Question 1

Politicians who have to go through elections tend to focus on the short-term net benefits of projects because of

Accepted Answer

A)   voters' tendency to more easily see short-term benefits rather than long-term ones.
B)   the special-interest effect of specific groups among the electorate.
C)   the ability of government to coerce people to do things involuntarily.
D)   pork-barrel politics and the principal-agent problem.E) A) and B)
F) B) and C)

Question 2

When a nation is in a debt crisis, the government's level of debt is so high that

Accepted Answer

A)   monetary policy is ineffective.
B)   the government is unable to find willing lenders so it can continue borrowing.
C)   it can only be solved with a fiscal stimulus of lower taxes and more government spending.
D)   other countries will be unwilling to buy goods and services from the nation.E) C) and D)
F) A) and D)

Question 3

The provision of loan guarantees can improve economic efficiency when

Accepted Answer

A)   there's a moral hazard problem among investors.
B)   the project supported has significant external benefits.
C)   there is regulatory capture in the industry.
D)   the private investors are providing too much funds to the project.E) None of the above
F) A) and B)

Question 4

As it relates to corporations, the principal-agent problem is that

Accepted Answer

A)   the goals of the corporate managers (the principals)  may not match the goals of the corporate owners (the agents) .
B)   the goals of the corporate managers (the agents)  may not match the goals of the corporate owners (the principals) .
C)   the federal government (the agent)  taxes both corporate profits and the dividends paid to stockholders (the principals) .
D)   it is costly for the corporate owners (the principals)  to obtain a corporate charter from government (the agent) .E) A) and D)
F) B) and D)

Question 5

The major problem with paired-choice majority voting is that the outcome

Accepted Answer

A)   is constant.
B)   is subject to bribery and abuse.
C)   may depend on the order of the voting.
D)   results in clear preferences among the choices.E) A) and B)
F) None of the above

Question 6

The public (or national)  debt refers to the

Accepted Answer

A)   same thing as a budget deficit.
B)   deadweight loss in a market.
C)   accumulation of all past budget deficits.
D)   sum of all the debts of households and businesses.E) None of the above
F) A) and D)

Question 7

According to some economists, the private sector is more efficient than the public sector mainly because

Accepted Answer

A)   the private sector has a clear test of performance: profit and loss.
B)   wages, salaries, and fringe benefits are higher in the private sector.
C)   worker turnover is higher in the public sector.
D)   of extensive negative externalities in the public sector.E) B) and D)
F) All of the above

Question 8

So-called business cycles refer to the multiyear periods

Accepted Answer

A)   from when new products are launched to the point when they become obsolete.
B)   between the purchases of new capital equipment and the point when they become junk.
C)   from the origination of a business loan to the retirement or full repayment of the loan.
D)   during which the economy's overall output and employment alternately expands and contracts.E) A) and D)
F) A) and C)

Question 9

The so-called collective action problem helps explain why

Accepted Answer

A)   minorities always bear the costs of programs voted for by the majority.
B)   businesses often find it difficult when they have to deal with a labor union.
C)   it is hard for the government to discern the true preferences of everyone in society.
D)   special-interest groups could have the costs of their narrowly focused programs be paid for by the general taxpayers.E) A) and D)
F) A) and C)

Question 10

Some people argue that the three main television networks all have similar programming. If true, this observation might best be explained by the

Accepted Answer

A)   paradox of voting.
B)   median-voter model.
C)   law of diminishing marginal utility.
D)   ability-to-pay principle.E) B) and D)
F) A) and D)

Question 11

Monetary and fiscal policies are tools that the government can use to try to stabilize the economy.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would best explain why regulatory capture is a problem?

Accepted Answer

A)   The regulations implemented tend to reduce the profitability of the regulated industry and reduce global competitiveness.
B)   Regulatory capture unduly increases the size and power of government, increasing costs for taxpayers.
C)   Individuals implementing the regulations lack expertise about the industry and therefore make poor regulatory choices.
D)   The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection.E) A) and D)
F) C) and D)

Question 13

"Vote for my special local project and I will vote for yours." This political technique

Accepted Answer

A)   illustrates the paradox of voting.
B)   is called "logrolling."
C)   illustrates the median voter model.
D)   undermines the benefits-received principle.E) None of the above
F) All of the above

Question 14

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public good has a total cost of $1,000. All three citizens will share an equal portion of this cost in taxes. The benefit of the public good is $ 380 for Matt, $ 360 for Joe, and $ 200 for Teresa. In a majority vote, this proposal will most likely be

Accepted Answer

A)   accepted; the public good is produced, even though it is economically inefficient.
B)   defeated; the public good is not produced, even though it would have been efficient to do so.
C)   accepted; the public good is produced, which is economically efficient.
D)   defeated; the public good is not produced, which is the proper outcome.E) C) and D)
F) All of the above

Question 15

If the government runs a smaller budget deficit, then the public debt will decrease.

Accepted Answer

A) True 
 B)False

Question 16

The so-called collective action problem is the reason why

Accepted Answer

A)   taxpayers are not able to effectively counter special-interest groups.
B)   pork-barrel politics often fail to pass legislation.
C)   we have local and national elections.
D)   majority voting can lead to economically inefficient outcomes.E) A) and B)
F) A) and D)

Question 17

Answer the question on the basis of the following table that shows the total costs and total benefits facing a city of five different potential baseball stadiums of increasing size. All figures are in millions of dollars.  Applying the median-voter model and assuming that there are equal numbers of voters supporting each stadium, we would expect

Accepted Answer

A)   stadium C to be built, which would be the most socially efficient outcome.
B)   stadium C to be built, but this would not be the most socially efficient outcome.
C)   stadium D to be built because it produces the most socially efficient outcome.
D)   no stadium to be built, because of political gridlock.E) B) and C)
F) A) and B)

Question 18

"Government failure" is a prominent topic in

Accepted Answer

A)   public choice theory.
B)   Keynesian economics.
C)   socialist theory.
D)   behavioral economics.E) A) and B)
F) All of the above

Question 19

The pursuit through government of a "transfer of wealth" at someone else's expense refers to

Accepted Answer

A)   logrolling.
B)   rent-seeking behavior.
C)   the paradox of voting.
D)   the median-voter model.E) C) and D)
F) B) and D)

Question 20

The problem of effectively aggregating and conveying information from bottom layers to top layers in massive government bureaucracies makes it hard for the high-level officials to

Accepted Answer

A)   discern the prices of specific goods and services in the economy.
B)   comprehensively assess the marginal costs and benefits of specific programs.
C)   monitor the incomes of individual firms and households.
D)   estimate the total amount of spending incurred by the government.E) A) and D)
F) B) and C)

Exam 5: Governments Role and Government Failure

Correct Answer
verified

When a nation is in a debt crisis, the government's level of debt is so high that

Correct Answer
verified

If the government runs a smaller budget deficit, then the public debt will decrease.

Correct Answer
verified

The so-called collective action problem is the reason why

Correct Answer
verified

Monetary and fiscal policies are tools that the government can use to try to stabilize the economy.

Correct Answer
verified

"Vote for my special local project and I will vote for yours." This political technique

Correct Answer
verified

The public (or national) debt refers to the

Correct Answer
verified

Correct Answer
verified

The so-called collective action problem helps explain why

Correct Answer
verified

The problem of effectively aggregating and conveying information from bottom layers to top layers in massive government bureaucracies makes it hard for the high-level officials to

Correct Answer
verified

"Government failure" is a prominent topic in

Correct Answer
verified

The major problem with paired-choice majority voting is that the outcome

Correct Answer
verified

Politicians who have to go through elections tend to focus on the short-term net benefits of projects because of

Correct Answer
verified

So-called business cycles refer to the multiyear periods

Correct Answer
verified

Some people argue that the three main television networks all have similar programming. If true, this observation might best be explained by the

Correct Answer
verified

The pursuit through government of a "transfer of wealth" at someone else's expense refers to

Correct Answer
verified

The provision of loan guarantees can improve economic efficiency when

Correct Answer
verified

As it relates to corporations, the principal-agent problem is that

Correct Answer
verified

According to some economists, the private sector is more efficient than the public sector mainly because

Correct Answer
verified

Which of the following would best explain why regulatory capture is a problem?

Correct Answer
verified

Exam 5: Governments Role and Government Failure

Correct AnswerverifiedShow Answer

When a nation is in a debt crisis, the government's level of debt is so high that

Correct AnswerverifiedShow Answer

If the government runs a smaller budget deficit, then the public debt will decrease.

Correct AnswerverifiedShow Answer

The so-called collective action problem is the reason why

Correct AnswerverifiedShow Answer

Monetary and fiscal policies are tools that the government can use to try to stabilize the economy.

Correct AnswerverifiedShow Answer

"Vote for my special local project and I will vote for yours." This political technique

Correct AnswerverifiedShow Answer

The public (or national) debt refers to the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The so-called collective action problem helps explain why

Correct AnswerverifiedShow Answer

The problem of effectively aggregating and conveying information from bottom layers to top layers in massive government bureaucracies makes it hard for the high-level officials to

Correct AnswerverifiedShow Answer

"Government failure" is a prominent topic in

Correct AnswerverifiedShow Answer

The major problem with paired-choice majority voting is that the outcome

Correct AnswerverifiedShow Answer

Politicians who have to go through elections tend to focus on the short-term net benefits of projects because of

Correct AnswerverifiedShow Answer

So-called business cycles refer to the multiyear periods

Correct AnswerverifiedShow Answer

Some people argue that the three main television networks all have similar programming. If true, this observation might best be explained by the

Correct AnswerverifiedShow Answer

The pursuit through government of a "transfer of wealth" at someone else's expense refers to

Correct AnswerverifiedShow Answer

The provision of loan guarantees can improve economic efficiency when

Correct AnswerverifiedShow Answer

As it relates to corporations, the principal-agent problem is that

Correct AnswerverifiedShow Answer

According to some economists, the private sector is more efficient than the public sector mainly because

Correct AnswerverifiedShow Answer

Which of the following would best explain why regulatory capture is a problem?

Correct AnswerverifiedShow Answer

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