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Table of Contents

  1. Chapter Fourteen: The Role of Government

Chapter Fourteen: The Role of Government

1
Question 1

Which of the following is not an indirect tax?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is a) Income taxYour answer has been saved.
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2
Question 2

Which of the following is not a direct tax?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) Value added taxYour answer has been saved.
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3
Question 3

Which of the following is not true?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is b) A regressive tax system takes a greater proportion of the income of those with larger incomes.Your answer has been saved.
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4
Question 4

Which of the following are not 'exhaustive' government spending components?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) Unemployment benefitsYour answer has been saved.
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5
Question 5

Which of the following is not a component of government transfers?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) Teachers' salariesYour answer has been saved.
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6
Question 6

Merit goods are:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is b) Goods that governments deem to be especially important so that consumption of these goods should be encouraged in some way.Your answer has been saved.
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7
Question 7

What is the difference between horizontal equity and vertical equity? What policies can the government adopt to promote greater equity in society?

Hint: re-read the section 'Policies for equity' pp302-04.Hint

8
Question 8

To what extent do policies that seek to reduce vertical and horizontal inequality in society contradict policies to promote efficient resource allocation?

Hint: re-read the section 'Equity versus efficiency' p304.Hint

9
Question 9

What is the difference between the following:

(a) a direct tax and an indirect tax;
(b) an excise tax and a sales tax;
(c) an ad valorem tax and a specific tax;
(d) a regressive tax and a progressive tax.

Hint: re-read the section 'Taxation' pp305-08. You may wish to think of examples of each type of tax. You may find that the same example applies to more than one category of taxation listed in (a) to (d) above.Hint

10
Question 10

Do you think that the re-distribution from rich to poor outlined in Figure 14.4 (p309) is good for the economy?

Hint: you may wish to consider the interface between 'fairness' and 'incentive' in constructing your response.Hint

11
Question 11

In the course of conversation someone says 'I have no dependants. I therefore see no reason why my taxes should be used to subsidise the education of other peoples' children'. Explain why you agree or disagree with this statement.

Hint: re-read the section 'Education' pp311-12.Hint

12
Question 12

In what ways can government intervention to reduce the effects of negative externalities actually cause new externality effects?

Hint: re-read the section 'Direct external costs and indirect external costs' p316.Hint

13
Question 13

Using the framework outlined in Figure 14.7 (p317), show how you could depict the potential impact of a government also choosing to impose an upper-limit on the number of hours that a person can legally work (assume no change to the wage rate).

Hint: To make a start on the question, you may wish to think about whether the person will perceive the restriction as a good thing or not. For example, what if the individual's utility is maximised working 10 hours per day, yet s/he is restricted to working only 8 hours per day. You may also want to consider the potential implications of such a policy from the point of view of individual workers, firms and the economy as a whole.Hint

14
Question 14

What is meant by the term 'government failure'?

Hint: re-read the section 'Government failure' pp319-23.Hint