Question 1

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 collectionE) A) and B)
F) None of the above

Question 2

When the government provides loan guarantees and in effect "socializes losses and privatizes gains" of a project or firm, it can lead to a:

Accepted Answer

A)   Moral hazard problem among investors
B)   Regulatory capture problem
C)   Principal-agent problem within the firm
D)   Limited and bundled choice problemE) C) and D)
F) None of the above

Question 3

The median-voter model indicates that political parties will:

Accepted Answer

A)   Target only those voters who can be influenced by rent-seeking
B)   Direct their work to voters who can be influenced by special interests
C)   Campaign at one end of the distribution of voter sentiments
D)   Try to appeal to the sentiments of the voter holding the middle positionE) A) and C)
F) A) and B)

Question 4

During a period when output and employment is falling, the government will try to:

Accepted Answer

A)   Increase tax rates
B)   Increase interest rates
C)   Reduce government spending
D)   Stimulate borrowing and spendingE) A) and C)
F) B) and D)

Question 5

Political logrolling, or vote-trading, can turn a potentially inefficient voting outcome into an efficient one.

Accepted Answer

A) True 
 B)False

Question 6

Unintended consequences can result from the government's desire to enforce laws uniformly.

Accepted Answer

A) True 
 B)False

Question 7

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting is:

Accepted Answer

A)   The fallacy of limited decisions
B)   The paradox of voting
C)   The median-voter model
D)   Political logrollingE) A) and D)
F) B) and C)

Question 8

Because of the so-called "bundled choice" problem, voters often vote for candidates that they are not entirely happy with.

Accepted Answer

A) True 
 B)False

Question 9

When the special-interest effect is the major reason for the passage of a government policy or project, then economic efficiency will always improve.

Accepted Answer

A) True 
 B)False

Question 10

A budget deficit will require the government to issue bonds to fill in the gap in the budget.

Accepted Answer

A) True 
 B)False

Question 11

One implication of the median-voter model as applied to a vote regarding how much government involvement to have in the economy is that most voters would find the resulting government involvement either too large or too small.

Accepted Answer

A) True 
 B)False

Question 12

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of:

Accepted Answer

A)   Goods with negative externalities
B)   Goods with positive externalities
C)   Private sector goods
D)   Complementary goodsE) A) and B)
F) B) and D)

Question 13

When monetary policy becomes highly politicized, the policy tends to:

Accepted Answer

A)   Become more effective at stabilizing the economy
B)   Lose any effect at all on the economy
C)   Become destabilizing, instead of promoting stability
D)   Lead to rising budget surplusesE) B) and D)
F) All of the above

Question 14

Political corruption occurs in the following instances, except when:

Accepted Answer

A)   Government officials use their powers for personal gain
B)   People pay a government official to do what he should be doing
C)   People pay a bureaucrat to do something that he should not be doing
D)   Businesses pay property taxes and license feesE) A) and D)
F) A) and B)

Question 15

When voters have different opinions about an issue, the position that is most likely to be adopted is that of the:

Accepted Answer

A)   Lobbyist
B)   Logroller
C)   Rent-seeker
D)   Median voterE) A) and B)
F) None of the above

Question 16

Governments try to smooth business cycles by using these policies, except:

Accepted Answer

A)   Tax policies
B)   Interest rate policies
C)   Wage rate policies
D)   Government-spending policiesE) B) and C)
F) A) and D)

Question 17

The collective action problem is the reason why there are no lobbyists representing the interest of general taxpayers or consumers in Washington, DC.

Accepted Answer

A) True 
 B)False

Question 18

In the corporate world of business, the principal-agent problem arises between:

Accepted Answer

A)   Workers and managers
B)   Managers and stockholders
C)   Stockholders and bondholders
D)   Corporations and their banksE) A) and D)
F) All of the above

Question 19

Refer to the above table, which shows the ranked preferences of voters for three alternative projects, with "1" being the top preference. In a paired-choice vote between a stadium and a park:

Accepted Answer

A)   A majority of the voters would favor the park, 2-to-1
B)   A majority of the voters would favor the stadium, 2-to-1
C)   A majority of the voters would favor the park, 3-to-0
D)   A majority of the voters would favor the stadium, 3-to-0E) B) and C)
F) A) and C)

Question 20

As long as government officials have to be elected, they are always held accounted for their policy decisions and choices.

Accepted Answer

A) True 
 B)False

Exam 5: Governments Role and Government Failure

In the corporate world of business, the principal-agent problem arises between:

Correct AnswerverifiedShow Answer

When voters have different opinions about an issue, the position that is most likely to be adopted is that of the:

Correct AnswerverifiedShow Answer

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of:

Correct AnswerverifiedShow Answer

Political logrolling, or vote-trading, can turn a potentially inefficient voting outcome into an efficient one.

Correct AnswerverifiedShow Answer

Political corruption occurs in the following instances, except when:

Correct AnswerverifiedShow Answer

Refer to the above table, which shows the ranked preferences of voters for three alternative projects, with "1" being the top preference. In a paired-choice vote between a stadium and a park:

Correct AnswerverifiedShow Answer

When the special-interest effect is the major reason for the passage of a government policy or project, then economic efficiency will always improve.

Correct AnswerverifiedShow Answer

As long as government officials have to be elected, they are always held accounted for their policy decisions and choices.

Correct AnswerverifiedShow Answer

Because of the so-called "bundled choice" problem, voters often vote for candidates that they are not entirely happy with.

Correct AnswerverifiedShow Answer

The collective action problem is the reason why there are no lobbyists representing the interest of general taxpayers or consumers in Washington, DC.

Correct AnswerverifiedShow Answer

The median-voter model indicates that political parties will:

Correct AnswerverifiedShow Answer

Governments try to smooth business cycles by using these policies, except:

Correct AnswerverifiedShow Answer

The government adds to its overall public debt whenever it:

Correct AnswerverifiedShow Answer

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting is:

Correct AnswerverifiedShow Answer

Unintended consequences can result from the government's desire to enforce laws uniformly.

Correct AnswerverifiedShow Answer

During a period when output and employment is falling, the government will try to:

Correct AnswerverifiedShow Answer

When monetary policy becomes highly politicized, the policy tends to:

Correct AnswerverifiedShow Answer

One implication of the median-voter model as applied to a vote regarding how much government involvement to have in the economy is that most voters would find the resulting government involvement either too large or too small.

Correct AnswerverifiedShow Answer

When the government provides loan guarantees and in effect "socializes losses and privatizes gains" of a project or firm, it can lead to a:

Correct AnswerverifiedShow Answer

A budget deficit will require the government to issue bonds to fill in the gap in the budget.

Correct AnswerverifiedShow Answer

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