Question 1

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. 
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.

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. 
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.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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. 
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.

Question 6

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. 
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.

Question 7

"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. 
A)  illustrates the paradox of voting. 
B)  is called "logrolling." 
C)  illustrates the median voter model. 
D)  undermines the benefits-received principle.

Question 8

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

Question 9

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. 
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.

Question 10

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 11

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

Question 12

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. 
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.

Question 13

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. 
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.

Question 14

"Government failure" is a prominent topic in

Accepted Answer

A)  public choice theory. 
B)  Keynesian economics. 
C)  socialist theory. 
D)  behavioral economics. 
A)  public choice theory. 
B)  Keynesian economics. 
C)  socialist theory. 
D)  behavioral economics.

Question 15

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. 
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.

Question 16

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. 
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.

Question 17

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. 
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.

Question 18

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. 
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.

Question 19

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. 
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.

Question 20

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). 
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).

Exam 5: Governments Role and Government Failure

The provision of loan guarantees can improve economic efficiency when

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

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

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

The public (or national) debt refers to the

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

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

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

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

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

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

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

"Government failure" is a prominent topic in

The so-called collective action problem is the reason why

So-called business cycles refer to the multiyear periods

The so-called collective action problem helps explain why

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

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

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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