mandate of private sale or purchase.	
C)	a subsidy.	
D)	public provision.	

19.	The Medicare insurance program in the United States reimburses hospitals and doctors for providing health care services to the elderly. This is an example of:	
A)	public financing of private provision.	
B)	restriction or mandate of private sale or purchase.	
C)	a tax.	
D)	a subsidy.	

20.	Public schools in the United States are operated by the government. This is an example of:	
A)	public financing of private provision.	
B)	restriction or mandate of private sale or purchase.	
C)	a subsidy.	
D)	public provision.	

21.	The government has passed many school accountability measures that reward schools if their students score highly on standardized tests. Suppose schools respond by manipulating the set of test-takers to increase average scores. This outcome is an example of a(n):	
A)	intended effect.	
B)	direct effect.	
C)	indirect effect.	
D)	desired outcome.	

22.	The government has passed many school accountability measures that reward schools if their students score highly on standardized tests. Suppose schools respond by more efficiently teaching their students. This outcome is an example of a(n):	
A)	intended, direct effect.	
B)	intended, indirect effect.	
C)	unintended, direct effect.	
D)	unintended, indirect effect.	

23.	Suppose that because the government increases the minimum wage, employees who were earning the minimum wage get a pay increase. This is an example of a(n):	
A)	intended, direct effect.	
B)	intended, indirect effect.	
C)	unintended, direct effect.	
D)	unintended, indirect effect.	

24.	Which of the following might be a direct effect of providing free health care for those without insurance?	
A)	Those who were without private health insurance are now better off.	
B)	Those with private health insurance may drop their coverage.	
C)	Those without health insurance may purchase private health insurance.	
D)	Those eligible for free health insurance are not aware of the benefit.	

25.	Which of the following is the government agency that uses empirical economics to achieve its mission of providing Congress with objective, nonpartisan analyses necessary for economic and budget decisions?	
A)	National Bureau of Economic Research	
B)	Office of Management and Budget	
C)	Antitrust Division of the Department of Justice	
D)	Congressional Budget Office	

26.	Suppose that because the government increases the minimum wage, employers choose to hire fewer workers. This is an example of:	
A)	an intended effect.	
B)	a direct effect.	
C)	an indirect effect.	
D)	a desired outcome.	

27.	The government offers unemployment benefits to workers who have lost their jobs and not yet found new ones. Which of the following is an example of an indirect unintended effect of the government intervention?	
A)	Recipients reduce their job search activities.	
B)	Recipients can still afford to pay health insurance premiums.	
C)	Recipients are at less risk for falling into poverty.	
D)	Potential recipients choose not to file for benefits.	

28.	Suppose the government wishes to provide college tuition aid to one of the following groups of high school students. In which target group would the possible extent of indirect effects be most limited?	
A)	students with relatively low Scholastic Aptitude Test scores	
B)	students whose fathers have died recently	
C)	students who earn less than $2,000 per year	
D)	students who live in low-income neighborhoods	

29.	Which of the following might be an indirect unintended effect of providing income support to those without jobs?	
A)	Those without jobs are made better off.	
B)	Those without jobs are made worse off.	
C)	People without jobs now search for and acquire jobs.	
D)	People without jobs no longer search for and acquire jobs.	

30.	How governments should intervene is a _________ question, and why governments intervene in the way they do is a __________ question.	
A)	normative; normative	
B)	positive; negative	
C)	normative; positive	
D)	positive; normative	

31.	If government revenues exceed government spending, the difference is called the:	
A)	cash flow deficit.	
B)	cash flow surplus.	
C)	debt.	
D)	budget.	

32.	The accumulation of past deficits over time is measured by the:	
A)	cash flow deficit.	
B)	cash flow surplus.	
C)	debt.	
D)	budget.	

33.	The current federal debt of the United States is ______ of the gross domestic product.	
A)	less than 15%	
B)	approximately 30%	
C)	approximately 60%	
D)	over 100%	

34.	National defense is a classic example of what economists call:	
A)	a public good.	
B)	entitlement spending.	
C)	social insurance.	
D)	a private service.	

35.	Which of the following correctly depicts the changes in the sources of federal, state, and local receipts in the past 50 years?	
A)	Income taxes are now a larger share of federal receipts.	
B)	Property taxes are now a larger share of state and local receipts.	
C)	Corporate and excise taxes are now a smaller share of federal receipts.	
D)	Sales taxes constitute the exact same share of state and local receipts.	

36.	By 2010, approximately ________ of the nonelderly United States population did not have health insurance.	
A)	5%	
B)	15%	
C)	18%	
D)	25%	

37.	Social Security is the single largest government expenditure program; however, the system is projected to have insufficient funds to pay promised retiree benefits in less than 30 years. What is the main solution that liberals suggest to cope with this problem?	
A)	raising the necessary resources through higher payroll taxes or some other means	
B)	encouraging individuals to save for their own retirement	
C)	encouraging inflow of young immigrants	
D)	enacting policies that bring higher birth rates	

38.	Which of the following is generally TRUE regarding proposed solutions to problems in the educational system in the United States?	
A)	Liberals advocate increased competition among schools, while conservatives advocate higher teacher pay and increasing resources given to disadvantaged schools.	
B)	Liberals advocate higher teacher pay and increased resources given to disadvantaged schools, while conservatives advocate increased competition among schools.	
C)	Both liberals and conservatives advocate increased competition among schools.	
D)	Both liberals and conservatives advocate higher teacher pay and increased resources given to disadvantaged schools.	

39.	Which of the following changes were introduced with the passage of the Affordable Care Act?	
A)	increased government regulation of insurance markets and reduced reliance on private health insurance providers	
B)	introduction of new subsidies for the purchase of health insurance and expanded private health insurance through state exchanges	
C)	elimination of subsidies for the purchase of health insurance and new requirements that low-income individuals bear the full burden of insurance costs	
D)	expanded coverage by government and reduced reliance on private health insurance providers	

40.	Does taxing the wealthy to give benefits to the poor increase social welfare? Explain.	

41.	Suppose the White House could appoint the lead officials at the Congressional Budget Office (CBO). Do you think this change could affect the level of budget deficits? Explain.	

42.	Are all of the indirect effects of government intervention in the economy unintended effects? Explain.	

43.	Suppose someone says that a relatively small percentage of Americans own a large percentage of total assets and that therefore the government should redistribute wealth to those less fortunate. Which part of that statement is normative and which part is positive, if any? Explain.	

44.	Calculate real government expenditure in base year (Year 1) dollars, then calculate real per capita expenditure and the percentage change in real per capita expenditure using the hypothetical data below.

Hypothetical Data on Government Expenditure, the Price Level, and Population	

Total Government Expenditures (millions)	
Price Index	
Real Government Expenditures (millions)	
Population (millions)	
Real Per Capita Government Expenditures	

Year 1	
   $916,800	
100	
$__________	
240	
$__________	

Year 2	
$1,175,796	
208	
$__________	
250	
$__________	

Between year 1 and year 2, real government expenditure per capita increased ________ %.	

45.	What are the fundamental issues that the supporters and opponents of Affordable Care Act (ACA) cannot agree on? Explain.	

Answer Key

1.	C	
2.	B	
3.	A	
4.	C	
5.	D	
6.	B	
7.	C	
8.	D	
9.	C	
10.	A	
11.	C	
12.	A	
13.	D	
14.	B	
15.	D	
16.	B	
17.	D	
18.	D	
19.	A	
20.	D	
21.	C	
22.	A	
23.	A	
24.	A	
25.	D	
26.	C	
27.	A	
28.	B	
29.	D	
30.	C	
31.	B	
32.	C	
33.	D	
34.	A	
35.	C	
36.	C	
37.	A	
38.	B	
39.	B	
40.	It depends. Taxing the rich to give benefits to the poor may decrease efficiency. For example, it may reduce rich people's incentive to work, which would reduce the total size of the economic pie. In addition, raising money through taxes is not free. There is typically an administrative cost of doing so, which reduces the size of the economic pie. However, taxing the wealthy to give benefits to the poor would increase equity, which may be valued by society in and of itself. Consequently, to answer the question about social welfare, you need to know how society values the efficiency–equity trade-off.	
41.	It is possible that the analysts at the CBO would be pressured to make particularly rosy budget predictions of the cost of legislation supported by the administration. Those predictions could help pass that legislation, either because politicians believed the estimates or because they were unsure about the true costs. The result could easily be an increase in budget deficits.	
42.	In many cases, indirect effects of government intervention are unintended. For example, if the government offers a plan to the uninsured in order to make sure that everyone can afford health insurance, an indirect result of that policy might be that the insured drop their insurance. Such an effect is indirect because it resulted from a change in behavior induced by the policy, and in this case the effect is also unintended. In contrast, however, many government interventions are intended to change people's behavior. For example, government may institute fines for traffic infractions like speeding. To the extent that these fines reduce speeding, that policy has an indirect effect that is also an intended effect.	
43.	Pointing out the facts about the income or wealth distribution is a purely positive statement, since it is describing how things are. Stating that the government should do something in response is a normative statement, however, since it is saying how things should be as opposed to how they are. Consequently, the first part of the statement is positive and the second part is normative.	
44.	Real government expenditure (in millions) equals $916,800 in Year 1 and $1,088,700 in Year 2. Real per capita expenditure equals $3,820 in Year 1 and $4,354.8 in Year 2. Real government expenditure per capita increased 14%.	
45.	The proper role of the government in dealing with health care coverage and costs is the fundamental controversy among the supporters and opponents of ACA. Supporters argue that the bill corrects failed insurance markets, reduces the economic burden on the uninsured, and moves to control health care costs in the long run. On the other hand, opponents of the legislation view the ACA as an unwarranted expansion of government power into the health care sector—and an enormous expansion of government spending at a time of high deficits.