Policy Evaluation
Final Test Solutions
Course Introduction
Policy Evaluation explores the systematic methods and tools used to assess the effectiveness, efficiency, and equity of public policies and programs. Students will learn how to design and implement evaluation frameworks, apply qualitative and quantitative analysis techniques, and interpret empirical evidence to determine policy outcomes. The course covers the principles of evaluation research, the stages of the policy cycle, ethical considerations, and common challenges in evaluating public interventions. Through case studies and practical exercises, students will develop the skills necessary to critically analyze policies, formulate evidence-based recommendations, and communicate findings to stakeholders in governmental and non-governmental settings.
Recommended Textbook
Public Finance and Public Policy 5th Edition by Jonathan Gruber
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1045 Verified Questions
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Chapter 1: Why Study Public Finance
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Sample Questions
Q1) The government has passed many school accountability measures that reward schools if their students score highly on standardized tests.Suppose schools respond by manipulating the set of test-takers to increase average scores.This outcome is an example of a(n):
A) intended effect.
B) direct effect.
C) indirect effect.
D) desired outcome.
Answer: C
Q2) The accumulation of past deficits over time is measured by the:
A) cash flow deficit.
B) cash flow surplus.
C) debt.
D) budget.
Answer: C
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Chapter 2: Theoretical Tools of Public Finance
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Q1) Suppose that you buy a lot of music and that the prices of CDs go up.The income effect means that you buy __________ CDs because ___________.
A) fewer; your nominal income has been reduced
B) fewer; your real income has been reduced
C) fewer; you now enjoy music less
D) fewer; CDs are less expensive relative to other goods
Answer: B
Q2) Consider three bundles: Bundle A: 2 DVDs and 3 CDs
Bundle B: 3 DVDs and 1 CD
Bundle C: 1 DVD and 3 CDs
Which of the following violates the assumption of nonsatiated preferences?
A) Bart prefers Bundle C to B and Bundle A to C.
B) Mona prefers Bundle C to B and is indifferent between Bundles A and B.
C) Don prefers Bundle A to C and is indifferent between Bundles B and C.
D) Patty prefers Bundle A to C and Bundle B to C
Answer: B
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Chapter 3: Empirical Tools of Public Finance
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Q1) Which of the following is a potential problem with randomized trials?
A) The treatment and control groups tend to be very different.
B) Randomized trials can raise ethical concerns.
C) Randomized trials lead to biased estimates.
D) Randomized trials cannot be used to answer specific questions.
Answer: B
Q2) Which of the following is NOT true?
A) Randomized trials use observational data.
B) Time series analysis uses observational data.
C) Cross-sectional regression analysis uses observational data.
D) Randomized trials provide an estimate of the causal impact of a particular treatment.
Answer: A
Q3) Two economic variables that move together are considered:
A) correlated.
B) uncorrelated.
C) causal.
D) casual.
Answer: A
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Chapter 4: Budget Analysis and Deficit Financing
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Q1) The U.S.government uses:
A) cash accounting for discretionary spending and capital accounting for defense spending.
B) cash accounting for discretionary spending and capital accounting for nondiscretionary spending.
C) only cash accounting.
D) only capital accounting.
Q2) Under which president did the United States experience the greatest increase in the deficit?
A) Jimmy Carter
B) Ronald Reagan
C) William Clinton
D) George W.Bush
Q3) A cyclically adjusted budget deficit accounts for the effect of _____ on the budget deficit.
A) economic expansions only
B) politicians' attitudes regarding balanced budgets
C) recessions only
D) both economic expansions and recessions
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Page 6
Chapter 5: Externalities- Problems and Solutions
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Sample Questions
Q1) Suppose that factories in Chicago,Illinois,and Gary,Indiana,produce pollution that affects people living in western Michigan.Even though the polluting plants and affected individuals can be identified,the externality cannot be resolved privately because of the large number of both polluters and affected individuals.This is an example of:
A) the assignment problem.
B) the free rider problem.
C) the problem of internalizing an externality.
D) transaction costs and negotiating problems.
Q2) Suppose your neighbor decides to secure his single-room air conditioner with duct tape and black plastic,creating a view from your house that you consider visually unappealing.The duct tape and black plastic are an example of:
A) a negative production externality.
B) a positive production externality.
C) a positive consumption externality.
D) a negative consumption externality.
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Chapter 6: Externalities in Action- Environmental and Health Externalities
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Q1) Scientists discovered a hole opening up in the ozone layer in the 1980s.As a result,the international community adopted the _____ in September of 1987.
A) Kyoto Treaty
B) Clean Air Act
C) Montreal Protocol
D) Antarctica Accord
Q2) Global warming is primarily caused by an increase in what gas?
A) carbon monoxide
B) nitric oxide
C) sulfur dioxide
D) carbon dioxide
Q3) The fact that 80% of smokers wish to quit but fewer than the 80% quit is potentially evidence of a:
A) compensating differential.
B) commitment device.
C) financial externality.
D) self-control problem.
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Page 8
Chapter 7: Public Goods
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Sample Questions
Q1) Suppose that two individuals,Jon and David,form a community and would like to construct a communal fort that would protect them from attacks.They both consume good X,a private good,and the protection of the fort,P.One unit of good X costs 1 unit of currency,and one unit of P costs 2 units of currency.Both Jon and David have an income of 100 and a utility function of the form:
U = log(X<sub>i</sub>)+ 2 × log(P<sub>J</sub><sub> </sub>+ P<sub>D</sub>)
The budget constraint for each is given by: X<sub>i</sub><sub> </sub>+ 2 × P<sub>i</sub><sub> </sub>= 100
(a)Find the amount of protection Jon will provide as a function of how much David provides,and explain why the relationship is the way it is.
(b)How much protection P will be privately provided in this case?
(c)Explain the economic intuition behind this amount,and compare it to the socially optimal amount without solving for the socially optimal amount.
Q2) Health care reform implemented in Massachusetts in 2006 provides an example of:
A) unsuccessful contracting out.
B) successful contracting out.
C) a private sector solution to the free rider problem.
D) awarding government contracts without competitive bidding.
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Chapter 8: Cost-Benefit Analysis
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Sample Questions
Q1) Which of the following is the approach taken to determine how individuals value an option by looking at their actions?
A) contingent valuation
B) revealed preference
C) cost-benefit analysis
D) social discounting
Q2) The county supervisor decides that a new community swimming pool should be constructed based on the projected construction and operating expenses as well as estimates of how much residents would be willing to pay for the pool.This approach reflects:
A) contingent valuation.
B) revealed preference valuation.
C) cost-benefit analysis.
D) social discountings.
Q3) The value of an input in its next best use is the:
A) cost-benefit ratio.
B) explicit cost.
C) marginal benefit.
D) opportunity cost.
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Page 10
Chapter 9: Political Economy
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Sample Questions
Q1) Federal spending for local projects that serve mostly to transfer federal dollars to politician's constituents is defined as:
A) direct democracy.
B) political pork.
C) marginal-cost pricing.
D) Lindahl pricing.
Q2) The approach that emphasizes that government failures are often minimized by public finance economists is:
A) the Samuelson school.
B) public choice theory.
C) median voter theory.
D) bureaucratic theory.
Q3) How can a voting model avoid the result of Arrow's Impossibility Theorem?
A) impose restrictions on preferences
B) remove the irrational voters
C) prohibit a dictatorship
D) allow individuals to vote according to their personal preferences
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Chapter 10: State and Local Government Expenditures
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Q1) Which of the following always has an income effect?
A) matching grants,but not block grants
B) block grants,but not matching grants
C) conditional block grants,but not block or matching grants
D) block grants,matching grants,and conditional grants
Q2) A state is spending $30 million on disability programs in schools.If the federal government promises to give that state $25 million to spend on disability programs in its schools,the federal government is offering a _________ grant that _________ state spending on disability programs in schools.
A) block; will increase
B) block; may or may not increase
C) conditional block; will increase
D) conditional block; may or may not increase
Q3) Which of the following would prevent the Tiebout result?
A) rich people paying the same in taxes as poor people
B) individuals not being perfectly mobile
C) many different communities for individuals to choose from D) variation in public services among communities
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Chapter 11: Education
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Sample Questions
Q1) Competitive pressures faced by schools are likely to be _________ when there are ___________ other communities nearby than when there are not.
A) higher; many
B) lower; many
C) unchanged; many
D) higher; few
Q2) Someone states that since parents always have their children's best interests at heart,government should not intervene in the education market.According to this person,which of the following is NOT a legitimate reason for government intervention in the education market?
A) credit market failure
B) productivity spillovers
C) to produce a less criminally inclined public
D) the failure of family utility maximization
Q3) Government is involved in education because society benefits from:
A) a large workforce and lower wages.
B) fewer public sector jobs.
C) credit market failures.
D) more income mobility.
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Page 13
Chapter 12: Social Insurance- the New Function of Government
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Sample Questions
Q1) Under realistic conditions,optimal social insurance systems should:
A) not insure individuals against adverse events.
B) partially,but not completely,insure individuals against adverse events.
C) completely insure individuals against adverse events.
D) prevent adverse events.
Q2) Suppose you and your immediate relatives agree to support one another in the event one of you loses your job.This is an example of:
A) disability insurance.
B) workers' compensation.
C) self-insurance.
D) unemployment insurance.
Q3) Is moral hazard likely to be a bigger problem in the health insurance market or the life insurance market? Explain.
Q4) If a person has imperfect or partial self-insurance against job loss,they are likely to:
A) allow consumption to fall to zero in the event of a job loss.
B) maintain constant consumption in the event of a job loss.
C) smooth consumption fully.
D) smooth consumption to some extent,but not fully
Page 14
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Chapter 13: Social Security
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Sample Questions
Q1) Which is an example of a funded retirement plan?
A) a couple's plan to save 10% of all future income
B) a retirement portfolio with an investment bank
C) Social Security
D) a decision to make larger payments to pay off the mortgage sooner
Q2) Suppose the federal government allowed you to invest a portion of your payroll taxes in a personal retirement account.Assume that you could earn a higher rate of return on that money than you could have through Social Security.How would you expect that higher rate of return to affect the timing of your retirement?
Q3) The retirement hazard rate refers to the:
A) percentage of working people who retire at a certain age.
B) percentage of retirees who are injured at a certain age.
C) percentage of retirees who die at a certain age.
D) percentage of working people who die at a certain age.
Q4) Which of the following program details do NOT belong to Social Security?
A) The total FICA tax burden on self-employed people is 12.4%.
B) Eligibility requirements include 40 quarters of work.
C) An age of 62 or older is an eligibility requirement.
D) When eligible,the Social Security claimant receives an annuity payment.
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Sample Questions
Q1) Empirical evidence on the moral hazard of unemployment insurance (UI)indicates that the:
A) post-unemployment wages are higher when UI benefits last longer.
B) duration of unemployment is reduced when UI benefits are reduced.
C) duration of unemployment is increased when UI benefits are reduced.
D) number of workers who apply for UI benefits is reduced when the weekly benefit is higher.
Q2) There is evidence of moral hazard if,after a workers' compensation program is introduced:
A) the incidence of injuries falls.
B) there is no change in the incidence of injuries.
C) there are more injuries that are easy to prove.
D) there are more injuries that are difficult to prove.
Q3) For which of the following are benefits levels set by the federal government?
A) workers' compensation
B) unemployment insurance
C) disability insurance
D) private insurance
Q4) Explain how the benefits and costs of unemployment insurance are related to the duration of unemployment.
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Chapter 15: Health Insurance I- Health Economics and
Private Health Insurance
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Sample Questions
Q1) If you have a health insurance policy with a $500 deductible,a $30 copayment for visits to the doctor (doctor's fee is $60/visit),and 5% coinsurance on covered expenses (excluding doctor's visits),how much of your health insurance expenses would the insurer pay if you went to the doctor twice and had a surgery that cost $1,500?
A) $635
B) $985
C) $610
D) $1,010
Q2) Retrospective reimbursement generally:
A) creates incentives for providers to skimp on the quality of health care.
B) causes providers to choose the efficient level of health care services.
C) has no effect on the choice between low-quality and high-quality health care.
D) provides little incentive to economize on health care services.
Q3) If an insured patient pays the full cost of the first $5,000 of medical expenses per year,what is that $5,000 amount called?
A) copayment
B) premium
C) coinsurance
D) deductible
Page 17
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Chapter 16: Health Insurance Ii- Medicare, medicaid, and Health Care Reform
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Q1) The textbook identifies three reasons why the prospective payment system (PPS)did not solve the long-run cost growth problems of Medicare.Describe two of those problems.
Q2) Medicaid is administered by the ___________ and is financed by ____________.
A) states; general state and federal revenues
B) states; a payroll tax levied on employees and employers
C) federal government; general state and federal revenues
D) federal government; a payroll tax levied on employers
Q3) Which of the following is a likely consequence of the current system of financing long-term care?
A) Individuals are more likely to opt for long-term care
B) Individuals have an incentive to hide their wealth
C) Individuals have less incentive to donate to charity
D) The current system does not affect individual incentives
Q4) Which of the following has been found to be the primary cause of the rapid rise in health care costs?
A) moral hazard
B) corruption and mismanagement
C) obesity
Page 18
D) technological change in the delivery of health care
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Chapter 17: Income Distribution and Welfare Programs
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Q1) Which statement is TRUE if the benefit reduction rate of a welfare program is reduced?
A) Total labor supply will go up.
B) Everyone who was working will choose to work less.
C) Total labor supply may go up or down.
D) Work incentives are not affected by the benefit reduction rate.
Q2) Which of the following must be TRUE for an ordeal mechanism to be effective?
A) The disincentive to work from taxing the high-income individuals must be minimized. B) The disincentive to work for welfare recipients must be less than the additional social welfare received from making them better off.
C) The gains from the program to welfare recipients must exceed the cost imposed on welfare recipients.
D) The cost imposed on welfare recipients must be equal to zero.
Q3) Discuss reasons why many states have moved from mailing food stamps to recipients to sending electronic debit cards.Has this change increased or decreased the ordeal mechanism associated with food stamps?
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Chapter 18: Taxation- How It Works and What It Means
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Q1) Explain the concepts of vertical and horizontal equity as goals for tax systems.Which of the concepts is easier to measure in practice? Explain.
Q2) Which statement about the subsidy for home ownership is TRUE?
A) The subsidy mechanism is a tax credit for those who have purchased their home.
B) The subsidy is consistent with the Haig-Simons definition of income.
C) Empirical research shows that the subsidy causes more people to buy homes.
D) The current U.S.tax system does not include the rental value of one's home in taxable income.
Q3) Which tax is based on the value of the estate left behind when a person dies?
A) sales tax
B) consumption tax
C) estate tax
D) capital gains tax
Q4) Which is considered to be a tax on wealth?
A) capital gains tax
B) individual income tax
C) property tax
D) excise tax
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Chapter 19: The Equity Implications of Taxation- Tax
Incidence
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Q1) Suppose the pretax price of gasoline is $1 per gallon.A tax of $0.50 is imposed and is paid by consumers to the government.What must the gross price of gasoline be after the tax so that the consumer tax burden is equal to the producer tax burden?
A) $0.50
B) $0.75
C) $1.00
D) $1.25
Q2) Suppose the government levies a tax on all ink pens sold in the country.Assume all goods are normal goods.Which of the following is a spillover income effect of the tax?
A) People buy more pencils because they have less after-tax income.
B) People buy fewer books because they have less after-tax income.
C) People buy more pencils because pencils are now cheaper compared with pens.
D) People buy more ink pens because sellers bear the tax.
Q3) Is it possible for the government to impose a tax that causes the market price of the good to fall? Explain why you think it is or is not possible.
Q4) Why is general equilibrium analysis called a game of "follow the tax burden"?
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Chapter 21: Taxes on Labor Supply
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Q1) For persons who earn an amount of income such that the Earned Income Tax Credit (EITC)benefit is neither increased nor reduced as they work more,which statement is TRUE?
A) The effect of the EITC on labor supply is ambiguous.
B) The effect of the EITC is to increase labor supply.
C) The EITC does not have a substitution effect.
D) The effect of the EITC is to decrease labor supply
Q2) The estimates of the effect of wages on labor supply,from the study of a negative income tax system run by President Lyndon B.Johnson's Office of Economic Opportunity between 1968 and 1976,is an example of what type of empirical analysis?
A) random experiment
B) cross-sectional regression
C) time series
D) quasi-experimental
Q3) For someone who is receiving a wage subsidy:
A) the effect of the program on labor supply is ambiguous.
B) the substitution effect induces the person to work less.
C) the income effect induces the person to work more.
D) income and substitution effects do not apply.
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Page 22
Chapter 22: Taxes on Savings
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Q1) Suppose an Individual Retirement Account (IRA)has a contribution limit of $3,000 per year and that prior to the passage of the law establishing IRAs,Hamilton was not saving any of his income.After IRAs became available,Hamilton saved $2,000 per year.Which statement is TRUE?
A) The tax subsidy in the IRA had a marginal effect on Hamilton's saving.
B) The tax subsidy in the IRA had an inframarginal effect on Hamilton's saving.
C) The income effect exceeded the substitution effect.
D) The income and substitution effects cancelled each other out.
Q2) Which statement reflects a prediction of the precautionary saving model and the empirical evidence?
A) Empirical research suggests that expansions of social insurance programs cause savings to increase.
B) Empirical research suggests that expansions of social insurance programs cause savings to decrease.
C) The precautionary saving model predicts that an expansion of a social insurance program should cause savings to increase.
D) The prediction of the precautionary saving model is consistent with empirical evidence.
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Chapter 23: Taxes on Risk Taking and Wealth
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Q1) Suppose you put $10 into a savings account.A year later the account has $12 in it,all of which you withdraw.The tax rate on accrual is 50% and the tax rate on realization is 25%.How much tax on accrual do you owe? Assume that both taxation on accrual and taxation on realization apply as they do under current U.S.tax policy.
A) $6
B) $1
C) $2
D) No tax is owed
Q2) Suppose that there is a 25% chance that an investment of $1,000 will rise in value to $1,400,and a 75% chance that the investment will fall in value to $900.What is the expected return on the investment?
A) -$125
B) -$25
C) $25
D) $100
Q3) Explain why a lower tax rate on capital gains might be justified as a way to protect investors against inflation.Is there an alternative approach to deal with the inflation problem? Explain.
Q4) Discuss the views of supporters and opponents of estate taxes.
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Chapter 24: Taxation of Business Income
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Q1) The amount of money that firms can deduct from their taxes to account for capital investment depreciation is called:
A) a depreciation credit.
B) a depreciation allowance.
C) economic depreciation.
D) a depreciation schedule.
Q2) Which of the following groups is unlikely to bear the burden of a corporate tax in the long run?
A) consumers
B) capital owners
C) domestic workers
D) foreign workers
Q3) Suppose there is a corporate tax on cash earnings minus labor costs.As a result:
A) the return per dollar of investment per period is smaller for a given level of investment than it would be without the tax.
B) the marginal cost of investment is higher than it would be without the tax.
C) firms invest more than they would without the tax.
D) the return per dollar of investment per period is larger for a given level of investment than it would be without the tax.
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Chapter 25: Fundamental Tax Reform and Consumption Tax
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Q1) Identify and describe two political reasons the tax code is so complicated.
Q2) Suppose that you respond to an income tax increase by claiming false deductions.This is an example of:
A) reporting effect.
B) income exclusion effect.
C) compliance effect.
D) direct effect.
Q3) The share of total national tax revenue from consumption taxation averages approximately ________ in OECD (Organisation for Economic Co-operation and Development)nations.
A) 2%
B) 15%
C) 30%
D) 52%
Q4) A consumption tax levied on the increase in the value of a good at each stage of production is called a(n):
A) expenditure tax.
B) cash-flow tax.
C) flat tax.
D) value-added tax.
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