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5-81
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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?
5-82
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
5-83
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
5-84
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
5-85
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
5-87
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
5-88
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
5-90
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
5-91
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
5-92
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
5-94
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
5-95
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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.
