Question 1

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 C)
F) C) and D)

Question 2

Government loan guarantees tend to socialize gains and privatize losses.

Accepted Answer

A) True 
 B)False

Question 3

Government officials tend to make:

Accepted Answer

A)  better economic decisions than private individuals because of the wealth of information at their disposal.
B)  better economic decisions than private individuals because of the efficient processes and flexibility built into the government bureaucracy.
C)  inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs.
D)  inefficient choices because the invisible hand directs them away from the resource allocation where marginal benefits equal marginal costs.E) A) and D)
F) All of the above

Question 4

How does government's power to coerce behavior tend to reduce private-sector risk?

Accepted Answer

A)  By enforcing contracts and discouraging illegal behavior that threatens private property.
B)  By guaranteeing that the government will financially cover any losses by private-sector firms.
C)  By strictly regulating the allocation of most property resources in the economy.
D)  The coercive power of government only increases private-sector risk.E) B) and D)
F) A) and D)

Question 5

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  True

Question 6

Majority voting assures that government will provide a public good if it yields total benefits in excess of total costs.

Accepted Answer

A) True 
 B)False

Question 7

Suppose lawyers seek legislation to limit the use of computer software that enables people to use their personal computers to self-prepare their own wills, trusts, and other legal documents.This is an example of:

Accepted Answer

A)  logrolling.
B)  the principal-agent problem.
C)  rent-seeking behavior.
D)  limited and bundled choices.E) B) and D)
F) C) and D)

Question 8

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) A) and C)

Question 9

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

Question 10

Which of the following would be the best example of regulatory capture?

Accepted Answer

A)  Starbucks buys up all the available supplies of coffee beans.
B)  Nike executives influence the rules for track and field events.
C)  Federal law makers write and pass legislation that protects domestic companies from foreign competition.
D)  Executives from the Ford, General Motors, and Chrysler companies write the rules regulating automobile safety and fuel requirements.E) C) and D)
F) A) and C)

Question 11

The median-voter model implies that a political office seeker will:

Accepted Answer

A)  adopt more extreme views when seeking his or her party's nomination than when running against the other party's opponent.
B)  adopt less extreme views when seeking his or her party's nomination than when running against the other party's opponent.
C)  favor extensive government spending because demand curves for public goods are added vertically rather than horizontally.
D)  favor the private resolution of externality problems rather than governmental intervention.E) A) and D)
F) A) and C)

Question 12

The problem of limited and bundled choices explains why many voters cannot fully express their political preferences.

Accepted Answer

A) True 
 B)False  True

Question 13

Pork-barrel legislation that contains funding for hundreds of earmarks throughout numerous states often reflects:

Accepted Answer

A)  the paradox of voting.
B)  logrolling.
C)  the benefits-received principle.
D)  adverse selection.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) B) and D)
F) All of the above

Question 15

The government's ability to coerce:

Accepted Answer

A)  can never be beneficial.
B)  can have economic benefits.
C)  is also available to private corporations.
D)  should frequently be applied to free markets.E) B) and C)
F) A) and D) B

Question 16

The principal-agent problem is a problem for the private sector but does not apply to political decision making.

Accepted Answer

A) True 
 B)False

Question 17

Logrolling can either increase or diminish economic efficiency.

Accepted Answer

A) True 
 B)False

Question 18

The government's ability to coerce, ensures that what does not occur:

Accepted Answer

A)  Market's will be in equilibrium
B)  Blackmail
C)  Extortion
D)  Private coercionE) B) and C)
F) A) and D)

Question 19

As it relates to owners and managers, the principal-agent problem results from the:

Accepted Answer

A)  separation of corporate ownership and control.
B)  double taxation of corporate profit.
C)  limited liability of corporate owners.
D)  differing interests of corporate stockholders and bondholders.E) All of the above
F) A) and D)

Question 20

Refer to the table.The outcomes of the three possible sets of paired-choice majority votes illustrate the:

Accepted Answer

A)  paradox of voting.
B)  inefficiency of logrolling.
C)  principal-agent problem.
D)  the benefits of majority rule.E) A) and C)
F) C) and D)

Exam 5: Part B: Governments Role and Government Failure

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

Correct AnswerverifiedShow Answer

Government loan guarantees tend to socialize gains and privatize losses.

Correct AnswerverifiedShow Answer

Government officials tend to make:

Correct AnswerverifiedShow Answer

How does government's power to coerce behavior tend to reduce private-sector risk?

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 AnswerverifiedTrue

Majority voting assures that government will provide a public good if it yields total benefits in excess of total costs.

Correct AnswerverifiedShow Answer

Suppose lawyers seek legislation to limit the use of computer software that enables people to use their personal computers to self-prepare their own wills, trusts, and other legal documents.This is an example of:

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

Correct AnswerverifiedShow Answer

Which of the following would be the best example of regulatory capture?

Correct AnswerverifiedShow Answer

The median-voter model implies that a political office seeker will:

Correct AnswerverifiedShow Answer

The problem of limited and bundled choices explains why many voters cannot fully express their political preferences.

Correct AnswerverifiedTrue

Pork-barrel legislation that contains funding for hundreds of earmarks throughout numerous states often reflects:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The government's ability to coerce:

Correct AnswerverifiedB

The principal-agent problem is a problem for the private sector but does not apply to political decision making.

Correct AnswerverifiedShow Answer

Logrolling can either increase or diminish economic efficiency.

Correct AnswerverifiedShow Answer

The government's ability to coerce, ensures that what does not occur:

Correct AnswerverifiedShow Answer

As it relates to owners and managers, the principal-agent problem results from the:

Correct AnswerverifiedShow Answer

Refer to the table.The outcomes of the three possible sets of paired-choice majority votes illustrate the:

Correct AnswerverifiedShow Answer

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True

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B

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