Question 1

In thinking about the "principal-agent problem" in a democratic government, we assign the role of "principal" to the government.

Accepted Answer

A) True 
 B)False

Question 2

Even in democratic governments, we tend to have a problem with accountability due to the following reasons, except:

Accepted Answer

A)   So many government activities are undertaken simultaneously
B)   Civil-service protections apply to many bureaucrats
C)   The electorate cannot monitor each and every action of the government
D)   There is the markets' self-correcting mechanism in governmentE) A) and B)
F) B) and C)

Question 3

The so-called collective action problem refers to the:

Accepted Answer

A)   Problems faced by organizers in setting up a labor union
B)   Challenges faced by business when they have to deal with a labor union
C)   Inability of the government to discern the true preferences of everyone in society
D)   Greater difficulty in organizing and motivating large groups than small onesE) B) and D)
F) None of the above

Question 4

Deregulation can solve the problem of regulatory capture and increase economic efficiency:

Accepted Answer

A)   If the deregulated industry quickly evolves into a monopoly
B)   If the deregulated industry becomes more competitive
C)   When the regulations covering the industry are tightened
D)   When the industry ends up generating substantial external costsE) None of the above
F) B) and C)

Question 5

"Unfunded liability" refers to a government commitment to:

Accepted Answer

A)   Not pay the government bonds that are coming due
B)   Spend in the future without also committing to collect enough tax money to pay for it
C)   Support the retirement funds of businesses who have gone bankrupt
D)   Put money in specific mutual funds in order to vouch for the funds' liabilitiesE) A) and C)
F) A) and B)

Question 6

The term government failure refers to the:

Accepted Answer

A)   Large losses suffered by publicly owned water, gas, and electric companies
B)   Large number of bankruptcies that have occurred recently among local governments
C)   Economically inefficient outcomes caused by voting problems or incentive structures in government
D)   Inability of government agencies to provide adequate police protection in low-income neighborhoodsE) C) and D)
F) B) and C)

Question 7

If the government implements regulations and policies in the economy, it tends to replace the function of the "invisible hand."

Accepted Answer

A) True 
 B)False

Question 8

Politicians seeking reelection tend to do the following, except:

Accepted Answer

A)   Inserting "earmarks" in legislation
B)   Favoring projects with clear benefits and hidden costs
C)   Favoring long-term projects over short-term ones
D)   Engaging in pork-barrel politicsE) B) and C)
F) A) and C)

Question 9

The politicization of monetary and fiscal policies tends to enhance their effectiveness in stabilizing the economy.

Accepted Answer

A) True 
 B)False

Question 10

Problems with collective decision-making and economic inefficiency in government are subjects that are studied in an area of economics called public:

Accepted Answer

A)   Finance
B)   Choice
C)   Policy
D)   InterestE) B) and C)
F) None of the above

Question 11

Political logrolling always produces economically inefficient outcomes.

Accepted Answer

A) True 
 B)False

Question 12

To prevent monetary policy from becoming highly politicized, many countries have:

Accepted Answer

A)   Made their central banks be politically independent
B)   Put their central banks under the full control of their law-making agencies
C)   Allowed the heads of their central banks to serve for very short terms
D)   Made elected officials be the heads of their central banksE) A) and B)
F) B) and C)

Question 13

One prediction of the median-voter model is that during elections, candidates will tend to become "centrists".

Accepted Answer

A) True 
 B)False

Question 14

The government would be running a budget surplus if:

Accepted Answer

A)   Government spending is lower than consumer spending
B)   Tax revenues are less than government spending
C)   It imports less from abroad than it exports
D)   Government spends less than it collects in taxesE) B) and C)
F) A) and C)

Question 15

The government's budget deficit refers to the:

Accepted Answer

A)   Total amount of debt that the government has incurred over the years
B)   Difference the nation's amount of exports and its total amount of imports
C)   Gap between high government spending and its lower tax revenues
D)   Decrease in the amount of government spending form one year to the nextE) A) and B)
F) C) and D)

Question 16

Which statement best describes a special-interest issue?

Accepted Answer

A)   It is a program or policy that is adopted during a special session of Congress or a state legislature
B)   It is an issue in which both the supporters and opponents use paid lobbyists to represent their interests
C)   It is a program or policy which one political party strongly supports and other political parties strongly oppose
D)   It is a program or policy in which a large number of people will suffer small costs and a small number of people will receive large gainsE) A) and B)
F) All of the above

Question 17

Economic analysis would focus on the size of the government, in order to assess whether or not it fosters economic efficiency.

Accepted Answer

A) True 
 B)False

Question 18

In the median-voter model, half the voters have stronger or more positive preferences than the median voter, while half of the voters have weaker or more negative preferences.

Accepted Answer

A) True 
 B)False

Question 19

Lobbying actions that seek government legislation to provide tax breaks to specific corporations would be an example of:

Accepted Answer

A)   How the median-voter model works
B)   How political choices are bundled
C)   Rent-seeking behavior
D)   The paradox of votingE) A) and B)
F) A) and C)

Question 20

The situation where politicians make decisions that will raise their chances of reelection, even if those decisions are detrimental to the general public, is referred to as the:

Accepted Answer

A)   Moral hazard problem
B)   Principal-agent problem
C)   Adverse selection problem
D)   Common good problemE) All of the above
F) A) and B)

Exam 5: Governments Role and Government Failure

"Unfunded liability" refers to a government commitment to:

Correct AnswerverifiedShow Answer

Politicians seeking reelection tend to do the following, except:

Correct AnswerverifiedShow Answer

In the median-voter model, half the voters have stronger or more positive preferences than the median voter, while half of the voters have weaker or more negative preferences.

Correct AnswerverifiedShow Answer

The government would be running a budget surplus if:

Correct AnswerverifiedShow Answer

Which statement best describes a special-interest issue?

Correct AnswerverifiedShow Answer

Deregulation can solve the problem of regulatory capture and increase economic efficiency:

Correct AnswerverifiedShow Answer

The situation where politicians make decisions that will raise their chances of reelection, even if those decisions are detrimental to the general public, is referred to as the:

Correct AnswerverifiedShow Answer

Even in democratic governments, we tend to have a problem with accountability due to the following reasons, except:

Correct AnswerverifiedShow Answer

Economic analysis would focus on the size of the government, in order to assess whether or not it fosters economic efficiency.

Correct AnswerverifiedShow Answer

Political logrolling always produces economically inefficient outcomes.

Correct AnswerverifiedShow Answer

Problems with collective decision-making and economic inefficiency in government are subjects that are studied in an area of economics called public:

Correct AnswerverifiedShow Answer

The government's budget deficit refers to the:

Correct AnswerverifiedShow Answer

The so-called collective action problem refers to the:

Correct AnswerverifiedShow Answer

The politicization of monetary and fiscal policies tends to enhance their effectiveness in stabilizing the economy.

Correct AnswerverifiedShow Answer

In thinking about the "principal-agent problem" in a democratic government, we assign the role of "principal" to the government.

Correct AnswerverifiedShow Answer

If the government implements regulations and policies in the economy, it tends to replace the function of the "invisible hand."

Correct AnswerverifiedShow Answer

To prevent monetary policy from becoming highly politicized, many countries have:

Correct AnswerverifiedShow Answer

The term government failure refers to the:

Correct AnswerverifiedShow Answer

One prediction of the median-voter model is that during elections, candidates will tend to become "centrists".

Correct AnswerverifiedShow Answer

Lobbying actions that seek government legislation to provide tax breaks to specific corporations would be an example of:

Correct AnswerverifiedShow Answer

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