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

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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