Question 1

Majority voting may produce economically inefficient outcomes because it

Accepted Answer

A)  does not always lead to fair results.
B)  requires everyone to vote and bear the costs.
C)  does not consider the strength of individual voters' preferences.
D)  does not provide benefits to everyone.E) A) and B)
F) A) and C)

Question 2

The major problem with paired-choice majority voting is that the outcome

Accepted Answer

A)  is constant.
B)  is subject to bribery and abuse.
C)  may depend on the order of the voting.
D)  results in clear preferences among the choices.E) C) and D)
F) B) and C)

Question 3

According to the paradox of voting,

Accepted Answer

A)  public goods that cost more than the total benefits they confer may get produced under majority voting.
B)  trading of votes may either add to or subtract from economic efficiency.
C)  the median voter decides what public goods all voters should have.
D)  majority voting fails under some circumstances to make consistent choices that reflect the community's underlying preferences.E) C) and D)
F) B) and D)

Question 4

Government's ability to force people to do things involuntarily is

Accepted Answer

A)  unconstitutional in the United States and other market economies.
B)  always going to lead to lower economic efficiency.
C)  beneficial if it is used to improve economic efficiency.
D)  always beneficial in reducing the deadweight loss in the economy.E) A) and B)
F) None of the above

Question 5

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

Question 6

So-called business cycles refer to the multiyear periods

Accepted Answer

A)  from when new products are launched to the point when they become obsolete.
B)  between the purchases of new capital equipment and the point when they become junk.
C)  from the origination of a business loan to the retirement or full repayment of the loan.
D)  during which the economy's overall output and employment alternately expands and contracts.E) C) and D)
F) B) and C)

Question 7

(Consider This)  Suppose voters pass laws that restrict immigration, which results in lower national output and higher prices for consumer goods.This would be an example of

Accepted Answer

A)  the paradox of voting.
B)  voter failure.
C)  logrolling.
D)  adverse selection.E) None of the above
F) A) and B)

Question 8

A special-interest issue is one whose passage yields

Accepted Answer

A)  private benefits equal to external benefits.
B)  large external benefits compared to private benefits.
C)  small economic losses to a small number of people and large economic losses to a large number of people.
D)  large economic gains to a small number of people and small economic losses to a large number of people.E) B) and C)
F) A) and C)

Question 9

The special-interest effect in government is the reason why firms in some industries are willing to pay huge amounts of money to lobbyists.

Accepted Answer

A) True 
 B)False

Question 10

The invisible hand guides government's economic activity just as it does with private economic activity.

Accepted Answer

A) True 
 B)False

Question 11

Government fiscal policy involves changing which of the following?

Accepted Answer

A)  interest rates
B)  taxes and government spending
C)  regulations on business
D)  the amount of money in circulationE) A) and C)
F) A) and D)

Question 12

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

Question 13

As it relates to the political process, the principal-agent problem results from the

Accepted Answer

A)  negative externalities that are created by some policy actions.
B)  political rules that encourage elected officials to engage in unethical and illegal behavior.
C)  inconsistency between voters' interest in programs and politicians' interest in reelection.
D)  paradox of voting.E) A) and B)
F) All of the above

Question 14

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is a key difference between the economic activities of government and those of private firms?

Accepted Answer

A)  Private firms face the constraint of scarcity; government does not.
B)  Government focuses primarily on equity; private firms focus only on efficiency.
C)  Private economic activities create externalities; government activities do not.
D)  Government has the legal right to force people to do things; private firms do not.E) B) and C)
F) A) and C)

Question 17

Political logrolling always produces economically inefficient outcomes.

Accepted Answer

A) True 
 B)False

Question 18

Governments try to smooth business cycles by using the following policies, except

Accepted Answer

A)  tax policies.
B)  interest rate policies.
C)  wage rate policies.
D)  government-spending policies.E) A) and B)
F) None of the above

Question 19

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) A) and B)
F) A) and C)

Question 20

The situation where politicians make decisions that will raise their chances of reelection, even if those decisions are detrimental to the general public, is referred to as the

Accepted Answer

A)  moral hazard problem.
B)  principal-agent problem.
C)  adverse selection problem.
D)  common good problem.E) A) and B)
F) C) and D)

Exam 5: Governments Role and Government Failure

The situation where politicians make decisions that will raise their chances of reelection, even if those decisions are detrimental to the general public, is referred to as the

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According to the paradox of voting,

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Deregulation

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The special-interest effect in government is the reason why firms in some industries are willing to pay huge amounts of money to lobbyists.

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Majority voting may produce economically inefficient outcomes because it

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Which of the following is a key difference between the economic activities of government and those of private firms?

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Political logrolling always produces economically inefficient outcomes.

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The invisible hand guides government's economic activity just as it does with private economic activity.

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

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Government's ability to force people to do things involuntarily is

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Governments try to smooth business cycles by using the following policies, except

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Public choice economists hold that politicians will

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The government adds to its overall public debt whenever it

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Government fiscal policy involves changing which of the following?

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(Consider This) Suppose voters pass laws that restrict immigration, which results in lower national output and higher prices for consumer goods.This would be an example of

Correct AnswerverifiedShow Answer

A special-interest issue is one whose passage yields

Correct AnswerverifiedShow Answer

So-called business cycles refer to the multiyear periods

Correct AnswerverifiedShow Answer

As it relates to the political process, the principal-agent problem results from the

Correct AnswerverifiedShow Answer

The major problem with paired-choice majority voting is that the outcome

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

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