Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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.E) All of the above
F) C) and D)

Question 3

(Consider This)  Smaller groups are sometimes able to achieve political victories against larger groups.This is referred to as the

Accepted Answer

A)  moral hazard problem.
B)  featherbedding problem.
C)  collective action problem.
D)  pork barrel problem.E) All of the above
F) C) and D)

Question 4

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) A) and D)
F) C) and D)

Question 5

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 D)
F) None of the above

Question 6

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) B) and C)
F) B) and D)

Question 7

Unfunded liabilities are one consequence of the preference for "clear benefits, hidden costs" by politicians.

Accepted Answer

A) True 
 B)False

Question 8

The provision of loan guarantees can improve economic efficiency when

Accepted Answer

A)  there's a moral hazard problem among investors.
B)  the project supported has significant external benefits.
C)  there is regulatory capture in the industry.
D)  the private investors are providing too much funds to the project.E) C) and D)
F) None of the above

Question 9

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) B) and C)
F) All of the above

Question 10

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) A) and D)
F) A) and C)

Question 11

In order to achieve economic efficiency in market economies like the U.S., the government must be stripped of its power to coerce.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is considered a potential solution to some regulatory capture?

Accepted Answer

A)  bringing industry experts into the regulatory process
B)  creating a standard set of regulations for all industries
C)  deregulation of the industry
D)  government subsidies for firms in the industryE) A) and D)
F) A) and C)

Question 13

As it relates to corporations, the principal-agent problem is that

Accepted Answer

A)  the goals of the corporate managers (the principals)  may not match the goals of the corporate owners (the agents) .
B)  the goals of the corporate managers (the agents)  may not match the goals of the corporate owners (the principals) .
C)  the federal government (the agent)  taxes both corporate profits and the dividends paid to stockholders (the principals) .
D)  it is costly for the corporate owners (the principals)  to obtain a corporate charter from government (the agent) .E) None of the above
F) A) and C)

Question 14

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) C) and D)
F) A) and D)

Question 15

The U.S.federal government's largest unfunded liability is

Accepted Answer

A)  Medicare.
B)  national defense.
C)  Social Security.
D)  unemployment insurance.E) B) and C)
F) A) and B)

Question 16

The idea of government failure includes all of the following except

Accepted Answer

A)  special-interest effect.
B)  bureaucratic inefficiency.
C)  pressure by special-interest groups.
D)  extensive positive externalities from public and quasi-public goods.E) A) and D)
F) None of the above

Question 17

The government's ability to coerce people to do things is always detrimental to the achievement of economic efficiency.

Accepted Answer

A) True 
 B)False

Question 18

Fiscal policy refers to the government's attempt at stabilizing the economy through the use of changes in

Accepted Answer

A)  taxes and government spending.
B)  interest rates and borrowing.
C)  wage rates and employment contracts.
D)  exchange rates and foreign trade.E) B) and D)
F) None of the above

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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 externalitiesE) None of the above
F) All of the above

Exam 5: Governments Role and Government Failure

The U.S.federal government's largest unfunded liability is

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In order to achieve economic efficiency in market economies like the U.S., the government must be stripped of its power to coerce.

Correct AnswerverifiedShow Answer

The idea of government failure includes all of the following except

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

(Consider This) Smaller groups are sometimes able to achieve political victories against larger groups.This is referred to as the

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

Which of the following is considered a potential solution to some regulatory capture?

Correct AnswerverifiedShow Answer

Fiscal policy refers to the government's attempt at stabilizing the economy through the use of changes 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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

As it relates to corporations, the principal-agent problem is that

Correct AnswerverifiedShow Answer

Unfunded liabilities are one consequence of the preference for "clear benefits, hidden costs" by politicians.

Correct AnswerverifiedShow Answer

The provision of loan guarantees can improve economic efficiency when

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The government's ability to coerce people to do things is always detrimental to the achievement of economic efficiency.

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

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