Question 1

(Consider This) From an economist's perspective,

Accepted Answer

A)  small government is better than big government. 
B)  big government is better than small government. 
C)  regardless of size, government is incapable of achieving allocative or productive efficiency. 
D)  the size of government doesn't matter, as long as spending occurs up to where MB = MC.

Question 2

Which of the following would be an avenue for resolving the inefficiencies associated with majority voting?

Accepted Answer

A)  political logrolling 
B)  progressive taxation 
C)  proportional taxation 
D)  the paradox of voting

Question 3

During a period when output and employment are 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.

Question 4

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.

Question 5

The government of Southland wants to improve resource allocation in the country. Which of the following actions by the Southland government is most likely to accomplish this?

Accepted Answer

A)  weakening enforcement of laws and contracts 
B)  promising to cover every risk of loss for private firms 
C)  coercing all firms to innovate and invest 
D)  taxing polluters and subsidizing firms that are creating significant positive externalities

Question 6

(Consider This) A 2015 study of hospitals, power plants, and water utilities found that

Accepted Answer

A)  public companies violated health and safety laws more than private companies. 
B)  government employees are systematically less competent than those in the private sector. 
C)  private companies violated health and safety laws more than public companies. 
D)  there was no significant difference in the number of health and safety violations between public and private companies.

Question 7

Rent-seeking behavior in public choice theory refers to

Accepted Answer

A)  politicians trading votes with one another. 
B)  receiving perks and freebies from businesses trying to sway their votes. 
C)  specific groups appealing to government for special benefits at someone else's expense. 
D)  politicians getting low rent for their living quarters when government is in session.

Question 8

The reason why, under majority voting and consistent voter preferences, the median voter's choice will tend to predominate is because

Accepted Answer

A)  the median voter has the strongest preferences compared to the other voters. 
B)  most voters strongly prefer the median view. 
C)  extreme voters on either side of the median would prefer the median over the opposite extreme. 
D)  voters' preferences are bell-shaped, with most of them falling on the median.

Question 9

The pursuit through government of a transfer of wealth at society's expense is called "rent seeking."

Accepted Answer

A) True 
 B)False

Question 10

Which of the following would be the best example of regulatory capture?

Accepted Answer

A)  Starbucks buys up all the available supplies of coffee beans. 
B)  Nike executives influence the rules for track and field events. 
C)  Federal law makers write and pass legislation that protects domestic companies from foreign competition. 
D)  Executives from the Ford, General Motors, and Chrysler companies write the rules regulating automobile safety and fuel requirements.

Question 11

Government changes in interest rates to regulate the economy are part of

Accepted Answer

A)  monetary policy. 
B)  fiscal policy. 
C)  debt policy. 
D)  liability policy.

Question 12

Even in democratic governments, we tend to have a problem with accountability due to the following reasons, except

Accepted Answer

A)  so many government activities are undertaken simultaneously. 
B)  civil-service protections apply to many bureaucrats. 
C)  the electorate cannot monitor each and every action of the government. 
D)  there is the markets' self-correcting mechanism in government.

Question 13

Government guarantees that socialize losses and privatize gains tend to encourage risky and imprudent investment.

Accepted Answer

A) True 
 B)False

Question 14

Deregulation is seen as a solution to regulatory capture because it eliminates the regulatory agency that can or has been captured.

Accepted Answer

A) True 
 B)False

Question 15

To make up for a shortfall in its annual budget, the government must borrow money by

Accepted Answer

A)  issuing government (Treasury) bonds. 
B)  buying government (Treasury) bonds. 
C)  reducing its total public debt. 
D)  selling government stock.

Question 16

In a sporting goods store, you can buy the equipment you want and forgo the rest. But in an election you "buy" the entire range of the candidate's positions, including some you may not agree with. This difference

Accepted Answer

A)  reflects limited and bundled choices in the public sector. 
B)  describes the paradox of voting. 
C)  describes the principal-agent problem in the public sector. 
D)  creates bureaucratic inefficiency in the public sector.

Question 17

One prediction of the median-voter model is that during elections, candidates will tend to become "centrists."

Accepted Answer

A) True 
 B)False

Question 18

Critics of government contend that the market system creates incentives and pressures for internal efficiency that are absent in the public sector.

Accepted Answer

A) True 
 B)False

Question 19

(Consider This) The collective action problem refers to

Accepted Answer

A)  logrolling behavior that results in inefficient policies. 
B)  the tendency for legislatures to enact policies that are economically harmful. 
C)  the lack of political power of small groups of people. 
D)  difficulty in organizing and motivating large groups to achieve desired outcomes.

Question 20

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A proposed public good has a total cost of $1,000. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben, $210 to Clara, $180 to Joe, and $120 to Matt. In a majority vote, this proposal will most likely be

Accepted Answer

A)  accepted, four in favor and one against. 
B)  defeated, one in favor and four against. 
C)  accepted, three in favor and two against. 
D)  defeated, two in favor and three against.

Exam 5: Governments Role and Government Failure

(Consider This) From an economist's perspective,

Which of the following would be an avenue for resolving the inefficiencies associated with majority voting?

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

The government adds to its overall public debt whenever it

The government of Southland wants to improve resource allocation in the country. Which of the following actions by the Southland government is most likely to accomplish this?

(Consider This) A 2015 study of hospitals, power plants, and water utilities found that

Rent-seeking behavior in public choice theory refers to

The reason why, under majority voting and consistent voter preferences, the median voter's choice will tend to predominate is because

The pursuit through government of a transfer of wealth at society's expense is called "rent seeking."

Which of the following would be the best example of regulatory capture?

Government changes in interest rates to regulate the economy are part of

Even in democratic governments, we tend to have a problem with accountability due to the following reasons, except

Government guarantees that socialize losses and privatize gains tend to encourage risky and imprudent investment.

Deregulation is seen as a solution to regulatory capture because it eliminates the regulatory agency that can or has been captured.

To make up for a shortfall in its annual budget, the government must borrow money by

In a sporting goods store, you can buy the equipment you want and forgo the rest. But in an election you "buy" the entire range of the candidate's positions, including some you may not agree with. This difference

One prediction of the median-voter model is that during elections, candidates will tend to become "centrists."

Critics of government contend that the market system creates incentives and pressures for internal efficiency that are absent in the public sector.

(Consider This) The collective action problem refers to