Chapter 12 Test Bank KEY
1. Which of the following best describes the growth of public sector employment since 1950? As a
percentage of total employment,
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
D. at the same rate as total U.S. employment. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
D. 34%. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
4. Which of the following best explains the growth of public sector employment relative to the private
sector since 1950?
B. Labor supply has increased at the same pace in both sectors, but labor demand has increased more
rapidly in the private sector. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
5. A partial explanation of the change in public sector employment since 1950 is that
D. the federal government has been running larger budget deficits. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
7. Among the countries listed below, relative public sector employment is greatest in
D. Denmark. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
8. In a 1977 study that controlled for union status, education, and other characteristics, Smith found that
federal workers earned
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
9. Research by Moulton and by Gittleman and Pierce found that
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
10. In the public sector,
D. quit rates are higher than in the private sector. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
11. Compared to their private sector counterparts, government workers
D. receive a smaller percentage of their compensation in the form of fringe benefits. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
12. Empirical studies of public sector pay conclude that
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
13. In the U.S. volunteer army, a typical male enlistee’s pay over his military career is comparable to the
D. is a college graduate. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-02 Discuss the differences between the effects of an all-volunteer military versus a conscription military.
Topic: The Military Sector: The Draft Versus the Voluntary Army
14. Because a lottery draft selects individuals with opportunity costs randomly drawn from the general
population, while an all-volunteer military enlists only those with opportunity costs less than the military
D. the true economic costs of a draft equal the taxpayer costs of a voluntary system. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-02 Discuss the differences between the effects of an all-volunteer military versus a conscription military.
Topic: The Military Sector: The Draft Versus the Voluntary Army
D. has a higher nominal cost and a higher real cost. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-02 Discuss the differences between the effects of an all-volunteer military versus a conscription military.
Topic: The Military Sector: The Draft Versus the Voluntary Army
16. Refer to the following graph of the demand for and supply of armed forces personnel.
The height of the supply curve (S) measures
D. the opportunity cost of a potential draftee. AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-02 Discuss the differences between the effects of an all-volunteer military versus a conscription military.
Topic: The Military Sector: The Draft Versus the Voluntary Army
17. Refer to the following graph of the demand for and supply of armed forces personnel.
Suppose the government’s demand for military personnel is Dd and that it wishes to draft G persons at a
wage of $A. The full cost to society of this proposal is area
D. 0BEFG. AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-02 Discuss the differences between the effects of an all-volunteer military versus a conscription military.
Topic: The Military Sector: The Draft Versus the Voluntary Army
18. Refer to the following graph of the demand for and supply of armed forces personnel.
Suppose the government uses a voluntary system. Its demand for labor is Dv and it wishes to attract H
workers at a wage of $B. Which of the following best describes the distribution of costs that will result?
D. Taxpayers pay 0BEH; enlistees receive an amount equal to their opportunity costs. AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-02 Discuss the differences between the effects of an all-volunteer military versus a conscription military.
Topic: The Military Sector: The Draft Versus the Voluntary Army
19. Refer to the following graph of the demand for and supply of armed forces personnel.
Which of the following best explains why the government demands fewer persons for the armed forces
under the volunteer system than under a draft system (that is, H as compared to G)?
the system used, but it must reduce the amount of capital it uses. AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-02 Discuss the differences between the effects of an all-volunteer military versus a conscription military.
Topic: The Military Sector: The Draft Versus the Voluntary Army
D. U.S. government loans to foreign buyers of U.S. exports AACSB: Reflective Thinking
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-03 Explain the effects on labor supply and demand of the government’s nonpayroll spending.
Topic: Nonpayroll Spending by Government: Impact on Labor
D. public school construction AACSB: Reflective Thinking
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-03 Explain the effects on labor supply and demand of the government’s nonpayroll spending.
Topic: Nonpayroll Spending by Government: Impact on Labor
22. Consider the effects of a government transfer payment that falls as income rises (such as food
D. work effort falls because the income and substitution effects offset each other. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-03 Explain the effects on labor supply and demand of the government’s nonpayroll spending.
Topic: Nonpayroll Spending by Government: Impact on Labor
23. Which of the following best describes the impact of government transfers on human capital
D. Transfers have no impact on human capital investment decisions. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-03 Explain the effects on labor supply and demand of the government’s nonpayroll spending.
Topic: Nonpayroll Spending by Government: Impact on Labor
24. Suppose the federal government builds a new flood control project that takes thousands of acres of
D. The wages of farm workers will decline. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-03 Explain the effects on labor supply and demand of the government’s nonpayroll spending.
Topic: Nonpayroll Spending by Government: Impact on Labor
D. necessarily reduce work effort. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-04 Discuss the effects on labor supply and demand of publicly provided goods and services.
Topic: Labor Market Effects of Publicly Provided Goods and Services
D. has no impact on labor supply decisions. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-04 Discuss the effects on labor supply and demand of publicly provided goods and services.
Topic: Labor Market Effects of Publicly Provided Goods and Services
D. likely reduce work effort. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-04 Discuss the effects on labor supply and demand of publicly provided goods and services.
Topic: Labor Market Effects of Publicly Provided Goods and Services
28. Refer to the following labor-leisure diagram. The worker’s current budget line is given by line AB1,
and she is working AD hours.
The provision of a public good is best modeled by the shift to budget line
D. AFB2 and the subsequent decrease in work hours to AE. AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-04 Discuss the effects on labor supply and demand of publicly provided goods and services.
Topic: Labor Market Effects of Publicly Provided Goods and Services
29. Refer to the following labor-leisure diagram. The worker’s current budget line is given by line AB1,
and she is working AD hours. As illustrated, this public good is likely
D. financed by a tax on income. AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-04 Discuss the effects on labor supply and demand of publicly provided goods and services.
Topic: Labor Market Effects of Publicly Provided Goods and Services
30. Ignoring the tax consequences of its provision, what might we conclude if people work more hours in
D. The substitution effect and income effect cancel each other. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-04 Discuss the effects on labor supply and demand of publicly provided goods and services.
Topic: Labor Market Effects of Publicly Provided Goods and Services
31. Refer to the following diagram.
Assuming that labor supply is S1, imposing an income tax on this market will
D. have no impact on the market wage rate but reduce the net (after-tax) wage rate. AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
32. Refer to the following diagram.
Assuming that labor supply is S2, imposing an income tax on this market will
D. have no impact on the market wage rate but reduce the net (after-tax) wage rate. AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
33. Suppose the aggregate labor supply curve slopes upward and the income tax rate is increased.
Economic theory predicts that the employment of labor will _____ and the after-tax "take-home" wage
will _____.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
D. increase work effort if the income effect outweighs the substitution effect. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
substitution effects. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
36. Suppose income tax rates are reduced. As a result, Smith works more hours per week while Jones
D. Jones conforms to the economic model of labor supply but Smith does not. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
37. Suppose a tax is levied on Muhammad which reduces his real income. The money collected is used to
provide a public good which restores his utility to exactly the same level it had been prior to the tax.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
D. inelastic, so that income taxes are borne mainly by employers. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
39. To pay for health care reforms, suppose a new payroll tax is levied on employers. The economic
D. entirely on workers as long as the labor supply curve slopes upward. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
40. Suppose the payroll tax is increased. For any given labor demand, the greater the elasticity of labor
D. the less the decline in the net wage rate and the greater the decline in employment. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
D. falls entirely on workers. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
42. According to empirical evidence, most of the burden of the payroll tax appears to fall on workers,
even though about half is supposedly "paid" by their employers. This observation is attributed to the
force is unionized. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
D. education AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-01 Compare and contrast public sector compensation and employment growth with that of the private sector.
Topic: Public Sector Employment and Wages
C. workers bear a greater share of the Social Security tax burden than firms, because firms "collect" some
some of the tax proceeds from firms in the form of increased wages. AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-05 Explain the impact of income taxes on wages and employment for individuals and overall.
Topic: Income Taxation and the Labor Market
Chapter 12 Test Bank Summary
Category
# of Questi
ons
AACSB: Analytic
7
AACSB: Reflective Thinking
37
Accessibility: Keyboard Navigation
36
Blooms: Apply
7
Blooms: Remember
29
Blooms: Understand
8
Difficulty: 1 Easy
29
Difficulty: 2 Medium
8
Difficulty: 3 Hard
7
Learning Objective: 12-
01 Compare and contrast public sector compensation and employment growth with that
of the private sector.
13
Topic: The Military Sector: The Draft Versus the Voluntary Army
7