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Test Bank For Public Finance A Contemporary Application of Theory To Policy 10 Edition David N Hyman
Test Bank For Public Finance A Contemporary Application of Theory To Policy 10 Edition David N Hyman
This instructor’s manual has been designed to complement classroom use of Public Finance: A Contem-
porary Application of Theory to Policy, tenth edition. The manual concisely states the instructional
objectives of each chapter and provides an outline of each chapter. The major points are summarized,
and suggestions for lectures are provided. I have tried to point out areas of possible confusion for stu-
dents, based on my own teaching experience. My goal has been to give instructors who do not have time
to read all the material in the text a capsule discussion of important topics and their reason for inclusion
in each chapter. Each chapter of this instructor’s manual has a brief section that describes the chapter
revisions that were made since the ninth edition of the text.
This instructor’s manual also includes a test bank to be used as an aid when making up examina-
tions. I have tried to include questions that require students to use theory to arrive at an answer. Supplied
in this manual are true/false questions, multiple choice questions, and essay questions for each chapter.
Answers to the problems that appear at the end of each chapter in the text are also included.
Public Finance: A Contemporary Application of Theory to Policy has been designed as a teaching
tool that integrates theory and policy. I hope that this manual makes it easier for instructors to assist their
students in mastering the theory and in understanding the relevance of the factual material provided in
the text.
Thanks to Kevin Balsam and Tom Arnold for their assistance in authoring this manual.
David N. Hyman
January 2010
ii
C H A PT E R 1
INSTRUCTIONAL OBJECTIVES
Chapter 1 is a general introduction to the field of public finance, emphasizing the relationship between
individuals and government. The functions of government are outlined, and the importance of taxes in
household budgets is highlighted. The chapter seeks to develop an understanding of the economic role of
government as a supplier of useful goods and services. Students are also expected to digest data on the
actual extent of government activity in the United States and other nations. They should know the current
structure of government expenditures and revenues in the United States, how government has grown
since 1920, and how the structure of federal government spending has changed since 1960.
In addition, the chapter seeks to demonstrate that the problem of scarcity implies that an increase in
resources devoted to government goods and services decreases availability of resources for nongovern-
ment uses. It is also made clear to students how government provision of goods and services differs from
market provision of goods and services.
1
2 | Part One | The Economic Basis of Government Activity
CHAPTER OUTLINE
Individuals, Society, and Government
Governments and Political Institutions
International View: How Much Government? The Share of Government Expenditure in Modern
Economies
Public Policy Perspective: The State of State Government Finances 2009-2010: Impact of a
Recession
Market Failure and the Functions of Government: How Much Government is Enough?
Aging Populations: Implications for Public Finance
2. The tradeoff between government goods and services, and private goods and services is illustrated
with the production possibility curve. Figure 1.1 is familiar to most students, and its application to
analysis of government goods and services usually captures their attention. It helps to use the graph
in class to discuss reallocation of resources from military to nonmilitary uses. Another interesting
use of the graph is to show how increased environmental quality improvement services supplied by
government will require the sacrifice of material goods and services, as the prices of such products
as fuel, electricity, and automobiles rise.
3. Emphasize that government goods and services are usually made available through nonprice
rationing:
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we shall reach the Pole. We don’t need any more to get there, but if
necessary we can spend fourteen days on the homeward trip.”
These words we repeat to each other over and over again, and
comfort ourselves with the knowledge of the excellence of the
machines and their crews, and the recollection that they warned us
that in bad weather they might only return after an absence of
fourteen days. Yet it seems strange that they should be so long away
when, so far as we can judge, the weather has been favorable.
When Amundsen made his rush to the South Pole he could only stay
to make observations for three days, as he had to trek back again
and food allowance was limited. In this case, however, he can return
to his base in eight, ten, or twelve hours so why should he jeopardize
the benefit to the world’s scientific knowledge by leaving his point of
observation before necessity demanded? If they have found land up
there, they will wish to make maps—to photograph it—to measure it
—a week will soon go by. But—but—but—this little word comes up
every time we try to find a reason for the delay—and yet it is absurd
to give up hope so soon.
This evening a council of war has been held on board the
“Fram.” An announcement has arrived from the Norwegian
Luftseiladsforeningen that they are planning a reconnoitering
expedition. Two naval hydroplanes are to be sent north to help in the
patroling of the ice borders. Captain Hagerup, First Lieutenant
Horgen, Shipper Johansen, and First Mate Astrup Holm are to send
word at once if such machines will be of any use. To give an answer
of this kind is difficult, for the ice this year lies with a broad belt of
drifting ice screwing in shoals in front of the solid ice border. Thus
the hydroplanes could not negotiate this obstacle to any great
distance. Should they themselves have to make a forced landing any
distance from the open sea, both they and their crews would be lost.
On the other hand, they would be able to fly over the entire area of
the fairway north of Spitzbergen in a few hours, a distance which it
would take several days for ships to cruise over, and thus they would
make the patroling much more effective. Our answer was based on
this latter consideration.
To-day it is eight days since they started, and we enter a new
phase in our waiting time. Until to-day none of us have gone far
away from the ships. The American journalist, James B. Wharton,
who is with us, the film photographer, Paul Berge, and I had not set
our feet out of the ship. We have always waited in the expectation of
seeing the machines at any moment appear from behind
Amsterdamöen. We have lain fully clad on our mattresses, ready to
set the wireless working broadcasting the news. Berge’s film camera
has stood on its three legs on the bridge ready to turn out hundreds
of yards of film. We have always kept a boat ready at “Fram’s” side
so that we could row across to the flying machines the moment they
landed, and every night before we went to rest we instructed the
watchman on deck that he must waken us the first moment he heard
anything. But this evening as the telegraph station from the coast
asked if they should keep open all night with extra supervision, I had
answered that it was no longer necessary. As these words were
broadcast from the little wireless compartment, it seemed as though
we had sent a telegram to a waiting world that showed them that
even we had begun to doubt. The same doubt is felt now by almost
every one on the two boats. The possibility of seeing them come
flying back is gradually diminishing. We still believe, but to-morrow
our confidence will be less. We feel that on the 9th day from the start
we shall give up hope. To-day it is decided that to-morrow “Fram”
shall go down to Ny-Aalesund, partly for coaling reasons, partly to
take away those members of the expedition who wish to take
advantage of the opportunity to go down to Advent Bay, whence a
coal steamer can carry them to Norway. When we shall see our
comrades carried southwards while we are left behind, we shall
enter into an anxious period of waiting which will seem unending.