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

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 a policy issue in which both the supporters and opponents employ 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, while a small number will receive large gains. 
A)  It is a program or policy that is adopted during a special session of Congress or a state legislature. 
B)  It is a policy issue in which both the supporters and opponents employ 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, while a small number will receive large gains.

Question 3

Government loan guarantees tend to socialize gains and privatize losses.

Accepted Answer

A) True 
 B)False

Question 4

The U.S. is among the countries that have very low levels of political corruption, as reported in the Global Corruption Barometer of 2013.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that Katie and Kelly each expects to receive $500 worth of marginal benefits from a proposed new recreation center, whereas Kerry expects to receive only $100 worth. If the proposed tax levied on each for the center would be $400, a majority vote will

Accepted Answer

A)  defeat this project and resources will be underallocated to it. 
B)  pass 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)  pass 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 6

Assume that Abby, Ben, and Clara 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 $400 each to Abby, Ben, and Clara. 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 7

The unlawful misdirection of governmental resources for personal gain is known as

Accepted Answer

A)  political corruption. 
B)  logrolling. 
C)  adverse selection. 
D)  the special-interest effect. 
A)  political corruption. 
B)  logrolling. 
C)  adverse selection. 
D)  the special-interest effect.

Question 8

The principal-agent problem refers to the problem of

Accepted Answer

A)  communication between sports and entertainment stars with their agents. 
B)  how to split profits between labor and management. 
C)  the interests of delegates deviating from the interests of the delegators. 
D)  how stockholders of a corporation can elect a board of directors. 
A)  communication between sports and entertainment stars with their agents. 
B)  how to split profits between labor and management. 
C)  the interests of delegates deviating from the interests of the delegators. 
D)  how stockholders of a corporation can elect a board of directors.

Question 9

In making sure that laws are uniformly enforced and applied, one consequence is that government creates inflexibility.

Accepted Answer

A) True 
 B)False

Question 10

Government's ability to force people to do things involuntarily is

Accepted Answer

A)  unconstitutional in the United States and other market economies. 
B)  always going to lead to lower economic efficiency. 
C)  beneficial if it is used to improve economic efficiency. 
D)  always beneficial in reducing the deadweight loss in the economy. 
A)  unconstitutional in the United States and other market economies. 
B)  always going to lead to lower economic efficiency. 
C)  beneficial if it is used to improve economic efficiency. 
D)  always beneficial in reducing the deadweight loss in the economy.

Question 11

The government's ability to force people to do things can increase economic efficiency.

Accepted Answer

A) True 
 B)False

Question 12

The political technique called logrolling

Accepted Answer

A)  always increases economic efficiency. 
B)  always decreases economic efficiency. 
C)  involves trading votes to secure favorable outcomes that otherwise could be rejected. 
D)  is an example of the paradox of voting. 
A)  always increases economic efficiency. 
B)  always decreases economic efficiency. 
C)  involves trading votes to secure favorable outcomes that otherwise could be rejected. 
D)  is an example of the paradox of voting.

Question 13

When the government provides loan guarantees and in effect "socializes losses and privatizes gains" of a project or firm, it can lead to a

Accepted Answer

A)  moral hazard problem among investors. 
B)  regulatory capture problem. 
C)  principal-agent problem within the firm. 
D)  limited and bundled choice problem. 
A)  moral hazard problem among investors. 
B)  regulatory capture problem. 
C)  principal-agent problem within the firm. 
D)  limited and bundled choice problem.

Question 14

Inefficiencies associated with majority voting may get resolved through

Accepted Answer

A)  using the median-voter model. 
B)  bureaucratic inefficiency. 
C)  the paradox of voting. 
D)  political logrolling. 
A)  using the median-voter model. 
B)  bureaucratic inefficiency. 
C)  the paradox of voting. 
D)  political logrolling.

Question 15

Governments try to smooth business cycles by using the following policies, except

Accepted Answer

A)  tax policies. 
B)  interest rate policies. 
C)  wage rate policies. 
D)  government-spending policies. 
A)  tax policies. 
B)  interest rate policies. 
C)  wage rate policies. 
D)  government-spending policies.

Exam 5: Governments Role and Government Failure

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

Which statement best describes a special-interest issue?

Government loan guarantees tend to socialize gains and privatize losses.

The U.S. is among the countries that have very low levels of political corruption, as reported in the Global Corruption Barometer of 2013.

Suppose that Katie and Kelly each expects to receive $500 worth of marginal benefits from a proposed new recreation center, whereas Kerry expects to receive only $100 worth. If the proposed tax levied on each for the center would be $400, a majority vote will

The unlawful misdirection of governmental resources for personal gain is known as

The principal-agent problem refers to the problem of

In making sure that laws are uniformly enforced and applied, one consequence is that government creates inflexibility.

Government's ability to force people to do things involuntarily is

The government's ability to force people to do things can increase economic efficiency.

The political technique called logrolling

When the government provides loan guarantees and in effect "socializes losses and privatizes gains" of a project or firm, it can lead to a

Inefficiencies associated with majority voting may get resolved through

Governments try to smooth business cycles by using the following policies, except

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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