Question 1

Some economists contend that government agencies are generally less efficient than private businesses due to the following reasons, except

Accepted Answer

A)  government bureaucracies do not face the profit motive, which is a major incentive that guides private firms 
B)  government bureaucrats tend to deal with failing programs by putting more resources into the programs, rather than eliminating the program. 
C)  incompetent workers gravitate toward government, while motivated workers gravitate toward the private sector. 
D)  bureaucrats, along with the special-interest groups they serve, often gain enough political clout to keep their agencies going regardless of performance. 
A)  government bureaucracies do not face the profit motive, which is a major incentive that guides private firms 
B)  government bureaucrats tend to deal with failing programs by putting more resources into the programs, rather than eliminating the program. 
C)  incompetent workers gravitate toward government, while motivated workers gravitate toward the private sector. 
D)  bureaucrats, along with the special-interest groups they serve, often gain enough political clout to keep their agencies going regardless of performance.

Question 2

Which of the following is the best example of rent-seeking behavior?

Accepted Answer

A)  Voters consider a ballot measure that would increase taxes to better fund schools. 
B)  Students at a university lobby the administration to improve dorms and reduce class sizes without increasing tuition. 
C)  Consumers try to get flying cars produced by telling automakers they are willing to pay for them. 
D)  Senators vote for what their constituents want so they can get reelected. 
A)  Voters consider a ballot measure that would increase taxes to better fund schools. 
B)  Students at a university lobby the administration to improve dorms and reduce class sizes without increasing tuition. 
C)  Consumers try to get flying cars produced by telling automakers they are willing to pay for them. 
D)  Senators vote for what their constituents want so they can get reelected.

Question 3

The special-interest effect in government decision making is significant because

Accepted Answer

A)  it corrects instances of spillover costs and benefits. 
B)  it can lead to programs with concentrated benefits and diffuse costs. 
C)  capitalistic economies are based upon the pursuit of self-interest. 
D)  it allows us to avoid the collective-action problem. 
A)  it corrects instances of spillover costs and benefits. 
B)  it can lead to programs with concentrated benefits and diffuse costs. 
C)  capitalistic economies are based upon the pursuit of self-interest. 
D)  it allows us to avoid the collective-action problem.

Question 4

Monetary policy refers to the government's attempt at smoothing business cycles through the use of changes in

Accepted Answer

A)  tax rates. 
B)  interest rates. 
C)  wage rates. 
D)  government spending. 
A)  tax rates. 
B)  interest rates. 
C)  wage rates. 
D)  government spending.

Question 5

In corporations, owners are and managers are .

Accepted Answer

A)  agents; principals 
B)  stockholders; bondholders 
C)  agents; employees 
D)  principals; agents 
A)  agents; principals 
B)  stockholders; bondholders 
C)  agents; employees 
D)  principals; agents

Question 6

In a market economy, the government's ability to coerce is beneficial in the following cases, except in

Accepted Answer

A)  correcting for positive externalities. 
B)  correcting for negative externalities. 
C)  producing public goods. 
D)  fixing resource prices. 
A)  correcting for positive externalities. 
B)  correcting for negative externalities. 
C)  producing public goods. 
D)  fixing resource prices.

Question 7

In a market economy, private parties are more willing to do transactions when they know that the government is able to

Accepted Answer

A)  investigate and arrest people at random. 
B)  force people to honor contracts or outlaw private coercion. 
C)  discriminate against one group or another in society. 
D)  revoke private agreements and contracts. 
A)  investigate and arrest people at random. 
B)  force people to honor contracts or outlaw private coercion. 
C)  discriminate against one group or another in society. 
D)  revoke private agreements and contracts.

Question 8

Pork-barrel politics is a good illustration of the "clear benefits, hidden costs" perspective of politicians.

Accepted Answer

A) True 
 B)False

Question 9

Regulatory capture often occurs because of which of the following?

Accepted Answer

A)  Government officials want stronger control over industry regulation. 
B)  Nearly everyone with expertise works in the regulated industry. 
C)  Patent law allows firms to gain monopoly power easily and therefore control a market. 
D)  Consumer groups are effective at lobbying the government for industry regulation. 
A)  Government officials want stronger control over industry regulation. 
B)  Nearly everyone with expertise works in the regulated industry. 
C)  Patent law allows firms to gain monopoly power easily and therefore control a market. 
D)  Consumer groups are effective at lobbying the government for industry regulation.

Question 10

If choice A wins over choice B in a majority vote, while choice B wins over choice C in a majority vote, then we can conclude that choice A would win over choice C.

Accepted Answer

A) True 
 B)False

Question 11

Unfunded liabilities occur when the government considers long-term benefits and costs of projects, and approves only those with positive long-term net benefits.

Accepted Answer

A) True 
 B)False

Question 12

Government laws and policies need to be uniformly enforced. But this leads to all of the following problems, except

Accepted Answer

A)  inflexibility. 
B)  massive paperwork. 
C)  excessively detailed rules. 
D)  haphazard application. 
A)  inflexibility. 
B)  massive paperwork. 
C)  excessively detailed rules. 
D)  haphazard application.

Question 13

Deregulation

Accepted Answer

A)  tends to improve outcomes in industries generating substantial negative externalities. 
B)  eliminates regulatory capture and can improve outcomes by increasing competition. 
C)  is most appropriate to undertake by government agencies responsible for human safety, financial regulation, and environmental protection. 
D)  always generates greater economic efficiency. 
A)  tends to improve outcomes in industries generating substantial negative externalities. 
B)  eliminates regulatory capture and can improve outcomes by increasing competition. 
C)  is most appropriate to undertake by government agencies responsible for human safety, financial regulation, and environmental protection. 
D)  always generates greater economic efficiency.

Question 14

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

Accepted Answer

A)  moral hazard. 
B)  the principal-agent problem. 
C)  logrolling. 
D)  rent-seeking behavior. 
A)  moral hazard. 
B)  the principal-agent problem. 
C)  logrolling. 
D)  rent-seeking behavior.

Question 15

Suppose that in a series of paired-choice votes, a new park is preferred to a new recreation center and a new recreation center is preferred to street widening. Also suppose that street widening is preferred to a new park. This set of votes is an example of the

Accepted Answer

A)  principal-agent problem. 
B)  benefits-received principle. 
C)  median-voter model. 
D)  paradox of voting. 
A)  principal-agent problem. 
B)  benefits-received principle. 
C)  median-voter model. 
D)  paradox of voting.

Question 16

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. Based on economic analysis, the public good should

Accepted Answer

A)  be produced, because the benefits are greater than the costs. 
B)  not be produced, because the costs are greater than the benefits. 
C)  be put to a vote and produced only if voters approve it. 
D)  not be produced, even if voters vote in favor of it. 
A)  be produced, because the benefits are greater than the costs. 
B)  not be produced, because the costs are greater than the benefits. 
C)  be put to a vote and produced only if voters approve it. 
D)  not be produced, even if voters vote in favor of it.

Question 17

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 banks. 
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 banks.

Question 18

Individual accountability within the government bureaucracy

Accepted Answer

A)  tends to be greater than in private firms, making government more efficient than private firms. 
B)  is not a problem because government bureaucrats are not affected by the self-interest that affects private sector individuals. 
C)  is easy to monitor because of the small size and scope of government. 
D)  tends to be lacking because of civil service protections and the complexity of government. 
A)  tends to be greater than in private firms, making government more efficient than private firms. 
B)  is not a problem because government bureaucrats are not affected by the self-interest that affects private sector individuals. 
C)  is easy to monitor because of the small size and scope of government. 
D)  tends to be lacking because of civil service protections and the complexity of government.

Question 19

One major role that the government plays in the market economy of the U.S. is

Accepted Answer

A)  setting production targets for major industries. 
B)  requiring minimum levels of employment in major industries. 
C)  allocating resources in various market activities. 
D)  setting laws governing economic activity. 
A)  setting production targets for major industries. 
B)  requiring minimum levels of employment in major industries. 
C)  allocating resources in various market activities. 
D)  setting laws governing economic activity.

Question 20

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 between the nation's amount of exports and its total amount of imports. 
C)  gap between government spending and its lower tax revenues. 
D)  decrease in the amount of government spending from one year to the next. 
A)  total amount of debt that the government has incurred over the years. 
B)  difference between the nation's amount of exports and its total amount of imports. 
C)  gap between government spending and its lower tax revenues. 
D)  decrease in the amount of government spending from one year to the next.

Exam 5: Governments Role and Government Failure

Some economists contend that government agencies are generally less efficient than private businesses due to the following reasons, except

Which of the following is the best example of rent-seeking behavior?

The special-interest effect in government decision making is significant because

Monetary policy refers to the government's attempt at smoothing business cycles through the use of changes in

In corporations, owners are and managers are .

In a market economy, the government's ability to coerce is beneficial in the following cases, except in

In a market economy, private parties are more willing to do transactions when they know that the government is able to

Pork-barrel politics is a good illustration of the "clear benefits, hidden costs" perspective of politicians.

Regulatory capture often occurs because of which of the following?

If choice A wins over choice B in a majority vote, while choice B wins over choice C in a majority vote, then we can conclude that choice A would win over choice C.

Unfunded liabilities occur when the government considers long-term benefits and costs of projects, and approves only those with positive long-term net benefits.

Government laws and policies need to be uniformly enforced. But this leads to all of the following problems, except

Deregulation

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

Suppose that in a series of paired-choice votes, a new park is preferred to a new recreation center and a new recreation center is preferred to street widening. Also suppose that street widening is preferred to a new park. This set of votes is an example of the

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

Individual accountability within the government bureaucracy

One major role that the government plays in the market economy of the U.S. is

The government's budget deficit refers to the

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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