Question 1

A debt crisis refers to how much government spending exceeds tax revenues in a given year.

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

Even if a majority of the population wants a law and the law is passed,the outcome may still be economically inefficient.

Accepted Answer

A) True 
 B)False

Question 4

Suppose Canadian 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) None of the above
F) B) and D)

Question 5

When a nation is in a debt crisis,the government's level of debt is so high that:

Accepted Answer

A)   monetary policy is ineffective.
B)   the government is unable to find willing lenders so it can continue borrowing.
C)   it can only be solved with a fiscal stimulus of lower taxes and more government spending.
D)   other countries will be unwilling to buy goods and services from the nation.E) A) and B)
F) None of the above

Question 6

Which of the following is a source of government failure?

Accepted Answer

A)   The invisible hand.
B)   The lack of bureaucracy in government.
C)   The enormous size and scope of government.
D)   Excessive flexibility.E) A) and C)
F) All of the above

Question 7

Vote for my special local project and I will vote for yours.This political technique:

Accepted Answer

A)   illustrates the paradox of voting.
B)   is called "logrolling."
C)   illustrates the median voter model.
D)   undermines the benefits-received principle.E) A) and D)
F) A) and C)

Question 8

The pursuit through government of a "transfer of wealth" at someone else's expense refers to:

Accepted Answer

A)   logrolling.
B)   rent-seeking behavior.
C)   the paradox of voting.
D)   the median-voter model.E) B) and C)
F) All of the above

Question 9

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

Question 10

Chronic budget deficits can be attributed to:

Accepted Answer

A)   unfunded liabilities.
B)   voters wanting government programs but not wanting to pay taxes.
C)   inappropriate monetary policy.
D)   state budget laws.E) None of the above
F) A) and C)

Question 11

Economists call the pursuit of a transfer of wealth through government at someone else's expense:

Accepted Answer

A)   the paradox of voting.
B)   adverse selection.
C)   rent-seeking behavior.
D)   the benefits-received principle.E) B) and C)
F) None of the above

Question 12

Some people argue that the three main television networks all have similar programming.If true,this observation might best be explained by the:

Accepted Answer

A)   paradox of voting.
B)   median-voter model.
C)   law of diminishing marginal utility.
D)   ability-to-pay principle.E) B) and D)
F) B) and C)

Question 13

In a market economy,the government's power to coerce can:

Accepted Answer

A)   undermine economic efficiency by increasing private-sector risk.
B)   improve economic efficiency by directing all resources to their most valued uses.
C)   reduce private-sector risk and increase economic efficiency.
D)   cause significant negative externalities.E) B) and C)
F) A) and C)

Question 14

Regulatory capture is said to have occurred when which of the following is true?

Accepted Answer

A)   Rules and enforcement in an industry are heavily influenced by the industry being regulated.
B)   One firm controls an entire market,having captured customers away from other firms.
C)   Government imposes excessive regulations in an industry,resulting in inefficiencies.
D)   Consumers make all the rules for an industry,forcing firms into inefficient production methods.E) B) and C)
F) C) and D)

Question 15

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 B)
F) C) and D)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Suppose that Katie and Kelly each expects to receive $500 worth of marginal benefits from a proposed new recreation center,whereas Kerry expects to receive only $100 worth.If the proposed tax levied on each for the center would be $400,a majority vote will:

Accepted Answer

A)   defeat this project and resources will be underallocated to it.
B)   pass this project and resources will be efficiently allocated.
C)   pass this project and resources will be underallocated to it.
D)   pass this project and resources will be overallocated to it.E) None of the above
F) A) and D)

Question 18

In representative democracy,voters are ____________ and politicians are ______________.

Accepted Answer

A)   agents;principals
B)   logrollers;principals
C)   agents;employees
D)   principals;agentsE) None of the above
F) C) and D)

Question 19

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

Accepted Answer

A)   Voters support adding stop lights 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) B) and C)
F) A) and B)

Question 20

Public choice theorists contend that:

Accepted Answer

A)   government can efficiently correct instances of market system failure.
B)   the existence of cost-benefit analysis has brought about the efficient use of resources in the public sector.
C)   public bureaucracies are inherently more efficient than private enterprises.
D)   public bureaucracies are inherently less efficient than private enterprises.E) None of the above
F) A) and B)

Exam 5: Governments Role and Government Failure

Suppose Canadian 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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Deregulation:

Correct AnswerverifiedShow Answer

Even if a majority of the population wants a law and the law is passed,the outcome may still be economically inefficient.

Correct AnswerverifiedShow Answer

Suppose that Katie and Kelly each expects to receive $500 worth of marginal benefits from a proposed new recreation center,whereas Kerry expects to receive only $100 worth.If the proposed tax levied on each for the center would be $400,a majority vote will:

Correct AnswerverifiedShow Answer

Regulatory capture is said to have occurred when which of the following is true?

Correct AnswerverifiedShow Answer

Chronic budget deficits can be attributed to:

Correct AnswerverifiedShow Answer

When a nation is in a debt crisis,the government's level of debt is so high that:

Correct AnswerverifiedShow Answer

The pursuit through government of a "transfer of wealth" at someone else's expense refers to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Some people argue that the three main television networks all have similar programming.If true,this observation might best be explained by the:

Correct AnswerverifiedShow Answer

A debt crisis refers to how much government spending exceeds tax revenues in a given year.

Correct AnswerverifiedShow Answer

Vote for my special local project and I will vote for yours.This political technique:

Correct AnswerverifiedShow Answer

In a market economy,the government's power to coerce can:

Correct AnswerverifiedShow Answer

Which of the following is a source of government failure?

Correct AnswerverifiedShow Answer

Public choice theorists contend that:

Correct AnswerverifiedShow Answer

Economists call the pursuit of a transfer of wealth through government at someone else's expense:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In representative democracy,voters are ____________ and politicians are ______________.

Correct AnswerverifiedShow Answer

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In representative democracy,voters are and politicians are __.

Correct Answer
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