Question 1

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

Accepted Answer

A)   the market system is highly vulnerable to imperfections, and therefore the socialist system is a much better system to adopt.
B)   the government has much imperfection and creates a lot of inefficiencies; therefore, it is best to adopt a pure market system.
C)   it is best to always compare perfect markets against an idealized benevolent government that efficiently responds to the wants of society.
D)   we must carefully compare the benefits of government intervention in our markets against the costs of such intervention.E) None of the above
F) A) and C)

Question 2

Regulatory capture occurs when government exerts excessive control over an industry.

Accepted Answer

A) True 
 B)False

Question 3

In the median-voter model, the median voter refers to the voter who makes her choice at the midpoint of the voting period.

Accepted Answer

A) True 
 B)False

Question 4

Many governments end up with chronic budget deficits because

Accepted Answer

A)   many government programs are popular with voters, but hardly any voter likes paying taxes.
B)   the nation simply cannot produce everything that it consumes, so it has to rely on other nations.
C)   some resources are not available from within, so they have to be bought from other nations.
D)   businesses do not want to have "big government" around too much.E) All of the above
F) A) and C)

Question 5

Government's ability to reduce private-sector economic risks through laws and regulations would encourage all of the following, except

Accepted Answer

A)   higher levels of private economic investment.
B)   formation of new businesses.
C)   introduction of new products and processes.
D)   reduction of private goods and services.E) All of the above
F) None of the above

Question 6

Which of the following impacts would economists expect to result from chronic budget deficits?

Accepted Answer

A)   greater economic efficiency resulting from the abundance of public goods produced
B)   permanently high levels of output and continued economic growth
C)   greater political control over monetary policy
D)   government control of an inefficiently large share of the economy's resourcesE) None of the above
F) A) and B)

Question 7

"Good economics" is about marginal costs and marginal benefits of specific projects; "good politics" is more about clear benefits and hidden costs.

Accepted Answer

A) True 
 B)False

Question 8

The government's ability to coerce can enhance economic efficiency by

Accepted Answer

A)   eliminating income inequality.
B)   correcting market failures.
C)   preventing resources from going to their most valued uses.
D)   restraining self-interest.E) B) and C)
F) A) and D)

Question 9

Which of the following will tend to socialize losses and privatize gains?

Accepted Answer

A)   lowering interest rates to encourage private borrowing and investment
B)   government regulation to promote human safety and environmental protection
C)   government creating projects rather than supporting private efforts
D)   government guarantees to private investors that they will get their money back even if the company failsE) A) and B)
F) A) and C)

Question 10

The so-called pork-barrel politics refers to congressional members

Accepted Answer

A)   trading votes with one another.
B)   receiving perks and freebies from businesses trying to sway their votes.
C)   paying not much attention to the vocal special-interest groups.
D)   inserting provisions for local narrow projects into comprehensive legislation.E) All of the above
F) A) and B)

Question 11

Chronic budget deficits can lead to all of the following, except

Accepted Answer

A)   overallocation of resources to the government sector, away from the private sector.
B)   "smaller government" in the economy.
C)   investors losing faith in the government's ability to repay its debts.
D)   government being forced to make drastic cuts in its spending.E) C) and D)
F) None of the above

Question 12

The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

Accepted Answer

A) True 
 B)False

Question 13

(Consider This)  Which of the following is an example of voter failure?

Accepted Answer

A)   Voters support adding stoplights that would increase congestion and travel costs without increasing safety or convenience.
B)   Government officials ignore voter calls for regulations that would reduce negative externalities and enhance efficiency.
C)   Voters wanting greater highway safety are unable to express their preferences on how to achieve it because the voting system doesn't allow it.
D)   Voters wanting more government services are divided on what services they most prefer, leaving government officials to determine what is best.E) C) and D)
F) B) and C)

Question 14

The government would be running a budget surplus if

Accepted Answer

A)   government spending were lower than consumer spending.
B)   tax revenues were less than government spending.
C)   it imported less from abroad than it exported.
D)   government spent less than it collected in taxes.E) A) and D)
F) C) and D)

Question 15

A government using fiscal policy in an attempt to stimulate the economy would do which of the following?

Accepted Answer

A)   raise taxes
B)   raise interest rates
C)   lower interest rates
D)   raise government spendingE) None of the above
F) B) and C)

Question 16

In the U.S., the Federal government runs a chronic budget deficit, whereas many state and local governments do not, because

Accepted Answer

A)   many state and local governments have balanced-budget laws that make deficits illegal, while the Federal government does not.
B)   voters in Federal elections tend to favor budget deficits, while voters in state and local elections do not.
C)   many state and local governments face stricter accounting standards than the Federal government does.
D)   elections at the state and local levels tend to occur more frequently than at the Federal level.E) A) and B)
F) B) and D)

Question 17

Public choice economists hold that politicians will

Accepted Answer

A)   favor programs entailing immediate and clear-cut costs and vaguely defined or deferred benefits.
B)   follow policies leading to an optimal allocation of resources between public and private sectors.
C)   favor programs entailing immediate and clear-cut benefits and vaguely defined or deferred costs.
D)   objectively weigh the costs and benefits of various government programs and vote accordingly.E) None of the above
F) A) and D)

Question 18

Which one of the following topics would be of the most interest to a public choice economist?

Accepted Answer

A)   the theory of comparative advantage
B)   the law of increasing opportunity cost
C)   inflation and unemployment
D)   rent-seeking behaviorE) A) and C)
F) A) and B)

Question 19

As it relates to owners and managers, the principal-agent problem results from the

Accepted Answer

A)   separation of corporate ownership and control.
B)   double taxation of corporate profit.
C)   limited liability of corporate owners.
D)   differing interests of corporate stockholders and bondholders.E) A) and B)
F) None of the above

Question 20

The trading of votes to secure favorable outcomes on decisions that would otherwise be defeated is called

Accepted Answer

A)   median-voter trading.
B)   the special-interest effect.
C)   political logrolling.
D)   the paradox of voting.E) All of the above
F) C) and D)

Exam 5: Governments Role and Government Failure

Which of the following will tend to socialize losses and privatize gains?

Correct AnswerverifiedShow Answer

As it relates to owners and managers, the principal-agent problem results from the

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A government using fiscal policy in an attempt to stimulate the economy would do which of the following?

Correct AnswerverifiedShow Answer

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

Correct AnswerverifiedShow Answer

The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

Correct AnswerverifiedShow Answer

"Good economics" is about marginal costs and marginal benefits of specific projects; "good politics" is more about clear benefits and hidden costs.

Correct AnswerverifiedShow Answer

Public choice economists hold that politicians will

Correct AnswerverifiedShow Answer

Government's ability to reduce private-sector economic risks through laws and regulations would encourage all of the following, except

Correct AnswerverifiedShow Answer

(Consider This) Which of the following is an example of voter failure?

Correct AnswerverifiedShow Answer

Chronic budget deficits can lead to all of the following, except

Correct AnswerverifiedShow Answer

Many governments end up with chronic budget deficits because

Correct AnswerverifiedShow Answer

Regulatory capture occurs when government exerts excessive control over an industry.

Correct AnswerverifiedShow Answer

In the U.S., the Federal government runs a chronic budget deficit, whereas many state and local governments do not, because

Correct AnswerverifiedShow Answer

Which one of the following topics would be of the most interest to a public choice economist?

Correct AnswerverifiedShow Answer

The so-called pork-barrel politics refers to congressional members

Correct AnswerverifiedShow Answer

In the median-voter model, the median voter refers to the voter who makes her choice at the midpoint of the voting period.

Correct AnswerverifiedShow Answer

Which of the following impacts would economists expect to result from chronic budget deficits?

Correct AnswerverifiedShow Answer

The trading of votes to secure favorable outcomes on decisions that would otherwise be defeated is called

Correct AnswerverifiedShow Answer

The government would be running a budget surplus if

Correct AnswerverifiedShow Answer

The government's ability to coerce can enhance economic efficiency by

Correct AnswerverifiedShow Answer

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