Test Bank for Public Finance and Public Policy, 7e Jonathan

Test Bank for Public Finance and Public Policy, 7e Jonathan Gruber (All Chapters Download link at the end of this file)

Chapter 1

• An early response to the Covid-19 pandemic was the $2.2 trillion CARES Act signed into law that included:
• funding for broadband infrastructure, renter's assistance, and food security for low-income

households only.

• a mandate for individuals who could not afford health insurance to purchase it or pay a penalty.
• direct payments to American households, unemployment benefits, and payroll protection for small

businesses.

• a bailout plan to U.S. automakers to address impending cash shortage, the risk of bankruptcy, and

massive job losses.

ANSWER: c

2. The goal of public finance is to:

• understand the proper role of corporations in the economy.
• understand the proper role of the government in the economy.
• determine the best way to increase government's role in the economy.
• determine the best way to decrease government's role in the economy.

ANSWER: b

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

ANSWER: a

4. Government intervenes in a market economy to:

• create externalities.
• prevent competition.
• enhance economic efficiency.
• achieve perfect income equality.

ANSWER: c

• 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:

• it is efficient for the shop to sell a slice of pizza to Juan for $1.50.
• it is efficient for the shop to sell a slice of pizza to Juan for $2.00.
• the shop needs to produce more efficiently in order to lower the price.
• it is not efficient for the shop to sell a slice of pizza to Juan.

ANSWER: d

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• 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:

• greater than or equal to $1.50.
• greater than or equal to $1.00 and less than or equal to $1.50.
• less than or equal to $1.00.
• less than or equal to $1.00 and greater than or equal to $1.50.

ANSWER: b

• 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 price of $0
• any price greater than $0 and less than $30
• any price greater than or equal to $30 and less than or equal to $50
• any price greater than $50

ANSWER: c

• 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:

• it is efficient for the seller to charge a price of $0.
• it is efficient for the seller to charge any price greater than $0 and less than $150.
• it is efficient for the seller to charge any price greater than or equal to $150 and less than or equal to

$200.

• it is not efficient for a transaction to take place.

ANSWER: d

• Suppose someone argues 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?

• increasing equality in the economy
• promoting social justice
• improving efficiency
• preventing competition

ANSWER: c

• 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:

• redistribution.
• increasing market efficiency.
• correcting a market failure.
• achieving competitive equilibrium.

ANSWER: a

• If the competitive equilibrium does not lead to the efficiency-maximizing outcome, then government

intervention:

• will increase efficiency.
• will reduce efficiency.
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