Question 1

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of:

Accepted Answer

A)  Goods with negative externalities 
B)  Goods with positive externalities 
C)  Private sector goods 
D)  Complementary goods 
A)  Goods with negative externalities 
B)  Goods with positive externalities 
C)  Private sector goods 
D)  Complementary goods

Question 2

Governments try to smooth business cycles by using these 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

Question 3

In the corporate world of business, the principal-agent problem arises between:

Accepted Answer

A)  Workers and managers 
B)  Managers and stockholders 
C)  Stockholders and bondholders 
D)  Corporations and their banks 
A)  Workers and managers 
B)  Managers and stockholders 
C)  Stockholders and bondholders 
D)  Corporations and their banks

Question 4

When voters have different opinions about an issue, the position that is most likely to be adopted is that of the:

Accepted Answer

A)  Lobbyist 
B)  Logroller 
C)  Rent-seeker 
D)  Median voter 
A)  Lobbyist 
B)  Logroller 
C)  Rent-seeker 
D)  Median voter

Question 5

During a period when output and employment is falling, the government will try to:

Accepted Answer

A)  Increase tax rates 
B)  Increase interest rates 
C)  Reduce government spending 
D)  Stimulate borrowing and spending 
A)  Increase tax rates 
B)  Increase interest rates 
C)  Reduce government spending 
D)  Stimulate borrowing and spending

Question 6

Political corruption occurs in the following instances, except when:

Accepted Answer

A)  Government officials use their powers for personal gain 
B)  People pay a government official to do what he should be doing 
C)  People pay a bureaucrat to do something that he should not be doing 
D)  Businesses pay property taxes and license fees 
A)  Government officials use their powers for personal gain 
B)  People pay a government official to do what he should be doing 
C)  People pay a bureaucrat to do something that he should not be doing 
D)  Businesses pay property taxes and license fees

Question 7

The government adds to its overall public debt whenever it:

Accepted Answer

A)  Runs a budget deficit 
B)  Increases money supply in the economy 
C)  Buys government bonds 
D)  Raises tax collection 
A)  Runs a budget deficit 
B)  Increases money supply in the economy 
C)  Buys government bonds 
D)  Raises tax collection

Question 8

The collective action problem is the reason why there are no lobbyists representing the interest of general taxpayers or consumers in Washington, DC.

Accepted Answer

A) True 
 B)False

Question 9

The median-voter model indicates that political parties will:

Accepted Answer

A)  Target only those voters who can be influenced by rent-seeking 
B)  Direct their work to voters who can be influenced by special interests 
C)  Campaign at one end of the distribution of voter sentiments 
D)  Try to appeal to the sentiments of the voter holding the middle position 
A)  Target only those voters who can be influenced by rent-seeking 
B)  Direct their work to voters who can be influenced by special interests 
C)  Campaign at one end of the distribution of voter sentiments 
D)  Try to appeal to the sentiments of the voter holding the middle position

Question 10

As long as government officials have to be elected, they are always held accounted for their policy decisions and choices.

Accepted Answer

A) True 
 B)False

Question 11

Unintended consequences can result from the government's desire to enforce laws uniformly.

Accepted Answer

A) True 
 B)False

Question 12

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 13

One implication of the median-voter model as applied to a vote regarding how much government involvement to have in the economy is that most voters would find the resulting government involvement either too large or too small.

Accepted Answer

A) True 
 B)False

Question 14

Political logrolling, or vote-trading, can turn a potentially inefficient voting outcome into an efficient one.

Accepted Answer

A) True 
 B)False

Question 15

When monetary policy becomes highly politicized, the policy tends to:

Accepted Answer

A)  Become more effective at stabilizing the economy 
B)  Lose any effect at all on the economy 
C)  Become destabilizing, instead of promoting stability 
D)  Lead to rising budget surpluses 
A)  Become more effective at stabilizing the economy 
B)  Lose any effect at all on the economy 
C)  Become destabilizing, instead of promoting stability 
D)  Lead to rising budget surpluses

Question 16

When the special-interest effect is the major reason for the passage of a government policy or project, then economic efficiency will always improve.

Accepted Answer

A) True 
 B)False

Question 17

A budget deficit will require the government to issue bonds to fill in the gap in the budget.

Accepted Answer

A) True 
 B)False

Question 18

Because of the so-called "bundled choice" problem, voters often vote for candidates that they are not entirely happy with.

Accepted Answer

A) True 
 B)False

Question 19

Refer to the above table, which shows the ranked preferences of voters for three alternative projects, with "1" being the top preference. In a paired-choice vote between a stadium and a park:

Accepted Answer

A)  A majority of the voters would favor the park, 2-to-1 
B)  A majority of the voters would favor the stadium, 2-to-1 
C)  A majority of the voters would favor the park, 3-to-0 
D)  A majority of the voters would favor the stadium, 3-to-0 
A)  A majority of the voters would favor the park, 2-to-1 
B)  A majority of the voters would favor the stadium, 2-to-1 
C)  A majority of the voters would favor the park, 3-to-0 
D)  A majority of the voters would favor the stadium, 3-to-0

Question 20

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

Accepted Answer

A)  The fallacy of limited decisions 
B)  The paradox of voting 
C)  The median-voter model 
D)  Political logrolling 
A)  The fallacy of limited decisions 
B)  The paradox of voting 
C)  The median-voter model 
D)  Political logrolling

Exam 5: Governments Role and Government Failure

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of:

Governments try to smooth business cycles by using these policies, except:

In the corporate world of business, the principal-agent problem arises between:

When voters have different opinions about an issue, the position that is most likely to be adopted is that of the:

During a period when output and employment is falling, the government will try to:

Political corruption occurs in the following instances, except when:

The government adds to its overall public debt whenever it:

The collective action problem is the reason why there are no lobbyists representing the interest of general taxpayers or consumers in Washington, DC.

The median-voter model indicates that political parties will:

As long as government officials have to be elected, they are always held accounted for their policy decisions and choices.

Unintended consequences can result from the government's desire to enforce laws uniformly.

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

One implication of the median-voter model as applied to a vote regarding how much government involvement to have in the economy is that most voters would find the resulting government involvement either too large or too small.

Political logrolling, or vote-trading, can turn a potentially inefficient voting outcome into an efficient one.

When monetary policy becomes highly politicized, the policy tends to:

When the special-interest effect is the major reason for the passage of a government policy or project, then economic efficiency will always improve.

A budget deficit will require the government to issue bonds to fill in the gap in the budget.

Because of the so-called "bundled choice" problem, voters often vote for candidates that they are not entirely happy with.

Refer to the above table, which shows the ranked preferences of voters for three alternative projects, with "1" being the top preference. In a paired-choice vote between a stadium and a park:

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

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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