Question 1

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 D)
F) B) and C)

Question 2

Government's unfunded liabilities:

Accepted Answer

A)  result from the political bias toward immediate benefits and deferred costs.
B)  result in more efficient policies in an attempt to satisfy these liabilities.
C)  are caused primarily by market failures.
D)  only occur in democratically elected governments.E) C) and D)
F) None of the above

Question 3

Efficient public decision making is often impaired by the:

Accepted Answer

A)  special-interest effect.
B)  public interest.
C)  Not for profit organizations.
D)  foreign governments.E) None of the above
F) A) and D)

Question 4

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

Question 5

The Road Runner Club contributes money to Senator Sly's reelection campaign fund, and Senator Sly helps pass legislation to add more jogging paths across the state.From this we can definitively conclude:

Accepted Answer

A)  that political corruption has occurred.
B)  that logrolling has occurred.
C)  that a principal-agent problem has occurred.
D)  nothing; the Road Runner Club may have donated to Senator Sly because he already supported the jogging paths.E) A) and D)
F) All of the above

Question 6

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) A) and D)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

In what way, if any, does the invisible hand affect government resource allocation?

Accepted Answer

A)  It enhances government efficiency by promoting competition for resources within government.
B)  It does not help resource allocation, as there are no competitive forces within government that automatically direct resources to their best uses.
C)  It rewards government bureaucrats who are most efficient at implementing public policies.
D)  It reduces government efficiency by sending market signals that interfere with government decision making.E) B) and C)
F) A) and D)

Question 9

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 B)
F) B) and C)

Question 10

Government changes in interest rates to regulate the economy are part of:

Accepted Answer

A)  monetary policy.
B)  fiscal policy.
C)  debt policy.
D)  liability policy.E) A) and D)
F) B) and D)

Question 11

What is the main problem with government guarantees that socialize losses and privatize gains?

Accepted Answer

A)  They encourage overly risky investments by insulating private investors from any losses.
B)  The investments that do occur never generate production of goods underproduced by the private sector.
C)  They discourage private investment in worthwhile projects.
D)  They tend to benefit foreign companies at the expense of domestic firms.E) A) and B)
F) None of the above

Question 12

Individual accountability within the government bureaucracy:

Accepted Answer

A)  tends to be greater than in private firms, making government more efficient than private firms.
B)  is not a problem because government bureaucrats are not affected by the self-interest that affects private sector individuals.
C)  is easy to monitor because of the small size and scope of government.
D)  tends to be lacking because of civil service protections and the complexity of government.E) A) and B)
F) All of the above

Question 13

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) All of the above

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

Question 15

Government failure is a prominent topic in:

Accepted Answer

A)  public choice theory.
B)  Keynesian economics.
C)  socialist theory.
D)  behavioral economics.E) A) and B)
F) None of the above

Question 16

Fiscal policy is more susceptible to politicization than monetary policy.

Accepted Answer

A) True 
 B)False

Question 17

Answer the question on the basis of this table showing the marginal benefit that a particular public project will provide to each of the three members of a community.No vote trading is allowed.  If the tax cost of this proposed project is $600 per person, a majority vote will:

Accepted Answer

A)  defeat this project and resources will be underallocated to it.
B)  defeat this project and resources will be allocated efficiently.
C)  pass this project and resources will be overallocated to it.
D)  defeat this project and resources will be overallocated to it.E) A) and C)
F) A) and B)

Question 18

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

Question 19

Monetary stimulus is only helpful to an economy:

Accepted Answer

A)  that is experiencing high inflation.
B)  that is in recession.
C)  experiencing significant negative externalities.
D)  with few public goods.E) A) and D)
F) A) and C)

Question 20

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

Exam 5: Part B: Governments Role and Government Failure

Government changes in interest rates to regulate the economy are part of:

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Individual accountability within the government bureaucracy:

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In what way, if any, does the invisible hand affect government resource allocation?

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Efficient public decision making is often impaired by the:

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Answer the question on the basis of this table showing the marginal benefit that a particular public project will provide to each of the three members of a community.No vote trading is allowed. If the tax cost of this proposed project is $600 per person, a majority vote will:

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Which of the following is a source of government failure?

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

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Government's unfunded liabilities:

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A special-interest issue is one whose passage yields:

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The Road Runner Club contributes money to Senator Sly's reelection campaign fund, and Senator Sly helps pass legislation to add more jogging paths across the state.From this we can definitively conclude:

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The idea of government failure includes all of the following except:

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Public choice economists hold that politicians will:

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Government failure is a prominent topic in:

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Monetary stimulus is only helpful to an economy:

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Fiscal policy is more susceptible to politicization than monetary policy.

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

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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:

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Public choice theorists contend that:

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

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What is the main problem with government guarantees that socialize losses and privatize gains?

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