Test Bank - Public Finance and Public Policy, 8th Edition by Jonathan Gruber
Chapter 01 8e - Gruber
Indicate the answer choice that best completes the statement or answers the question.
1. Which of these 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
ANSWER: d
2. One reason for government involvement in the economy is the existence of market failures. What are market
failures?
a. a downturn in a specific market industry
b. a substantial downturn in the market economy due to financial shocks
c. a problem that causes the market economy to deliver an outcome that does not maximize efficiency
d. a drop in Gross Domestic Product (GDP)
ANSWER: c
3. During failures, the government can attempt to adjust prices in the private market through a price mechanism.
This includes:
a. price ceilings and price floors.
b. taxes and subsidies.
c. inflation and deflation.
d. exports and imports.
ANSWER: b
4. The government offers unemployment benefits to workers who have lost their jobs and have not yet found
new ones. Which of these is an example of an indirect, unintended effect of 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 of falling into poverty.
d. Potential recipients choose not to file for benefits.
ANSWER: a
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Chapter 01 8e - Gruber
5. Suppose Dennie values a burrito at $2.50, but the restaurant is unwilling to sell the burrito for less than $2.00.
These values imply that it is efficient for the restaurant to sell a burrito to Dennie for any price that is:
a. greater than or equal to $2.50.
b. greater than or equal to $2.00 and less than or equal to $2.50.
c. less than or equal to $2.00.
d. less than or equal to $2.00 and greater than or equal to $2.50.
ANSWER: b
6. How governments should intervene is what type of question? Why governments intervene in the way they do
is what type of question?
a. How governments intervene is a normative question, and why governments intervene is a normative
question.
b. How governments intervene is a positive question, and why governments intervene is a negative question.
c. How governments intervene is a normative question, and why governments intervene is a positive question.
d. How governments intervene is a positive question, and why governments intervene is a normative question.
ANSWER: c
7. Suppose that because the government increases the minimum wage, employers choose to hire fewer workers.
This is an example of a(n):
a. intended effect.
b. direct effect.
c. indirect effect.
d. desired outcome.
ANSWER: c
8. Suppose Ky values a burrito at $3.00, but the restaurant is unwilling to sell the burrito for less than $4.00.
These values imply that:
a. it is efficient for the restaurant to sell the burrito to Ky for $3.00.
b. it is efficient for the restaurant to sell the burrito to Ky for $4.00.
c. the restaurant needs to produce more efficiently to lower the price of its burritos.
d. it is not efficient for the restaurant to sell the burrito to Ky.
ANSWER: d
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Chapter 01 8e - Gruber
9. The state government collects $550 billion in tax revenue during the current fiscal year and spends $575
billion. The government is running a:
a. cash flow deficit.
b. cash flow surplus.
c. debt.
d. balanced budget.
ANSWER: a
10. Suppose that because the government increases the minimum wage, employees who earn the minimum wage
get a pay increase. This is an example of an:
a. intended, direct effect.
b. intended, indirect effect.
c. unintended, direct effect.
d. unintended, indirect effect.
ANSWER: a
11. The national interstate highway system is a classic example of what economists call:
a. a public good.
b. entitlement spending.
c. social insurance.
d. a private service.
ANSWER: a
12. 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
ANSWER: d
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Chapter 01 8e - Gruber
13. Which of these BEST describes the focused approach of how the administrations and Congress responded
to the unprecedented crises caused by the pandemic?
a. Democrats preferred a reduced government response.
b. Democrats were more concerned with individuals' freedom to choose health restrictions as individuals saw
fit, while Republicans were more concerned with containing the spread.
c. Republicans were more focused on business, and Democrats were more focused on unemployment and
state support.
d. Republicans favored expansions in benefits for unemployed individuals, while Democrats favored loans to
businesses.
ANSWER: c
14. The Medicare insurance program in the United States reimburses hospitals and doctors for providing health
care services to older adults. 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.
ANSWER: a
15. Suppose a student values a textbook at $100, and the publisher is unwilling to sell the textbook at a price
lower than $60. What price will lead to an efficient transaction between the student and the publisher?
a. a price of $60 or above
b. any price of $100 or less
c. any price greater than or equal to $60 and less than or equal to $100
d. any price greater than $100
ANSWER: c
16. The state government collects $550 billion in tax revenue during the current fiscal year and spends nearly
$500 billion. The government is running a:
a. cash flow deficit.
b. cash flow surplus.
c. debt.
d. balanced budget.
ANSWER: b
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Chapter 01 8e - Gruber
Indicate the answer choice that best completes the statement or answers the question.
1. Which of these 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
ANSWER: d
2. One reason for government involvement in the economy is the existence of market failures. What are market
failures?
a. a downturn in a specific market industry
b. a substantial downturn in the market economy due to financial shocks
c. a problem that causes the market economy to deliver an outcome that does not maximize efficiency
d. a drop in Gross Domestic Product (GDP)
ANSWER: c
3. During failures, the government can attempt to adjust prices in the private market through a price mechanism.
This includes:
a. price ceilings and price floors.
b. taxes and subsidies.
c. inflation and deflation.
d. exports and imports.
ANSWER: b
4. The government offers unemployment benefits to workers who have lost their jobs and have not yet found
new ones. Which of these is an example of an indirect, unintended effect of 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 of falling into poverty.
d. Potential recipients choose not to file for benefits.
ANSWER: a
Page 1
,Name: Class: Date:
Chapter 01 8e - Gruber
5. Suppose Dennie values a burrito at $2.50, but the restaurant is unwilling to sell the burrito for less than $2.00.
These values imply that it is efficient for the restaurant to sell a burrito to Dennie for any price that is:
a. greater than or equal to $2.50.
b. greater than or equal to $2.00 and less than or equal to $2.50.
c. less than or equal to $2.00.
d. less than or equal to $2.00 and greater than or equal to $2.50.
ANSWER: b
6. How governments should intervene is what type of question? Why governments intervene in the way they do
is what type of question?
a. How governments intervene is a normative question, and why governments intervene is a normative
question.
b. How governments intervene is a positive question, and why governments intervene is a negative question.
c. How governments intervene is a normative question, and why governments intervene is a positive question.
d. How governments intervene is a positive question, and why governments intervene is a normative question.
ANSWER: c
7. Suppose that because the government increases the minimum wage, employers choose to hire fewer workers.
This is an example of a(n):
a. intended effect.
b. direct effect.
c. indirect effect.
d. desired outcome.
ANSWER: c
8. Suppose Ky values a burrito at $3.00, but the restaurant is unwilling to sell the burrito for less than $4.00.
These values imply that:
a. it is efficient for the restaurant to sell the burrito to Ky for $3.00.
b. it is efficient for the restaurant to sell the burrito to Ky for $4.00.
c. the restaurant needs to produce more efficiently to lower the price of its burritos.
d. it is not efficient for the restaurant to sell the burrito to Ky.
ANSWER: d
Page 2
,Name: Class: Date:
Chapter 01 8e - Gruber
9. The state government collects $550 billion in tax revenue during the current fiscal year and spends $575
billion. The government is running a:
a. cash flow deficit.
b. cash flow surplus.
c. debt.
d. balanced budget.
ANSWER: a
10. Suppose that because the government increases the minimum wage, employees who earn the minimum wage
get a pay increase. This is an example of an:
a. intended, direct effect.
b. intended, indirect effect.
c. unintended, direct effect.
d. unintended, indirect effect.
ANSWER: a
11. The national interstate highway system is a classic example of what economists call:
a. a public good.
b. entitlement spending.
c. social insurance.
d. a private service.
ANSWER: a
12. 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
ANSWER: d
Page 3
, Name: Class: Date:
Chapter 01 8e - Gruber
13. Which of these BEST describes the focused approach of how the administrations and Congress responded
to the unprecedented crises caused by the pandemic?
a. Democrats preferred a reduced government response.
b. Democrats were more concerned with individuals' freedom to choose health restrictions as individuals saw
fit, while Republicans were more concerned with containing the spread.
c. Republicans were more focused on business, and Democrats were more focused on unemployment and
state support.
d. Republicans favored expansions in benefits for unemployed individuals, while Democrats favored loans to
businesses.
ANSWER: c
14. The Medicare insurance program in the United States reimburses hospitals and doctors for providing health
care services to older adults. 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.
ANSWER: a
15. Suppose a student values a textbook at $100, and the publisher is unwilling to sell the textbook at a price
lower than $60. What price will lead to an efficient transaction between the student and the publisher?
a. a price of $60 or above
b. any price of $100 or less
c. any price greater than or equal to $60 and less than or equal to $100
d. any price greater than $100
ANSWER: c
16. The state government collects $550 billion in tax revenue during the current fiscal year and spends nearly
$500 billion. The government is running a:
a. cash flow deficit.
b. cash flow surplus.
c. debt.
d. balanced budget.
ANSWER: b
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