TEST BANK FOR
Public Economics, 8th Edition by Harvey S. Rosen & Ted Gayer
Chapters 1–28
Chapter 1
Test Questions
Multiple Choice
students for legal practice, with specializations that may include constitutional law, criminal law, corporate law, human rights law, or
intellectual property law.2.2. Structure of Law ExamsLaw
1. A mixed economy is one in which
a. both industrial and service sectors are important.
b. both labor and capital contribute significantly to production.
*c. both government and private firms play important economic roles.
d. a centralized government controls economic activity and produces
some military goods and some consumer goods.
2. Mercantilists believed that the government should
*a. promote trade.
b. own the means of production.
c. follow a policy of laissez-faire.
d. establish trade unions.
3. The policy of laissez-faire was
a. suggested by Karl Marx.
*b. promoted by John Stuart Mill.
c. invented by Lyndon Johnson.
d. attacked by Adam Smith.
4. Which of the following is not a statement dealing with positive economics?
a. Price supports lead to excess supply.
b. The welfare system makes certain benefits available only to
unmarried parents.
c. Capitalism is associated with free markets.
*d. Rent controls work best when rents are adjusted periodically.
5. An economic model tries to
a. include in detail all known features of some part of the economy.
b. show how a perfect economy would work.
*c. reflect the important features of some part of the real economy.
d. derive appropriate values for attacking a problem.
6. Which of the following is not a normative statement?
a. The military budget should increase at the same rate as GNP.
b. The government should play a limited economic role, ensuring that
private contracts are enforced.
*c. Integrated schooling has increased the level of literacy among
minority groups.
d. A tax on imported oil should be used to reduce the government deficit.
, 7. Economics is the study of scarcity. Public sector economics is the
study of
a. how to keep the public from being hurt by scarcities.
b. how to keep the government sector as small as possible.
*c. the government’s role in economic activity.
d. how to raise revenues to finance public spending when public funds
are scarce.
8. The invisible hand refers to
*a. the coordination of activities through prices in a decentralized
competitive economy.
b. the safety net ready to catch people who fall under the poverty line.
c. government intrusion in private affairs.
d. the link between the “fingers” of government: federal, state, and local.
9. Which is not a difference between public and private enterprises?
a. Only government has compulsory power to finance operations with
tax dollars.
b. Government can seize property needed for operations.
c. Leadership of government enterprises ultimately derives power from
the electoral process.
*d. Public enterprises are run without any regard for market conditions.
students for legal practice, with specializations that may include constitutional law, criminal law, corporate law, human rights
law, or intellectual property law.2.2. Structure of Law ExamsLaw
10. A production possibilities curve shows
*a. the combinations of goods an economy can produce, given its
resources.
b. the time lag between planning a product and completing its
production.
c. society’s preferred output mix as a function of market prices.
d. the profit government could earn from alternative public enterprises.
11. Which of the following questions is much more important in public
economics than in other areas of economics?
a. What should be produced?
*b. How should decisions be made?
c. To whom are goods distributed?
d. How should goods be produced?
12. A difference between normative and positive analysis is that
a. only normative analysis is relevant for choosing among policy
options.
b. positive analysis deals with facts and cannot be a source of
disagreement.
*c. positive analysis is descriptive whereas normative analysis is
evaluative.
d. normative analysis is ignored by economists because they have no
expertise in making value judgments.
13. Controlled experiments are most useful in scientific inquiry when
they can
a. be consistent with most competing theories.
, *b. contradict all competing theories but one.
c. replicate entirely the complexity of the real world.
d. take advantage of unique circumstances that do not allow the
experiment to be repeated.
students for legal practice, with specializations that may include constitutional law, criminal law, corporate law, human rights law, or
intellectual property law.2.2. Structure of Law ExamsLaw
True or False
14. There have been few major changes in views concerning the
responsibility of government during the past 50 years. (F)
15. Adam Smith argued that the government should take an active role in
promoting trade and industry. (F)
16. The mercantilists argued that the profit motive led firms to produce,
as if by an invisible hand, what was most desired in the best possible
way. (F)
17. Changes in technology will alter the production possibilities
schedule. (T)
18. Privatization is the process by which governments sell public enterprises
to the private sector. (T)
19. Government can always improve the private market through public
intervention. (F)
20. Economists only disagree about their values, and never about how the
economy behaves. (F)
21. Positive statements are those about which all economists agree. (F)
22. Normative economics entails value judgments regarding the desirability
of alternative policy options. (T)
Chapter 2
Test Questions
Multiple Choice
1. In the United States, production by federal, state, and local government
a. is banned under the Constitution (except for printing money).
b. exceeds the levels in Western Europe through U.S. nationalization of
private enterprises.
c. never competes directly with private firms.
*d. can include electricity, education, and garbage collection.
2. A federal structure is one in which government
a. is mostly conducted at a national level.
b. is run by both elected and appointed officials.
, *c. divides power among national, state, and local jurisdictions.
d. divides power among judicial, legislative, and executive branches.
3. The number of local governmental entities in the United States is roughly
a. 850.
b. 8,500.
*c. 85,000.
d. 850,000.
4. Which of the following is not primarily under the jurisdiction of the
federal government?
a. National defense
*b. Education
c. Regulation of interstate commerce
d. The post office
5. In the United States, the most expensive set of direct subsidies goes to
a. banks and credit unions.
*b. agriculture.
c. near-bankrupt corporations.
d. textiles.
students for legal practice, with specializations that may include constitutional law, criminal law, corporate law, human
rights law, or intellectual property law.2.2. Structure of Law ExamsLaw
6. The value of annual total government purchases is approximately
a. zero.
b. $100 million.
c. $2.0 billion.
*d. $5.0 trillion.
7. Import quotas are, in effect, subsidies for domestic
a. producers paid by foreign producers.
*b. producers paid by domestic consumers.
c. governments paid by foreign producers.
d. consumers paid by the domestic government.
8. A tax expenditure is
*a. revenue forgone through special provisions in the
tax code.
b. the hidden cost of resources devoted to tax compliance.
c. money paid to corporations that declare negative net
income.
d. revenue forgone through tax evasion.
9. Public expenditures in the United States are roughly
a. 10 percent of GDP.
b. one-quarter of GDP.
*c. 40 percent of GDP.
d. one-half of GDP.
10. The rapid growth in government expenditures in the last 45 years is
largely accounted for by
a. defense spending.
b. agricultural subsidies.
Public Economics, 8th Edition by Harvey S. Rosen & Ted Gayer
Chapters 1–28
Chapter 1
Test Questions
Multiple Choice
students for legal practice, with specializations that may include constitutional law, criminal law, corporate law, human rights law, or
intellectual property law.2.2. Structure of Law ExamsLaw
1. A mixed economy is one in which
a. both industrial and service sectors are important.
b. both labor and capital contribute significantly to production.
*c. both government and private firms play important economic roles.
d. a centralized government controls economic activity and produces
some military goods and some consumer goods.
2. Mercantilists believed that the government should
*a. promote trade.
b. own the means of production.
c. follow a policy of laissez-faire.
d. establish trade unions.
3. The policy of laissez-faire was
a. suggested by Karl Marx.
*b. promoted by John Stuart Mill.
c. invented by Lyndon Johnson.
d. attacked by Adam Smith.
4. Which of the following is not a statement dealing with positive economics?
a. Price supports lead to excess supply.
b. The welfare system makes certain benefits available only to
unmarried parents.
c. Capitalism is associated with free markets.
*d. Rent controls work best when rents are adjusted periodically.
5. An economic model tries to
a. include in detail all known features of some part of the economy.
b. show how a perfect economy would work.
*c. reflect the important features of some part of the real economy.
d. derive appropriate values for attacking a problem.
6. Which of the following is not a normative statement?
a. The military budget should increase at the same rate as GNP.
b. The government should play a limited economic role, ensuring that
private contracts are enforced.
*c. Integrated schooling has increased the level of literacy among
minority groups.
d. A tax on imported oil should be used to reduce the government deficit.
, 7. Economics is the study of scarcity. Public sector economics is the
study of
a. how to keep the public from being hurt by scarcities.
b. how to keep the government sector as small as possible.
*c. the government’s role in economic activity.
d. how to raise revenues to finance public spending when public funds
are scarce.
8. The invisible hand refers to
*a. the coordination of activities through prices in a decentralized
competitive economy.
b. the safety net ready to catch people who fall under the poverty line.
c. government intrusion in private affairs.
d. the link between the “fingers” of government: federal, state, and local.
9. Which is not a difference between public and private enterprises?
a. Only government has compulsory power to finance operations with
tax dollars.
b. Government can seize property needed for operations.
c. Leadership of government enterprises ultimately derives power from
the electoral process.
*d. Public enterprises are run without any regard for market conditions.
students for legal practice, with specializations that may include constitutional law, criminal law, corporate law, human rights
law, or intellectual property law.2.2. Structure of Law ExamsLaw
10. A production possibilities curve shows
*a. the combinations of goods an economy can produce, given its
resources.
b. the time lag between planning a product and completing its
production.
c. society’s preferred output mix as a function of market prices.
d. the profit government could earn from alternative public enterprises.
11. Which of the following questions is much more important in public
economics than in other areas of economics?
a. What should be produced?
*b. How should decisions be made?
c. To whom are goods distributed?
d. How should goods be produced?
12. A difference between normative and positive analysis is that
a. only normative analysis is relevant for choosing among policy
options.
b. positive analysis deals with facts and cannot be a source of
disagreement.
*c. positive analysis is descriptive whereas normative analysis is
evaluative.
d. normative analysis is ignored by economists because they have no
expertise in making value judgments.
13. Controlled experiments are most useful in scientific inquiry when
they can
a. be consistent with most competing theories.
, *b. contradict all competing theories but one.
c. replicate entirely the complexity of the real world.
d. take advantage of unique circumstances that do not allow the
experiment to be repeated.
students for legal practice, with specializations that may include constitutional law, criminal law, corporate law, human rights law, or
intellectual property law.2.2. Structure of Law ExamsLaw
True or False
14. There have been few major changes in views concerning the
responsibility of government during the past 50 years. (F)
15. Adam Smith argued that the government should take an active role in
promoting trade and industry. (F)
16. The mercantilists argued that the profit motive led firms to produce,
as if by an invisible hand, what was most desired in the best possible
way. (F)
17. Changes in technology will alter the production possibilities
schedule. (T)
18. Privatization is the process by which governments sell public enterprises
to the private sector. (T)
19. Government can always improve the private market through public
intervention. (F)
20. Economists only disagree about their values, and never about how the
economy behaves. (F)
21. Positive statements are those about which all economists agree. (F)
22. Normative economics entails value judgments regarding the desirability
of alternative policy options. (T)
Chapter 2
Test Questions
Multiple Choice
1. In the United States, production by federal, state, and local government
a. is banned under the Constitution (except for printing money).
b. exceeds the levels in Western Europe through U.S. nationalization of
private enterprises.
c. never competes directly with private firms.
*d. can include electricity, education, and garbage collection.
2. A federal structure is one in which government
a. is mostly conducted at a national level.
b. is run by both elected and appointed officials.
, *c. divides power among national, state, and local jurisdictions.
d. divides power among judicial, legislative, and executive branches.
3. The number of local governmental entities in the United States is roughly
a. 850.
b. 8,500.
*c. 85,000.
d. 850,000.
4. Which of the following is not primarily under the jurisdiction of the
federal government?
a. National defense
*b. Education
c. Regulation of interstate commerce
d. The post office
5. In the United States, the most expensive set of direct subsidies goes to
a. banks and credit unions.
*b. agriculture.
c. near-bankrupt corporations.
d. textiles.
students for legal practice, with specializations that may include constitutional law, criminal law, corporate law, human
rights law, or intellectual property law.2.2. Structure of Law ExamsLaw
6. The value of annual total government purchases is approximately
a. zero.
b. $100 million.
c. $2.0 billion.
*d. $5.0 trillion.
7. Import quotas are, in effect, subsidies for domestic
a. producers paid by foreign producers.
*b. producers paid by domestic consumers.
c. governments paid by foreign producers.
d. consumers paid by the domestic government.
8. A tax expenditure is
*a. revenue forgone through special provisions in the
tax code.
b. the hidden cost of resources devoted to tax compliance.
c. money paid to corporations that declare negative net
income.
d. revenue forgone through tax evasion.
9. Public expenditures in the United States are roughly
a. 10 percent of GDP.
b. one-quarter of GDP.
*c. 40 percent of GDP.
d. one-half of GDP.
10. The rapid growth in government expenditures in the last 45 years is
largely accounted for by
a. defense spending.
b. agricultural subsidies.
