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5-21
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Accessibility:
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Blooms: Understand
Diff i c u l t y:
02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: I
To pic:
Government Failure
55.
Regulatory capture is said to have occurred when which of the following is true?
D.
Consumers make all the rules for an industry, forcing firms into inefficient production
methods.
56.
Which of the following would be the best example of regulatory capture?
A.
Starbucks buys up all the available supplies of coffee beans.
B.
Nike executives influence the rules for track and field events.
57.
Regulatory capture often occurs because of which of the following?
5-22
C.
Patent law allows firms to gain monopoly power easily and therefore control a market.
D.
Consumer groups are effective at lobbying the government for industry regulation.
58.
Which of the following is considered a potential solution to some regulatory capture?
A.
bringing industry experts into the regulatory process
59.
Proponents of deregulation point to all of the following industries as examples of successful
deregulation except for
60.
Which of the following would best explain why regulatory capture is a problem?
A.
The regulations implemented tend to reduce the profitability of the regulated industry and
reduce global competitiveness.
B.
Regulatory capture unduly increases the size and power of government, increasing costs for
taxpayers.
61.
Deregulation
62.
Government loan guarantees tend to have the effect of
D.
privatizing both gains and losses.
5-24
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: I
To pic:
Government Failure
63.
Under what circumstances would government loan guarantees be socially beneficial?
A.
when the guarantees socialize losses and privatize gains
64.
Which of the following will tend to socialize losses and privatize gains?
A.
lowering interest rates to encourage private borrowing and investment
65.
What is the main problem with government guarantees that socialize losses and privatize
gains?
C.
They discourage private investment in worthwhile projects.
D.
They tend to benefit foreign companies at the expense of domestic firms.
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66.
The unlawful misdirection of governmental resources for personal gain is known as
C.
adverse selection.
D.
the special-interest effect.
67.
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
A.
that political corruption has occurred.
B.
that logrolling has occurred.
68.
Political corruption occurs whenever
A.
logrolling is used to secure votes for controversial legislation.
69.
(Consider This) From an economist's perspective,
70.
(Consider This) From an economist's perspective, when is government too big?
5-27
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
economically beneficial and list some of the difficulties associated with managing and
directing the government.
Test Bank: I
To pic:
Governments Economic Role
71.
(Consider This) Subsidies for mohair production illustrate
D.
the moral hazard problem.
72.
(Consider This) Smaller groups are sometimes able to achieve political victories against
larger groups. This is referred to as the
73.
(Consider This) The collective action problem refers to
5-28
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Accessibility:
Keyboard Navigation
Blooms: Understand
Diff i c u l t y:
02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: I
To pic:
Government Failure
74.
(Consider This) A 2015 study of hospitals, power plants, and water utilities found that
75.
(Consider This) According to a 2015 study, health and safety violations are more prevalent
in public companies because
76.
(Last Word) In 2011, Congress funded a sanctuary for white squirrels, a giant roadside
coffee pot, and an antique bicycle museum. These are examples of
5-29
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A.
the paradox of voting.
B. pork barrel politics.
C.
the benefits-received principle.
D.
the adverse selection problem.
77.
(Last Word) From 2006-2010, the federal government paid $600 million in retirement
benefits to deceased federal employees, with the checks being illegally cashed by relatives. This
example illustrates
78.
(Last Word) In 2004, Congress passed a corporate tax relief bill with 276 provisions for tax
breaks to groups such as restaurant owners, Hollywood producers, and NASCAR track owners.
This is an example of the
5-30
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: I
To pic:
Government Failure
True / False Questions
79.
The government's ability to force people to do things can increase economic efficiency.
80.
Government's ability to enforce laws and contracts increases private-sector economic risks.
81.
The invisible hand guides government's economic activity just as it does with private
economic activity.
5-31
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
To pic:
Governments Economic Role
82.
Because of the force of law and bureaucratic structure, government accountability is less of
a problem than in the private sector.
83.
The size and scope of government inhibit the flow of information to decision makers,
leading to inefficient outcomes.
84.
The pursuit through government of a transfer of wealth at society's expense is called "rent
seeking."
85.
The principal-agent problem is a problem for the private sector but does not apply to
political decision making.
86.
Medicare is the U.S. government's largest unfunded liability.
87.
A debt crisis refers to how much government spending exceeds tax revenues in a given year.
88.
Fiscal policy is more susceptible to politicization than monetary policy.
5-33
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Diff i c u l t y:
02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: I
To pic:
Government Failure
89.
Changes in tax rates are a form of monetary policy.
90.
Monetary policy attempts to change the level of spending by altering interest rates.
91.
The problem of limited and bundled choices explains why many voters cannot fully express
their political preferences.
92.
Regulatory capture occurs when government exerts excessive control over an industry.
93.
The Securities and Exchange Commission's supervision of Wall Street financial firms is a
possible example of regulatory capture.
94.
Economists widely support deregulation of industries that tend toward monopoly or generate
substantial negative externalities.
95.
Deregulation is seen as a solution to regulatory capture because it eliminates the regulatory
agency that can or has been captured.
5-35
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Diff i c u l t y:
02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: I
To pic:
Government Failure
96.
Government loan guarantees tend to socialize gains and privatize losses.
97.
Government guarantees that socialize losses and privatize gains tend to encourage risky and
imprudent investment.
98.
The field of economics that analyzes government decision making, politics, and elections is
called
5-36
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic
preferences through majority voting.
Test Bank: I
To pic:
Public Choice Theory and Voting Paradoxes
99.
Public choice economists
100.
Which one of the following topics would be of the most interest to a public choice
economist?
101.
An economic analysis of the relationship between proposed legislation affecting major
employers in each state and the voting patterns of senators and representatives in Congress on
that legislation would fit within the subcategory of
economics called
A. the economics of fiscal policy.
5-37
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B. public choice theory.
C.
behavioral economics.
D.
monetarism.
102.
"Government failure" is a prominent topic in
103.
Public choice theory focuses on the economics of
104.
Because majority voting fails to incorporate the strength of the preferences of individual
voters, it
105.
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
106.
Suppose that Steve and Susie each perceive $200 of marginal benefit from a proposed new
park, whereas Elizabeth perceives $800. If the proposed tax levied on each for the park would
be $300, a majority vote will
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D.
pass this project and resources will be overallocated to it.
107. 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.
Voter
Marginal Benefit
Xavier
$ 500
Yoho
200
Zest
2,000
If the tax cost of this proposed project is $600 per person, a majority vote will
108. 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.
Voter
Marginal Benefit
Xavier
$ 500
Yoho
200
Zest
2,000
5-40
If the tax cost of this proposed project is $300 per person, a majority vote will
109. Answer the question on the basis of this table showing the marginal benefit a particular
public project will provide to each of the three members of a community. No vote trading is
allowed.
Voter
Marginal Benefit
Xavier
$800
Yoho
800
Zest
100
If the tax cost of this proposed project is $600 per person, a majority vote will
110.
The political technique called logrolling
