Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

Chapter 12 Government and the Labor Market: Employment, Expenditures, and Taxation
Multiple Choice Questions

1. Which of the following best describes the growth of public-sector employment since 1950? As a percentage of total employment: a. State and local employment have fallen, but federal employment has risen sufficiently to cause overall public-sector employment to rise b. Both federal and state and local employment have grown c. Public-sector employment has fallen, but the absolute level has grown D. Federal employment has fallen, but state and local employment have risen sufficiently to cause overall public-sector employment to rise

2. Since 1950, government employment has grown: a. More quickly at the federal level than the state and local level B. More quickly at the state and local level than the federal level c. As quickly at the federal level as the state and local level d. At the same rate as total U.S. employment

3. As a percent of total employment, government employment in the U.S. is currently about: a. 4% B. 16% c. 22% d. 34%

4. Which of the following best explains the growth of public-sector employment relative to the private sector since 1950? A. Labor supply has increased at the same pace in both sectors, but labor demand has increased more rapidly in the public sector b. Labor supply has increased at the same pace in both sectors, but labor demand has increased more rapidly in the private sector c. Labor demand has increased at the same pace in both sectors, but labor supply has increased more rapidly in the public sector d. Labor demand has increased at the same pace in both sectors, but labor supply has increased more rapidly in the private sector

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

5. A partial explanation of the change in public-sector employment since 1950 is that: a. The demand for public-sector goods is price elasticas their relative prices have fallen, more public goods have been demanded. b. The number or school-age children has declined which in turn has caused a marked decrease in the demand for public school teachers C. The demand for public-sector goods is income elasticas society's real income has grown, more public goods have been demanded d. The federal government has been running larger budget deficits

6. Which one of the following is not an explanation for the growth of public employment? a. Urban growth and sprawl increased the demand for state and local government services b. Income growth increased the demand for income elastic government services c. Population growth spurred demand for public school teachers D. The demise of many public-sector unions reduced public-sector wages

7. Among the countries listed below, relative public-sector employment is greatest in: a. Japan b. Canada c. Germany D. Denmark

8. In a 1977 study that controlled for union status, education, and other characteristics, Smith found that federal workers earned: A. More than comparable private-sector workers b. The same as comparable private-sector workers c. Less than comparable private-sector workers d. More than comparable private-sector workers, but this finding was reversed if fringe benefits were included

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

9. Research by Moulton and by Katz and Krueger found that: a. Public-sector wage differentials have increased in recent years B. Public-sector wage differentials have diminished in recent years c. Application rates for federal jobs were significantly less than for private-sector jobs d. Individual workers who moved from the private sector to the public sector experienced a wage gain of approximately 33 percent

10. In the public sector: A. Workers tend to receive more of their total compensation in the form of fringe benefits than their private-sector counterparts b. Workers tend to receive less of their total compensation in the form of fringe benefits than their private-sector counterparts c. Overall wage dispersion is much greater than in the private sector d. Quit rates are higher than in the private sector

11. Compared to their private-sector counterparts, government workers: A. Have greater labor turnover b. Have lower quit rates c. Have higher and more variable rates of unemployment d. Receive a smaller percentage of their compensation in the form of fringe benefits

12. Empirical studies of public-sector pay conclude that: a. Public-sector pay is comparable to private-sector pay, as required by law b. The occupational wage structure is less egalitarian than in the private sector c. The pay premium is greater for highly-skilled workers than for low-skilled workers D. The pay premium is greater for African Americans and females than for white males

13. In the U.S. volunteer army, a typical male enlistee's pay over his military career is comparable to the median wage of a full-time worker who: a. Is a high school dropout b. Is a high school graduate C. Has some college education d. Is a college graduate

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

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 wage: A. The true economic costs of a draft exceeds that of a voluntary system b. The true economic costs of a draft are less than that of a voluntary system c. The taxpayer costs of a draft exceed that of a voluntary system d. The true economic costs of a draft equal the taxpayer costs of a voluntary system

15. Compared to a conscripted military, an all-volunteer military: a. Is likely to substitute labor for capital B. Is likely to substitute capital for labor c. Has a lower nominal cost and a lower real cost d. Has a higher nominal cost and a higher real cost

Questions 16-19 refer to the following graph of the demand for and supply of armed forces personnel.

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

16. The height of the supply curve (S) measures: a. The cost to taxpayers of drafting a worker b. The value to the military of drafting a worker c. The difference between the cost to the taxpayer and the cost to the military of drafting a worker D. The opportunity cost of a potential draftee

17. 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: a. 0AFG b. 0BEH C. 0BCG d. 0BEFG

18. 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? a. Taxpayers pay 0BEH, enlistees receive ABEI b. Taxpayers pay 0BEH, enlistees pay ABEI c. Taxpayers pay 0AIH, enlistees pay ABEI D. Taxpayers pay 0BEH; enlistees receive an amount equal to their opportunity costs

19. 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)? A. The higher wages of a volunteer system induce a shift to greater relative use of capital and a reduction in scale. b. The higher wages of a volunteer system forces the military to employ more labor relative to capital, which reduces the productivity of labor. c. Because a volunteer system attracts only low-wage, low-skill workers, many highly technical jobs must be eliminated. d. The military uses the same number of workers under either system since the true cost is independent of the system used, but it must reduce the amount of capital it uses.

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

20. Which of the following is an example of an exhaustive government expenditure? A. Government payroll expenditures b. Government transfer payments c. Government subsidies d. U.S. government loans to foreign buyers of U.S. exports

21. Which of the following is an example of a non-exhaustive (transfer) government expenditure? a. Government payroll expenditures b. Government purchase of a weather satellite C. Farm price supports d. Public school construction

22. Consider the effects of a government transfer payment that falls as income rises (such as food stamps). Economic theory predicts that: a. Work effort falls because the substitution effect outweighs the income effect B. Both the income and substitution effects tend to reduce work effort c. Work effort rises because the substitution effect outweighs the income effect d. Work effort falls because the income and substitution effects offset each other

23. Which of the following best describes the impact of government transfers on human capital investment decisions? a. In-kind transfers reduce the incentive to invest in human capital, while cash transfers increase it B. Some transfers reduce the incentive to invest in human capital because higher wages are accompanied by loss of benefits; other transfers increase investment by reducing the cost of investing c. Transfers have a negative impact on short-run investment decisions but no impact on longrun investment decisions d. Transfers have no impact on human capital investment decisions

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

24. Suppose the federal government builds a new flood control project that takes thousands of acres of land out of agricultural production. Which of the following is most likely to occur as a result? a. The demand for fertilizer will rise, thereby increasing employment in that industry b. Wages and employment of workers who build farm equipment will rise c. The demand for farm workers will increase D. The wages of farm workers will decline

25. The public provision of a good that is a substitute for a private good will: A. Likely decrease labor demand in the private sector b. Likely increase labor demand in the private sector c. Necessarily reduce wage rates of government workers d. Necessarily reduce work effort

26. Independent of taxes raised to finance it, the provision of a public good most likely: A. Reduces labor supply because of the income effect b. Reduces labor supply because of the substitution effect c. Increases labor supply if the public good is a close substitute for goods consumers otherwise would have bought d. Has no impact on labor supply decisions

27. The provision of a public good that is complementary to leisure will: a. Necessarily decrease labor demand in the private sector b. Necessarily increase labor demand in the private sector c. Likely reduce wage rates of government workers D. Likely reduce work effort

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

Questions 28-29 refer to the following labor-leisure diagram. The worker's current budget line is given by line AB1 and she is working AD hours.

28. The provision of a public good is best modeled by the shift to budget line: a. AB3 and the subsequent increase in work hours to AC b. AB3 and the subsequent decrease in work hours to AE c. AFB2 and the subsequent increase in work hours to AC D. AFB2 and the subsequent decrease in work hours to AE

29. As illustrated, this public good is likely: A. Complementary with leisure b. Complementary with work c. Financed by a tax on payroll d. Financed by a tax on income

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

30. Ignoring the tax consequences of its provision, what might we conclude if people work more hours in response to the provision of a public good? a. The good is complementary with leisure B. The good is complementary with work c. The substitution effect exceeds the income effect d. The substitution effect and income effect cancel each other

Questions 31-32 refer to the following diagram.

31. Assuming that labor supply is S1, imposing an income tax on this market will: A. Raise the market wage rate but reduce the net (after-tax) wage rate b. Reduce the market rate and reduce the net (after-tax) wage rate c. Raise the market wage rate but have no impact on the net (after-tax) wage rate d. Have no impact on the market wage rate but reduce the net (after-tax) wage rate

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

32. Assuming that labor supply is S2, imposing an income tax on this market will: a. Raise the market wage rate but reduce the net (after-tax) wage rate b. Reduce the market wage rate and reduce the net (after-tax) wage rate c. Raise the market wage rate but have no impact on the net (after-tax) wage rate D. Have no impact on the market wage rate but reduce the net (after-tax) wage rate

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 _____. a. Not change, fall b. Not change, not change C. Fall, fall d. Fall, not change

34. For any given individual, an increase in the income tax rate will: a. Increase work effort b. Decrease work effort c. Decrease work effort if the income effect outweighs the substitution effect D. Increase work effort if the income effect outweighs the substitution effect

35. According to the theory of individual labor supply, a reduction in income tax rates leads to: a. A reduction in hours worked, provided the income and substitution effects work in opposing directions b. An increase in hours worked, provided the income and substitution effects work in opposing directions c. No change in hours worked, because the income and substitution effects cancel each other D. An unpredictable change in hours worked, depending on the relative strengths of the income and substitution effects

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

36. Suppose income tax rates are reduced. As a result, Smith works more hours per week while Jones works fewer hours per week. We can conclude that: a. Smith and Jones are in different tax brackets B. For Smith, the substitution effect exceeds the income effect; the opposite is true for Jones c. For Jones, the substitution effect exceeds the income effect; the opposite is true for Smith d. Jones conforms to the economic model of labor supply but Smith does not

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. Compared to his original work effort, Muhammad will now work: a. More hours because the substitution and income effects reinforce one another B. Fewer hours because the income effect of the public good exactly offsets the income effect of the tax, leaving only the substitution effect of the lower net wage c. More hours because the income effect of the public good exactly offsets the income effect of the tax, leaving only the substitution effect of the lower net wage d. Either more or fewer hours, depending on the relative strengths of the income and substitution effects

38. Most studies conclude that aggregate labor supply is very: a. Elastic, so that income taxes are borne mainly by workers B. Inelastic, so that income taxes are borne mainly by workers c. Elastic, so that income taxes are borne mainly by employers d. Inelastic, so that income taxes are borne mainly by employers

39. To pay for health care reforms, suppose a new payroll tax is levied on employers. The economic burden of the new tax will fall: a. On employers because the payroll tax is collected from them b. More on workers the more elastic is the labor supply curve C. More on workers the more inelastic is the labor supply curve d. Entirely on workers as long as the labor supply curve slopes upward

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

40. Suppose the payroll tax is increased. For any given labor demand, the greater the elasticity of labor supply: a. The greater the decline in both the net (after-tax) wage rate and employment b. The less the decline in both the net wage rate and employment c. The greater the decline in the net wage rate and the less the decline in employment D. The less the decline in the net wage rate and the greater the decline in employment

41. If labor supply is perfectly inelastic, the economic incidence of the payroll tax: a. Is the same as the statutory incidence of the tax? b. Is split equally between workers and consumers, because firms pass on their share in the form of higher prices c. Falls entirely on firms D. Falls entirely on workers

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 finding that: a. Many workers are self-employed and must pay the full amount of a payroll tax B. The aggregate supply of labor tends to be relatively inelastic c. The aggregate demand for labor tends to be relatively inelastic d. Employers have much stronger bargaining power than workers since only a tiny fraction of the labor force is unionized

43. (World of Work 12-1) Which functions currently accounts for the greatest percentage of state and local workers? a. General administration b. Police and fire protection c. Public welfare D. Education

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Chapter 12 - Government and the Labor Market: Employment, Expenditures, and Taxation

44. (World of Work 12-2) According to Freeman, public-sector unions: a. Have great bargaining power owing to the government's monopoly provision of services B. Are unique because of the political nature of public-sector collective bargaining c. Have little bargaining power because they cannot legally strike d. Have great bargaining power because governments face binding tax and budget constraints

45. (World of Work 12-3) The use of private military companies is controversial because: a. These workers are paid substantially less than in the regular military b. These workers face a substantially lower risk of injury or death compared to the regular military c. Their size, considering that these workers comprise over half the total military presence in Iraq D. There is little or no regulation regarding their training or conduct

46. (World of Work 12-4) According to research on the incidence of Social Security payroll taxes: a. Workers and firms bear the social security tax equally b. Workers bear a greater share of the social security tax burden than firms, because firms "collect" some of the taxes for customers in the form of higher output prices C. Workers bear a greater share of the social security tax burden than firms, because firms "collect" some of the taxes from workers in the form of reduced wages d. Firms bear a greater share of the social security tax burden than workers, because workers "collect" some of the tax proceeds from firms in the form of increased wages

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