Question 1

As it relates to the political process, the principal-agent problem results from the:

Accepted Answer

A) negative externalities that are created by some policy actions. 
B) political rules that encourage elected officials to engage in unethical and illegal behavior. 
C) inconsistency between voters' interest in programs and politicians' interest in reelection. 
D) paradox of voting. 
A) negative externalities that are created by some policy actions. 
B) political rules that encourage elected officials to engage in unethical and illegal behavior. 
C) inconsistency between voters' interest in programs and politicians' interest in reelection. 
D) paradox of voting.

Question 2

Government loan guarantees tend to socialize gains and privatize losses.

Accepted Answer

A) True 
 B)False

Question 3

Government economic policies:

Accepted Answer

A) following the same principles as microeconomics. 
B) are not self-correcting. 
C) are self-regulating. 
D) often disregard the benefits of the few for the gain of the many. 
A) following the same principles as microeconomics. 
B) are not self-correcting. 
C) are self-regulating. 
D) often disregard the benefits of the few for the gain of the many.

Question 4

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

Accepted Answer

A) logrolling. 
B) the paradox of voting. 
C) the median-voter model. 
D) the special-interest effect. 
A) logrolling. 
B) the paradox of voting. 
C) the median-voter model. 
D) the special-interest effect.

Question 5

Regulatory capture is said to have occurred when which of the following is true?

Accepted Answer

A) Rules and enforcement in an industry are heavily influenced by the industry being regulated. 
B) One firm controls an entire market, having captured customers away from other firms. 
C) Government imposes excessive regulations in an industry, resulting in inefficiencies. 
D) Consumers make all the rules for an industry, forcing firms into inefficient production methods. 
A) Rules and enforcement in an industry are heavily influenced by the industry being regulated. 
B) One firm controls an entire market, having captured customers away from other firms. 
C) Government imposes excessive regulations in an industry, resulting in inefficiencies. 
D) Consumers make all the rules for an industry, forcing firms into inefficient production methods.

Question 6

Public choice theorists contend that:

Accepted Answer

A) government can efficiently correct instances of market system failure. 
B) the existence of cost-benefit analysis has brought about the efficient use of resources in the public sector. 
C) public bureaucracies are inherently more efficient than private enterprises. 
D) public bureaucracies are inherently less efficient than private enterprises. 
A) government can efficiently correct instances of market system failure. 
B) the existence of cost-benefit analysis has brought about the efficient use of resources in the public sector. 
C) public bureaucracies are inherently more efficient than private enterprises. 
D) public bureaucracies are inherently less efficient than private enterprises.

Question 7

Suppose that Steve and Susie each perceives $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800.If the proposed tax levied on each for the park would be $300, a majority vote will:

Accepted Answer

A) defeat this project and resources will be underallocated to it. 
B) defeat this project and resources will be efficiently allocated. 
C) pass this project and resources will be underallocated to it. 
D) pass this project and resources will be overallocated to it. 
A) defeat this project and resources will be underallocated to it. 
B) defeat this project and resources will be efficiently allocated. 
C) pass this project and resources will be underallocated to it. 
D) pass this project and resources will be overallocated to it.

Question 8

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. 
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.

Question 9

What is the main problem with government guarantees that socialize losses and privatize gains?

Accepted Answer

A) They encourage overly risky investments by insulating private investors from any losses. 
B) The investments that do occur never generate production of goods underproduced by the private sector. 
C) They discourage private investment in worthwhile projects. 
D) They tend to benefit foreign companies at the expense of domestic firms. 
A) They encourage overly risky investments by insulating private investors from any losses. 
B) The investments that do occur never generate production of goods underproduced by the private sector. 
C) They discourage private investment in worthwhile projects. 
D) They tend to benefit foreign companies at the expense of domestic firms.

Question 10

Government officials tend to make:

Accepted Answer

A) better economic decisions than private individuals because of the wealth of information at their disposal. 
B) better economic decisions than private individuals because of the efficient processes and flexibility built into the government bureaucracy. 
C) inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs. 
D) inefficient choices because the invisible hand directs them away from the resource allocation where marginal benefits equal marginal costs. 
A) better economic decisions than private individuals because of the wealth of information at their disposal. 
B) better economic decisions than private individuals because of the efficient processes and flexibility built into the government bureaucracy. 
C) inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs. 
D) inefficient choices because the invisible hand directs them away from the resource allocation where marginal benefits equal marginal costs.

Question 11

Government's unfunded liabilities:

Accepted Answer

A) result from the political bias toward immediate benefits and deferred costs. 
B) result in more efficient policies in an attempt to satisfy these liabilities. 
C) are caused primarily by market failures. 
D) only occur in democratically elected governments. 
A) result from the political bias toward immediate benefits and deferred costs. 
B) result in more efficient policies in an attempt to satisfy these liabilities. 
C) are caused primarily by market failures. 
D) only occur in democratically elected governments.

Question 12

Public choice economists hold that politicians will:

Accepted Answer

A) favor programs entailing immediate and clear-cut costs and vaguely defined or deferred benefits. 
B) follow policies leading to an optimal allocation of resources between public and private sectors. 
C) favor programs entailing immediate and clear-cut benefits and vaguely defined or deferred costs. 
D) objectively weigh the costs and benefits of various government programs and vote accordingly. 
A) favor programs entailing immediate and clear-cut costs and vaguely defined or deferred benefits. 
B) follow policies leading to an optimal allocation of resources between public and private sectors. 
C) favor programs entailing immediate and clear-cut benefits and vaguely defined or deferred costs. 
D) objectively weigh the costs and benefits of various government programs and vote accordingly.

Question 13

The government's ability to coerce can enhance economic efficiency by:

Accepted Answer

A) eliminating income inequality. 
B) correcting market failures. 
C) preventing resources from going to their most valued uses. 
D) restraining self-interest. 
A) eliminating income inequality. 
B) correcting market failures. 
C) preventing resources from going to their most valued uses. 
D) restraining self-interest.

Question 14

The invisible hand guides government's economic activity just as it does with private economic activity.

Accepted Answer

A) True 
 B)False

Question 15

The pursuit through government of a transfer of wealth at society's expense is called "rent seeking."

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is considered a potential solution to some regulatory capture?

Accepted Answer

A) Bringing industry experts into the regulatory process. 
B) Creating a standard set of regulations for all industries. 
C) Deregulation of the industry. 
D) Government subsidies for firms in the industry. 
A) Bringing industry experts into the regulatory process. 
B) Creating a standard set of regulations for all industries. 
C) Deregulation of the industry. 
D) Government subsidies for firms in the industry.

Question 17

The median-voter model implies that a political office seeker will:

Accepted Answer

A) adopt more extreme views when seeking his or her party's nomination than when running against the other party's opponent. 
B) adopt less extreme views when seeking his or her party's nomination than when running against the other party's opponent. 
C) favor extensive government spending because demand curves for public goods are added vertically rather than horizontally. 
D) favor the private resolution of externality problems rather than governmental intervention. 
A) adopt more extreme views when seeking his or her party's nomination than when running against the other party's opponent. 
B) adopt less extreme views when seeking his or her party's nomination than when running against the other party's opponent. 
C) favor extensive government spending because demand curves for public goods are added vertically rather than horizontally. 
D) favor the private resolution of externality problems rather than governmental intervention.

Question 18

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.   Refer to the table.The marginal cost and marginal benefit of stadium B (relative to A) are:

Accepted Answer

A) $20 million and $50 million, respectively. 
B) $100 million and $200 million, respectively. 
C) $30 million and $50 million, respectively. 
D) $20 million and $60 million, respectively. 
A) $20 million and $50 million, respectively. 
B) $100 million and $200 million, respectively. 
C) $30 million and $50 million, respectively. 
D) $20 million and $60 million, respectively.

Question 19

The median-voter model implies that:

Accepted Answer

A) political voting will be as economically efficient as "dollar voting" in competitive markets. 
B) all voters have about the same preferences for various public goods and services. 
C) many people will be dissatisfied with the size of government in the economy. 
D) with majority voting there can never be a consistent ordering of public good preferences. 
A) political voting will be as economically efficient as "dollar voting" in competitive markets. 
B) all voters have about the same preferences for various public goods and services. 
C) many people will be dissatisfied with the size of government in the economy. 
D) with majority voting there can never be a consistent ordering of public good preferences.

Question 20

Efficient public decision making is often impaired by the:

Accepted Answer

A) special-interest effect. 
B) public interest. 
C) Not for profit organizations. 
D) foreign governments. 
A) special-interest effect. 
B) public interest. 
C) Not for profit organizations. 
D) foreign governments.

Exam 5: B: Governments Role and Government Failure

As it relates to the political process, the principal-agent problem results from the:

Government loan guarantees tend to socialize gains and privatize losses.

Government economic policies:

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

Regulatory capture is said to have occurred when which of the following is true?

Public choice theorists contend that:

Suppose that Steve and Susie each perceives $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800.If the proposed tax levied on each for the park would be $300, a majority vote will:

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

What is the main problem with government guarantees that socialize losses and privatize gains?

Government officials tend to make:

Government's unfunded liabilities:

Public choice economists hold that politicians will:

The government's ability to coerce can enhance economic efficiency by:

The invisible hand guides government's economic activity just as it does with private economic activity.

The pursuit through government of a transfer of wealth at society's expense is called "rent seeking."

Which of the following is considered a potential solution to some regulatory capture?

The median-voter model implies that a political office seeker will:

The median-voter model implies that:

Efficient public decision making is often impaired by the:

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

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