The Changing Role of the Federal Government

The Changing Role of the Federal Government

Chapter 26
The Changing Role of the Federal Government

General Questions

  1. Transfer payments include

a.government spending on tanks and planes.

b.government spending on national forests and parks.

c.the salaries of senators and federal judges.

d.welfare benefits and Social Security payments.

2.Between 1940 and 1990, total government spending as a percentage of GDP doubled. The primary source of this growth in spending was increases in

a.military expenditures.

b.government purchases of goods and services.

c.transfer payments.

d.the number of federal employees relative to the total labor force.

3.During the three decades immediately following World War II,

a.conservative forces successfully blocked any expansion of New Deal-type programs.

b.the prevailing liberal ideology led to the passage of legislation that increased Social Security benefits, created Medicare, and increased the minimum wage.

c.disillusionment with government led to deregulation of airlines and other industries.

d.most policy makers and the general public rejected Keynesian policies.

4.President Johnson’s “Great Society” initiative led to the creation of


b.a rent subsidy program for the poor.

c.the Department of Transportation.

d.the Department of Housing and Urban Development.

e.all of the above.

5.Between 1965 and 1972, eight major pieces of consumer-protection legislation were enacted. This burst of legislative activity was largely driven by

a.increased public fears following the thalidomide tragedy.

b.public outcry following a series of steamboat explosions.

c.a general lack of faith in the market.

d.widespread support for the “Reagan Revolution.”

6.Features of “Reagonomics” include all of the following except

a.reduction in marginal tax rates.

b.increased government expenditures for defense.

c.deregulation of business.

d.regular increases in the minimum wage.

7.“Reducing taxes increases incentives to work and save.” This view is typically associated with

a.Keynesian economics.


c.Johnson’s “Great Society” policies.

d.the Carter administration.

8.A key innovation of the Carter administration (1976-1980) was

a.dramatic expansion of Social Security and Medicare programs.

b.large tax cuts, especially for the wealthy.

c.deregulation of airlines, trucking, railroads, and the financial services industry.

d.government control of gasoline and food prices.

9.Alfred Kahn’s plan for airline deregulation emphasized

a.marginal cost pricing of tickets.

b.average cost pricing of tickets.

c.federal subsidies for certain airlines.

d.increased federal taxes on airline profits.

10.According to Arthur Schlesinger, Jr., government spending

a.may grow more slowly during conservative periods, but will never contract.

b.follows a natural cycle of increases during liberal periods and decreases during conservative periods.

c.grows at the same rate under both liberal and conservative leadership; only the distribution (defense v. civilian) of the spending changes.

d.reflects attempts by political leaders to reject the dominant political ideology of their youth.

11.According to ______, liberal programs survive attempts by conservative administrations to eliminate them because of the “tyranny of the status quo.”

a.Arthur Schlesinger, Jr.

b.Wagner’s Law

c.Milton and Rose Friedman

c.Robert Higgs

12.Adolph Wagner wrote that the public sector would continuously and inevitably expand due to

a.bureaucratic self-interest.

b.the “tyranny of the status quo.”

c.labor’s increasing demand for social justice.

d.increasing demand for military protection from international threats.

Economic Insights

1.According to William Niskanen’s model of bureaucracy, Congress tends to approve a bureau’s budget at a level where the marginal

a.value of the last unit of the bureau’s output is greater than the marginal cost.

b.cost of the last unit of the bureau’s output is greater than the marginal value.

c.value of the last unit of the bureau’s output equals the marginal cost.

d.cost of the last unit of the bureau’s output is zero.

2.According to William Niskanen’s model of bureaucracy, bureaus tend to be overfunded because is difficult for Congress to determine the shape of a bureau’s supply curve. is difficult for Congress to determine the shape of a bureau’s demand curve.

c.Congressional leaders believe that deficit spending leads to economic growth.

d.Congressional leaders believe that government employees are underpaid.

Economic Analysis

  1. In the 1960s and 1970s the United States passed several major consumer safety laws, including the Flammable Fabrics Act and the Child Protection Act. The economic impact of such legislation may include all of the following except

a.reducing the price of the regulated product.

b.increasing the cost of producing the regulated product.

c.reducing the supply of the regulated product.

d.reducing competition within the regulated industry.

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