5.5.2Test (CST)- The Government Gets Involved

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Why is taxation necessary?

To provide money for government programs

Why does the government need to collect taxes?

To ensure competition and protect consumers

The government must force people to pay taxes so that it can do what?

Make and enforce the laws necessary to make the free-market system work properly

What does a progressive taxation system do?

It increases the tax rate as income rises.

What is a regressive tax?

A tax that charges more to those with lower incomes

What is the justification of the progressive taxation method?

The idea that taxation should be based on the ability-to-pay principle

The World Trade Organization was formed in order to accomplish what?

Promote free trade

A trade agreement that creates favorable trade terms between two nations
establishes which of the following?

Normal Trade Relations

Tariffs differ from taxes because tariffs are what?

Collected on imported goods

Taxes differ from tariffs because taxes are what?

. Collected on domestic economic activity

Which of the following is true about tariffs?

They are paid on international trade only.

Politicians approve pork barrel spending for what purpose?

. To win political support

Which of these has been a trend in the 20th century?

Growing levels of government spending

How can recent government spending be best described?

Constantly increasing

Government corporations can be described as which of the following?

Independently run Private sector companies

Government agencies are which of the following?

Part of the public sector

Which merit good does the U.S. government provide through a payroll tax?

Health care Retirement benefits

Why does the free-market system require government regulation?

Producers are driven by the profit motive to work against competition.

What does predatory pricing involve?

A large company charging below its production cost in order to eliminate competition

What does price fixing involve?

A group of companies agreeing on a particular price to charge for their products

What does production limitation involve?

A cartel setting a maximum output for the good that all members sell

Consumer-protection regulations are beneficial because they lead to what?

A decrease in injuries and death

Why do government regulations lead to higher prices for consumers?

the costs of compliance are passed on to the consumer. . Producers pass along the costs of compliance.

What does complying with consumer-protection regulations do?

. Increases production costs and raises prices

Consumer-protection regulations do not involve what?

Government censorship

What is one thing the government must do to enforce consumer-protection

. Test new products for safety and effectiveness

What does the enforcement of antitrust laws do?

. Speeds up the flow of capital and wages

What does increasing consumer confidence do?

Increases purchases from producers

What speeds up the flow of investment and wages in the circular flow of the
free-market system?

Antitrust laws

Which of these is an example of a labor law?

A minimum-wage requirement

Which of these is an example of a land-use law?

. A residential zoning ordinance

Which of these is an example of a trade restriction?

A tariff on imported cars

The government might enact a price ceiling in order to accomplish what?

. Protect the poor

The government might enact a price floor in order to accomplish what?

Protect producers

The government can prevent the shortages that accompany price ceilings by
doing what?


What do banking regulations prohibit?

Money laundering

What do capital controls prevent?

Hasty movements of money into and out of a country’s economic system

Parental freedom is limited by laws requiring what?

Compulsory education

Censorship is a government-imposed limit on which of the following?

Individuals’ freedom of expression

Environmental-protection laws limit what?

The exploitation of natural resources

Environmental-protection laws are good for the economy because they do

Safeguard resources needed for future production

The passage of environmental-protection laws results in what?

Higher prices

Environmental-protection laws can be bad for the economy because they may
do what?

Increase unemployment

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