Question 1

The two largest sources of government spending are:

Accepted Answer

A)  defense and foreign aid. 
B)  welfare and foreign aid. 
C)  interest on debt and Social Security. 
D)  defense and Social Security. 
A)  defense and foreign aid. 
B)  welfare and foreign aid. 
C)  interest on debt and Social Security. 
D)  defense and Social Security.

Question 2

According to public choice theory, the main reason for some politicians' ability to build support for policies that generate more costs than benefits is that

Accepted Answer

A)  the public is always ignorant about the costs and benefits of any policy. 
B)  rational ignorance is higher in the situation of concentrated benefits and diffuse costs. 
C)  the government always misleads the public with biased information. 
D)  the political process has flaws so that the public is always misinformed. 
A)  the public is always ignorant about the costs and benefits of any policy. 
B)  rational ignorance is higher in the situation of concentrated benefits and diffuse costs. 
C)  the government always misleads the public with biased information. 
D)  the political process has flaws so that the public is always misinformed.

Question 3

The incumbent party tends to win elections when:

Accepted Answer

A)  inflation is high. 
B)  consumers' disposable income is high. 
C)  the incumbent party has not been in power for very long. 
D)  unemployment is high. 
A)  inflation is high. 
B)  consumers' disposable income is high. 
C)  the incumbent party has not been in power for very long. 
D)  unemployment is high.

Question 4

The government spends more on foreign aid than:

Accepted Answer

A)  health care. 
B)  welfare. 
C)  Social Security. 
D)  None of the answers is correct. 
A)  health care. 
B)  welfare. 
C)  Social Security. 
D)  None of the answers is correct.

Question 5

Sugar consumers likely won't do much to oppose a law that reduces the supply of sugar and raises prices.

Accepted Answer

A) True 
 B)False

Question 6

The free flow of ideas helps both the market and government to function better.

Accepted Answer

A) True 
 B)False

Question 7

Use the following to answer questions:
Figure: Smoking Ban Policy Spectrum  
-(Figure: Smoking Ban Policy Spectrum) Refer to the figure. If there are only two candidates, A and B, and a smoking ban is the only issue being debated in this election, based on the median voter theorem, which candidate will win the election?

Accepted Answer

A)  A 
B)  B 
C)  Neither A nor B will win this election. 
D)  Both A and B will receive an equal number of votes. 
A)  A 
B)  B 
C)  Neither A nor B will win this election. 
D)  Both A and B will receive an equal number of votes.

Question 8

Rational ignorance refers to the:

Accepted Answer

A)  lack of incentive voters have to become well informed about candidates and issues because their vote is unlikely to affect the outcome of an election. 
B)  problem of not enough information being supplied to voters because politicians are not spending enough on campaign adds to inform voters of their positions on issues. 
C)  fact that most people choose to become just as well informed when making choices as consumers as they do when making choices as voters. 
D)  lack of rational analysis on the part of voters when they choose not to become informed about candidates and issues even though this knowledge would produce great personal benefit to them. 
A)  lack of incentive voters have to become well informed about candidates and issues because their vote is unlikely to affect the outcome of an election. 
B)  problem of not enough information being supplied to voters because politicians are not spending enough on campaign adds to inform voters of their positions on issues. 
C)  fact that most people choose to become just as well informed when making choices as consumers as they do when making choices as voters. 
D)  lack of rational analysis on the part of voters when they choose not to become informed about candidates and issues even though this knowledge would produce great personal benefit to them.

Question 9

Economists Besley and Burgess found that a government is more responsive to food crises when there is:

Accepted Answer

A)  more political competition. 
B)  more newspapers. 
C)  either more political competition or more newspapers. 
D)  both more political competition and more newspapers. 
A)  more political competition. 
B)  more newspapers. 
C)  either more political competition or more newspapers. 
D)  both more political competition and more newspapers.

Question 10

An abstract from a recent economics paper reads as follows:
We explore whether presidential and congressional influences affect the rate of disaster declaration and the allocation of FEMA (Federal Emergency Management Agency) disaster expenditures across states. We find that states politically important to the president have a higher rate of disaster declaration by the president (which is necessary to receive FEMA funding).
This research is an example of

Accepted Answer

A)  political economics. 
B)  civil reasoning. 
C)  public choice. 
D)  myopic rationality. 
A)  political economics. 
B)  civil reasoning. 
C)  public choice. 
D)  myopic rationality.

Question 11

Rational ignorance may cause voters to make irrational decisions, such as judging a politician based on the level of oil prices, even though markets set oil prices.

Accepted Answer

A) True 
 B)False

Question 12

Rational public ignorance tends to be voluntary in democracies but public ignorance tends to be more involuntary in nondemocracies.

Accepted Answer

A) True 
 B)False

Question 13

Control of the media do not enable special interest groups to control the government for their own ends.

Accepted Answer

A) True 
 B)False

Question 14

The incumbent president is more likely to win reelection if:

Accepted Answer

A)  interest rate policy remains stable. 
B)  voters are rationally ignorant. 
C)  unemployment decreases in the summer prior to the election in November. . 
D)  four-year inflation is lower than the four-year inflation rate under the previous president. 
A)  interest rate policy remains stable. 
B)  voters are rationally ignorant. 
C)  unemployment decreases in the summer prior to the election in November. . 
D)  four-year inflation is lower than the four-year inflation rate under the previous president.

Question 15

If the costs of informing oneself are greater than the benefits, then ignorance is

Accepted Answer

A)  rational. 
B)  irrational. 
C)  not beneficial. 
D)  not costly. 
A)  rational. 
B)  irrational. 
C)  not beneficial. 
D)  not costly.

Question 16

The incentive to inform oneself before an election is:

Accepted Answer

A)  high because every vote counts, especially in a democracy. 
B)  high because it's important for a civil society to be civically engaged. 
C)  low because one's own vote has virtually no chance of affecting the outcome of an election. 
D)  high because the outcome of an election has lasting consequences. 
A)  high because every vote counts, especially in a democracy. 
B)  high because it's important for a civil society to be civically engaged. 
C)  low because one's own vote has virtually no chance of affecting the outcome of an election. 
D)  high because the outcome of an election has lasting consequences.

Question 17

Much of public choice argues that what the public wants isn't reflected in elected officials' actions. Yet there is a strong connection between famine prevention and democracy (more democracy means less famine), and this "exception" is completely consistent with ideas from public choice. Why?

Accepted Answer

A)  because the median voter doesn't want to starve 
B)  because voters have a strong incentive to be informed 
C)  because voters have strong memories about times they don't eat 
D)  because the costs of corruption are concentrated rather than diffuse 
A)  because the median voter doesn't want to starve 
B)  because voters have a strong incentive to be informed 
C)  because voters have strong memories about times they don't eat 
D)  because the costs of corruption are concentrated rather than diffuse

Question 18

It is always rational to be ignorant.

Accepted Answer

A) True 
 B)False

Question 19

Political business cycles occur because voters are:

Accepted Answer

A)  irrational by always voting for the wrong politicians. 
B)  rational during election years, but politicians always deviate from what they promise. 
C)  rationally ignorant by not looking at economic conditions over a president's entire term. 
D)  rational by voting for politicians that improve economic conditions at least some of the time. 
A)  irrational by always voting for the wrong politicians. 
B)  rational during election years, but politicians always deviate from what they promise. 
C)  rationally ignorant by not looking at economic conditions over a president's entire term. 
D)  rational by voting for politicians that improve economic conditions at least some of the time.

Question 20

The basic concept behind the median voter theorem is that:
I. the median voter is defined as the voter for which half of the other voters want a policy to the left and half of the voters want a policy to the right.
II. when voters vote, regardless of whether they vote closest to their preferences or not, the preference of the median voter is sure to win in a majority win election.
III. if voters vote closest to their preferences, then the preference of the median voter is sure to win in a majority win election.

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  III only 
A)  I only 
B)  I and II only 
C)  I and III only 
D)  III only

Exam 20: Political Economy and Public Choice

The two largest sources of government spending are:

According to public choice theory, the main reason for some politicians' ability to build support for policies that generate more costs than benefits is that

The incumbent party tends to win elections when:

The government spends more on foreign aid than:

Sugar consumers likely won't do much to oppose a law that reduces the supply of sugar and raises prices.

The free flow of ideas helps both the market and government to function better.

Rational ignorance refers to the:

Economists Besley and Burgess found that a government is more responsive to food crises when there is:

Rational ignorance may cause voters to make irrational decisions, such as judging a politician based on the level of oil prices, even though markets set oil prices.

Rational public ignorance tends to be voluntary in democracies but public ignorance tends to be more involuntary in nondemocracies.

Control of the media do not enable special interest groups to control the government for their own ends.

The incumbent president is more likely to win reelection if:

If the costs of informing oneself are greater than the benefits, then ignorance is

The incentive to inform oneself before an election is:

Much of public choice argues that what the public wants isn't reflected in elected officials' actions. Yet there is a strong connection between famine prevention and democracy (more democracy means less famine), and this "exception" is completely consistent with ideas from public choice. Why?

It is always rational to be ignorant.

Political business cycles occur because voters are:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

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