1. A lump-sum tax:

a.distorts market prices so that they do not simultaneously equal MSB and MSC.

b.can result in price changes but does not prevent prices from simultaneously being equal to MSB and MSC.

c.results in substitution effects that change prices.

d.results in both substitution effects and income effects that change prices.

2.The elasticity of supply of land is zero. A tax on land results only in an income effect to landlords. Then it follows that a 10-percent tax on land rents will:

a.have a positive excess burden.

b.be shifted forward to tenants.

c.be paid entirely by landlords.

d.have zero excess burden.

e.both (c) and (d)

3.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.

4.Suppose an economy is comprised of only two markets: one for food and the other for housing. A tax on food used to finance transfer payments is likely to:

a.decrease the price of food.

b.increase the price of housing.

c.decrease the price of housing.

d.have no effect on either the price of food or housing.

5.Most studies show that the price elasticity of demand for gasoline is -0.2. If the price elasticity of supply is 2, then a tax on gasoline will:

a.have no effect on the market equilibrium price of gasoline.

b.cause the market equilibrium price of gasoline to fall.

c.cause the market equilibrium price paid by buyers to rise.

d.cause the net price received by sellers to fall.

e.both (c) and (d)

6.The demand for medical care is very inelastic. If a 10-percent tax is levied on the sale of medical services and is collected from medical-care providers, then:

a.the incidence of the tax is likely to be borne entirely by medical-care providers.

b.most of the tax is likely to be shifted to those who purchase medical care.

c.the market equilibrium price of medical care will fall.

d.the excess burden of the tax is likely to be very high.

7.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.

8.If a per unit tax is imposed, but the quantity supplied and demanded does not change then:

a.the demand is perfectly inelastic.

b.the supply is perfectly inelastic.

c.there is no deadweight loss.

d.All of the above.

9.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.

10.As a result of government borrowing to cover deficits, citizens increase the supply of savings to provide themselves with funds to pay anticipated increases in future taxes. Then it follows that increased government borrowing will:

a.reduce private investment.

b.increase private investment.

c.have no effect of private investment.

d.increase interest rates.

e.both (a) and (d)

11.Government borrowing will:

a.postpone taxation to the future.

b.increase government interest cost.

c.both (a) and (b)

d.eliminate taxes.

12.Which of the following can contribute to a decrease in national saving?

a.a federal budget deficit

b.an increase in the state and local government aggregate surplus

c.a federal budget surplus

d.an increase in personal saving

13.General obligation bonds of state and local governments are:

a.backed by revenue from public facilities such as sports stadiums.

b.backed by the taxing power of state and local governments.

c.usually used to finance transfer payments.

d.usually used to finance capital expenditures.

e.both (b) and (d)

14.High-employment deficit or surplus is:

a.an extreme economic situation requiring emergency measures.

b.the amount of deficit or surplus available assuming current employment levels.

c.the amount of deficit or surplus available when employment is at its approximately full capacity.

d.the amount of deficit or surplus available when unemployment is at a relatively high level.

15.A government's internal debt is:

a.debt owed to other government agencies.

b.debt owed to other governments.

c.debt owed to its citizens.

d.both (a) and (c).