Chapter 5

1. The functional distribution for the United States shows that the largest part of the personal income is
A.wages and salaries
B.proprietors' income
C.corporate profits
D.interest and rents



2. The part of after-tax income which is not consumed is defined as
A.saving
B.capital investment
C.wages and salaries
D.nondurable goods expenditure



3. If personal consumption expenditures were 80% of income and personal taxes were 8% of income, then personal savings would be
A.8% of income
B.10% of income
C.12% of income
D.88% of income



4. Which is a true statement?
A.The durable goods and services parts of personal consumption expenditures vary more over time than do the expenditures for nondurables.
B.Expenditures for nondurables vary more than do the expenditures for durable goods and services.
C.Expenditures for nondurables vary more than the expenditures for services and less than the expenditures for durables.
D.Expenditures for nondurables vary more than the expenditures for durables and less than the expenditures for services.



5. A group of three plants which is owned and operated by a single firm and which consists of a farm growing wheat, a flour-milling plant, and a plant which bakes and sells bakery products is an example of
A.a horizontal combination
B.a vertical combination
C.a conglomerate combination
D.a corporation



6. Limited liability is associated with
A.only proprietorships
B.only partnerships
C.both proprietorships and partnerships
D.only corporations


7. Which form of business organization can most effectively raise money capital?
A.corporation
B.partnership
C.proprietorship
D.vertical combination


8. The separation of ownership and control in a corporation may create
A.a free-rider problem
B.a principal-agent problem
C.a horizontal combination
D.limited liability



9. One major means that government uses to deal with monopoly is to
A.increase the demand for its product
B.decrease the supply of its product
C.stabilize incomes
D.regulate the firm



10. Government uses all the following ways to redistribute income, except
A.transfer payments
B.market intervention
C.limited liability
D.taxation



11. To redistribute income from high-income to low-income households, government might
A.increase transfer payments to high-income and decrease transfer payments to low-income households
B.increase the taxes paid by high-income and increase the transfer payments to low-income households
C.increase the taxes paid by low-income and decrease the taxes paid by high-income households
D.decrease the taxes paid by high-income and decrease the transfer payments to low-income households



12. Which is the best example of a good or service providing the economy with a spillover cost?
A.a textbook
B.an automobile
C.a business suit
D.an audit of a business firm's books



13. Which economic situation would result in overallocation of resources to the production of a good?
A.spillover benefits
B.spillover costs
C.a free-rider program
D.inflation


14. How does government correct for spillover benefits?
A.by taxing consumers
B.by taxing producers
C.by subsidizing producers
D.by separating ownership from control



15. Which is characteristic of public goods?
A.they are indivisible
B.they are sold in competitive markets
C.they are subject to the exclusion principle
D.they can be produced only if large spillover costs are incurred



16. There is a free-rider problem when people
A.are willing to pay for what they want
B.are not willing to pay for what they want
C.benefit from a good without paying for its cost
D.want to buy more than is available for purchase in the market



17. Quasipublic goods are goods and services
A.to which the exclusion principle could not be applied
B.which have large spillover benefits
C.which would not be produced by private producers through the market system
D.which are indivisible



18. In the circular flow model, government provides goods and services and receives net taxes from
A.colleges and universities
B.businesses and households
C.resource and product markets
D.foreign nations and corporations



19. Which accounts for the largest percentage of all Federal expenditures?
A.income security
B.national defense
C.interest on the public debt
D.veterans' services



20. Which is the largest source of the tax revenues of the Federal government?
A.sales and excise taxes
B.property taxes
C.payroll taxes
D.personal income taxes



21. A tax that would most likely alter consumer expenditures on a product would be
A.an excise tax
B.a general sales tax
C.a personal income tax
D.a corporate income tax


22. Which pair represents the chief source of income and the most important type of expenditure of state governments?
A.personal income tax and expenditures for education
B.personal income tax and expenditures for highways
C.sales and excise taxes and expenditures for highways
D.sales and excise taxes and expenditures for public welfare


23. Which pair represents the chief source of income and the most important type of expenditure of local governments?
A.property tax and expenditures for highways
B.property tax and expenditures for education
C.sales and excise taxes and expenditures for public welfare
D.sales and excise taxes and expenditures for police, fire, and general government


24.
R-1 ref05024

The marginal tax rate at the $70,000 level of taxable income is
A.16.6
B.21.4
C.25.0
D.28.0



25.
R-1 ref05024

The average tax rate at the $150,000 level of taxable income is
A.21.4
B.28.0
C.31.5
D.33.8




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