978-1259723223 Test Bank TBChap005 Part 5

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Blooms: Understand

Difficulty:

02 Medium

Learning Objective: 05–02 Discuss government failure and explain why it happens.

Test Bank: II

Topic:

Government Failure

204.

The provision of loan guarantees can improve economic efficiency when

205.

In which of the following cases has political corruption definitely occurred?

206.

Which of the following countries had the least corruption, as reported in the Global

Corruption Barometer survey in 2013?

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AACSB: Knowledge Application

Accessibility:

Keyboard Navigation

Blooms: Understand

Diffic ulty :

02 Medium

Learning Objective: 05–02 Discuss government failure and explain why it happens.

Test Bank: II

Topic:

Government Failure

207.

Political corruption occurs in the following instances, except when

208.

What is a likely explanation for why the budget of a government agency might increase

beyond its optimal size?

209.

Based on our study of market failure and government failure, the main conclusion that one

should arrive at is that

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B.

the government has much imperfection and creates a lot of inefficiencies; therefore, it is best

to adopt a pure market system.

C.

it is best to always compare perfect markets against an idealized benevolent government that

efficiently responds to the wants of society.

D. we must carefully compare the benefits of government intervention in our markets against the

costs of such intervention.

True / False Questions

210.

The government’s ability to coerce people to do things is always detrimental to the

achievement of economic efficiency.

211.

In order to achieve economic efficiency in market economies like the U.S., the government

must be stripped of its power to coerce.

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Topic:

Governments Economic Role

212.

If the government implements regulations and policies in the economy, it tends to replace

the function of the invisible hand.

213.

In making sure that laws are uniformly enforced and applied, one consequence is that

government creates inflexibility.

214.

As long as government officials have to be elected, they are always held accountable for

their policy decisions and choices.

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Test Bank: II

Topic:

Governments Economic Role

215.

Economic analysis would focus on the size of the government, in order to assess whether or

not it fosters economic efficiency.

216.

It is generally believed that, because of the election process, the incentives and pressures

for internal efficiency are stronger in the public sector than in the private sector.

217.

Critics of government contend that the market system creates incentives and pressures for

internal efficiency that are absent in the public sector.

218.

“Good economics” is about marginal costs and marginal benefits of specific projects;

“good politics” is more about clear benefits and hidden costs.

219.

The “principal-agent problem” often arises in public choice when politicians pursue the

best interests of their constituents.

220.

In thinking about the “principal-agent problem” in a democratic government, we assign the

role of “principal” to the government.

221.

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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AACSB: Knowledge Application

Accessibility:

Keyboard Navigation

Blooms: Understand

Diffic ulty :

02 Medium

Learning Objective: 05–02 Discuss government failure and explain why it happens.

Test Bank: II

Topic:

Government Failure

222.

When the special-interest effect is the major reason for the passage of a government policy

or project, then economic efficiency will always improve.

223.

The “pork” in pork-barrel politics refers to government projects that politicians try to

secure in favor of the common good for the whole nation.

224.

Nobody gains from pork-barrel politics other than the politicians.

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Topic:

Government Failure

225.

Pork-barrel politics is a good illustration of the “clear benefits, hidden costs” perspective of

politicians.

226.

Unfunded liabilities are one consequence of the preference for “clear benefits, hidden

costs” by politicians.

227.

Unfunded liabilities occur when the government considers long-term benefits and costs of

projects, and approves only those with positive long-term net benefits.

228.

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

229.

Budget deficit is another name for the public debt.

230.

If the government runs a smaller budget deficit, then the public debt will decrease.

231.

Only politicians, not the voters, are to blame for the problem of chronic budget deficits that

many nations face.

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Topic:

Government Failure

232.

Voters’ preference for having government programs serve them is inherently in conflict

with their preference to pay no taxes.

233.

Monetary and fiscal policies are tools that the government can use to try to stabilize the

economy.

234.

The politicization of monetary and fiscal policies tends to enhance their effectiveness in

stabilizing the economy.

235.

Because of the so-called “bundled choice” problem, voters often vote for candidates that

they are not entirely happy with.

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TRUE

236.

The collective action problem is the reason why there are no lobbyists representing the

interest of general taxpayers or consumers in Washington, DC.

237.

The collective action problem makes it hard for voters to counter the influence of special-

interest groups.

238.

Unintended consequences can result from the government’s desire to enforce laws

uniformly.

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Diffic ulty :

02 Medium

Learning Objective: 05–02 Discuss government failure and explain why it happens.

Test Bank: II

Topic:

Government Failure

239.

Regulatory capture in government happens because the people who are most qualified to

supervise and regulate an industry oftentimes are or have been the leaders of the industry.

240.

Deregulation of an industry will always lead to an improvement in economic efficiency.

241.

Loan guarantees provided by government will reduce the willingness of investors to take

on the risk in a project.

242.

“Informal payments” or “under-the table fees” are a common form of corruption.

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243.

The U.S. is among the countries that have very low levels of political corruption, as

reported in the Global Corruption Barometer of 2013.

244.

The study of public choice theory involves the economic analysis of the following, except

245.

Problems with collective decision making and policy making in government are subjects

that are studied in an area of economics called public

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A. finance.

B. choice.

C.

policy.

D.

interest.

246.

Even in a democratic government, elected officials may end up pursuing policies that go

against the preferences of the people due to the following reasons, except

247.

Majority voting fails to incorporate the strength of the preferences of individual voters and

therefore

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preferences through majority voting.

Test Bank: II

Topic:

Public Choice Theory and Voting Paradoxes

248.

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public

good has a total cost of $1,000. All three citizens will share an equal portion of this cost in

taxes. The benefit of the public good is $500 for Matt, $280

for Joe, and $260 for Teresa. In a

majority vote, this proposal will most likely be

A. accepted, two in favor and one against.

249.

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public

good has a total cost of $1,000. All three citizens will share an equal portion of this cost in

taxes. The benefit of the public good is $500 for Matt, $280

for Joe, and $260 for Teresa. In a

majority vote, this proposal will most likely be

A. accepted; the public good is produced, even though it is economically inefficient.

250.

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public

good has a total cost of $1,000. All three citizens will share an equal portion of this cost in

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taxes. The benefit of the public good is $ 380 for Matt, $

360 for Joe, and $ 200 for Teresa. In

a majority vote, this proposal will most likely be

A. accepted; the public good is produced, even though it is economically inefficient.

251.

Assume that Abby, Ben, and Clara are the only citizens in a community. A proposed public

good has a total cost of $1,000. All three citizens will share an equal portion of this cost in

taxes. The benefit of the public good is $400 each to Abby,

Ben, and Clara. In a majority vote,

this proposal will most likely be

A.

accepted; the public good is produced, even though it is economically inefficient.

252.

Assume that Abby, Ben, and Clara are the only citizens in a community. A proposed public

good has a total cost of $1,000. All three citizens will share an equal portion of this cost in

taxes. The benefit of the public good is $400 each to Abby,

Ben, and Clara. Based on

economic analysis, the public good should

C.

be put to a vote and produced only if voters approve it.