Question 1

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.E) None of the above
F) B) and D)

Question 2

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.E) A) and C)
F) A) and B)

Question 3

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.E) A) and C)
F) B) and C)

Question 4

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.E) All of the above
F) A) and B)

Question 5

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.E) B) and C)
F) A) and B)

Question 6

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.E) A) and B)
F) B) and C)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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.E) None of the above
F) All of the above

Question 9

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.E) A) and C)
F) A) and B)

Question 10

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 11

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.E) A) and B)
F) B) and D)

Question 12

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.E) A) and D)
F) A) and C)

Question 13

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 14

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.E) B) and C)
F) A) and D)

Question 15

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.E) C) and D)
F) B) and C)

Question 16

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.E) C) and D)
F) A) and D)

Question 17

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.E) A) and B)
F) A) and C)

Question 18

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.E) A) and B)
F) A) and C)

Question 19

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.E) A) and D)
F) None of the above

Question 20

In corporations, owners are and managers are .

Accepted Answer

A)   agents; principals
B)   stockholders; bondholders
C)   agents; employees
D)   principals; agentsE) A) and D)
F) B) and C)

Exam 5: Governments Role and Government Failure

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

Correct Answer
verified

The government's budget deficit refers to the

Correct Answer
verified

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

Correct Answer
verified

Regulatory capture often occurs because of which of the following?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

In corporations, owners are and managers are .

Correct Answer
verified

Correct Answer
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Deregulation

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Individual accountability within the government bureaucracy

Correct Answer
verified

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

Correct Answer
verified

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.

Correct Answer
verified

Exam 5: Governments Role and Government Failure

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

Correct AnswerverifiedShow Answer

The government's budget deficit refers to the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Regulatory capture often occurs because of which of the following?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In corporations, owners are and managers are .

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Deregulation

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Individual accountability within the government bureaucracy

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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