Macroeconomics 21st Edition By McConnell – Test Bank

Instant Download – Complete Test Bank With Answers

Sample Questions Are Posted Below

Chapter 05 Government’s Role and Government Failure Answer Key

Multiple Choice Questions

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

Private firms face the constraint of scarcity; government does
Government focuses primarily on equity; private firms focus only on
Private economic activities create externalities; government activities do
D. Government has the legal right to force people to do things; private firms do

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

Which of the following is an activity of government that is not an activity of private firms?

enforcing involuntary transactions

paying equitable wages
creating positive externalities
pursuing economic efficiency

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

The government’s ability to coerce can enhance economic efficiency by

eliminating income
B. correcting market

preventing resources from going to their most valued
restraining self-interest.

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

In a market economy, the government’s power to coerce can

undermine economic efficiency by increasing private-sector
improve economic efficiency by directing all resources to their most valued
C. reduce private-sector risk and increase economic
cause significant negative externalities.

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

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

by enforcing contracts and discouraging illegal behavior that threatens private property

by guaranteeing that the government will financially cover any losses by private-sector firms
by strictly regulating the allocation of most property resources in the economy
The coercive power of government only increases private-sector

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

Weak government enforcement of contracts and laws tends to

increase economic efficiency by minimizing government
stimulate innovation and
C. discourage economic activity by encouraging private-sector coercion such as blackmail and
not affect economic activity, as incentives for theft and deception are low.

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

The government of Southland wants to improve resource allocation in the Which of the following actions by the Southland government is most likely to accomplish this?

weakening enforcement of laws and contracts
promising to cover every risk of loss for private firms
coercing all firms to innovate and invest
D. taxing polluters and subsidizing firms that are creating significant positive externalities

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

Which of the following is a source of government failure?

the invisible hand
the lack of bureaucracy in government
C. the enormous size and scope of government
excessive flexibility

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

Information problems create inefficient outcomes in

the private sector but not the public
the public sector but not the private
neither the private nor the public
D. both the private and the public

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

The many layers of the federal government in the United States

lead to economic inefficiencies because of difficulty aggregating and conveying

enhance government’s ability make effective decisions
better allow the invisible hand to direct government resources to their best
improve accountability of government officials, thus leading to more efficient

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

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

It enhances government efficiency by promoting competition for resources within
B. It does not help resource allocation, as there are no competitive forces within government that automatically direct resources to their best

It rewards government bureaucrats who are most efficient at implementing public
It reduces government efficiency by sending market signals that interfere with government decision

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

Individual accountability within the government bureaucracy

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

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

Government officials tend to make

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

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

As it relates to corporations, the principal-agent problem is that

the goals of the corporate managers (the principals) may not match the goals of the corporate owners (the agents).
B. the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).

the federal government (the agent) taxes both corporate profits and the dividends paid to stockholders (the principals).
it is costly for the corporate owners (the principals) to obtain a corporate charter from government (the agent).

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

Test Bank: I Topic: Government Failure

In corporations, owners are and managers are .

agents; principals
stockholders; bondholders
agents; employees
D. principals; agents

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

Test Bank: I Topic: Government Failure

In representative democracy, voters are and politicians are

agents; principals
logrollers; principals
agents; employees
D. principals; agents

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

Test Bank: I Topic: Government Failure

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

separation of corporate ownership and

double taxation of corporate
limited liability of corporate
differing interests of corporate stockholders and

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

Test Bank: I Topic: Government Failure

As it relates to the political process, the principal-agent problem results from the

negative externalities that are created by some policy
political rules that encourage elected officials to engage in unethical and illegal
C. inconsistency between voters’ interest in programs and politicians’ interest in
paradox of voting.

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

Test Bank: I Topic: Government Failure

“Vote for my special local project and I will vote for ” This political technique

illustrates the paradox of
B. is called “logrolling.”

illustrates the median voter
undermines the benefits-received

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

Test Bank: I Topic: Government Failure

Factors that impede the attainment of economic efficiency in the public sector are called

market
C. government
voting irregularities.

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

Test Bank: I Topic: Government Failure

The idea of government failure includes all of the following except

special-interest
bureaucratic
pressure by special-interest
D. extensive positive externalities from public and quasi-public

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

Test Bank: I Topic: Government Failure

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government This would be an example of

moral
the principal-agent
D. rent-seeking

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

Test Bank: I Topic: Government Failure

Public choice theorists contend that

government can efficiently correct instances of market system
the existence of cost-benefit analysis has brought about the efficient use of resources in the public
public bureaucracies are inherently more efficient than private
D. public bureaucracies are inherently less efficient than private

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

Test Bank: I Topic: Government Failure

The pursuit through government of a “transfer of wealth” at someone else’s expense refers to

B. rent-seeking

the paradox of
the median-voter model.

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

Test Bank: I Topic: Government Failure

Economists call the pursuit of a transfer of wealth through government at someone else’s expense

the paradox of
adverse
C. rent-seeking
the benefits-received principle.

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

Test Bank: I Topic: Government Failure

Public choice economists hold that politicians will

favor programs entailing immediate and clear-cut costs and vaguely defined or deferred
follow policies leading to an optimal allocation of resources between public and private
C. favor programs entailing immediate and clear-cut benefits and vaguely defined or deferred
objectively weigh the costs and benefits of various government programs and vote accordingly.

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

Test Bank: I Topic: Government Failure

Public choice economists contend public bureaucracies are inefficient primarily because

the value of public goods is more easily measured than is the value of private
B. of the absence of competitive market

public sector workers are more security-conscious than are private sector
relatively low pay in government attracts workers of lesser

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

A special-interest issue is one whose passage yields

private benefits equal to external benefits.
large external benefits compared to private
small economic losses to a small number of people and large economic losses to a large number of
D. large economic gains to a small number of people and small economic losses to a large number of

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

Test Bank: I Topic: Government Failure

Professional sports teams will sometimes seek public subsidies for stadium financing projects that produce large benefits for a relatively small number of fans and impose small costs on a relatively large number of Sometimes these efforts to secure public funding are successful even though the decision is not efficient. This is an example of

log-rolling.
pork-barrel
C. the special-interest
market failure.

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

Test Bank: I Topic: Government Failure

Suppose the S. House of Representatives is debating a bill to fund construction and maintenance for the nation’s highway system. Representative Sandy Shady adds a provision to the bill that would fund a new public art museum in her district. The authorization of expenditure for the museum would be an example of

an unfunded
a collective action
a principal-agent

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

Test Bank: I Topic: Government Failure

Which of the following is the best example of rent-seeking behavior?

Voters consider a ballot measure that would increase taxes to better fund
B. Students at a university lobby the administration to improve dorms and reduce class sizes without increasing

Consumers try to get flying cars produced by telling automakers they are willing to pay for
Senators vote for what their constituents want so they can get

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

Test Bank: I Topic: Government Failure

The political tendency to favor spending priorities with immediate benefits but deferred costs results in

chronic budget
misdirection of stabilization
unfunded
D. all of

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

Test Bank: I Topic: Government Failure

Which of the following is related to the special-interest effect?

pork-barrel politics
earmarks
logrolling
D. all of these

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

Test Bank: I Topic: Government Failure

Government’s unfunded liabilities

result from the political bias toward immediate benefits and deferred

result in more efficient policies in an attempt to satisfy these
are caused primarily by market
only occur in democratically elected

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

Test Bank: I Topic: Government Failure

The U.S. federal government’s largest unfunded liability is

national
C. Social
unemployment insurance.

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

Test Bank: I Topic: Government Failure

Chronic budget deficits can be attributed to

unfunded
B. voters wanting government programs but not wanting to pay

inappropriate monetary
state budget

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

Test Bank: I Topic: Government Failure

Which of the following impacts would economists expect to result from chronic budget deficits?

greater economic efficiency resulting from the abundance of public goods produced
permanently high levels of output and continued economic growth
greater political control over monetary policy
D. government control of an inefficiently large share of the economy’s resources

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

Test Bank: I Topic: Government Failure

The estimated value of the U.S. government’s unfunded liability to Social Security is

$4.6
$4.8
$15.6
D. $20.5

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

Test Bank: I Topic: Government Failure

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

monetary

fiscal
debt
liability

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

Test Bank: I Topic: Government Failure

Government fiscal policy involves changing which of the following?

interest rates
B. taxes and government spending

regulations on business
the amount of money in circulation

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

Test Bank: I Topic: Government Failure

To curb the problem of voters wanting immediate benefits and deferred costs, many state governments in the United States have

made unfunded liabilities
resorted to greater use of monetary
C. passed laws requiring balanced
stopped using fiscal policy.

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

Test Bank: I Topic: Government Failure

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

raise taxes
raise interest rates
lower interest rates
D. raise government spending

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

Test Bank: I Topic: Government Failure

To reduce politicization of policy making, many countries have given control of to politically independent central

fiscal policy
B. monetary policy

unfunded liabilities
budget deficits

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

Test Bank: I Topic: Government Failure

The U.S. Federal Reserve, the Bank of Japan, the Bank of England, and the European Central Bank are all in charge of what for the countries they represent?

debt management
unfunded liabilities
C. monetary policy
fiscal policy

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

Test Bank: I Topic: Government Failure

Monetary stimulus is most helpful to an economy

that is experiencing high
B. that is in

experiencing significant negative
with few public

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

Test Bank: I Topic: Government Failure

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

monetary policy is
B. the government is unable to find willing lenders so it can continue

it can only be solved with a fiscal stimulus of lower taxes and more government
other countries will be unwilling to buy goods and services from the

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

Test Bank: I Topic: Government Failure

Economists (particularly public choice theorists) point out that the political process

differs from the marketplace in that voters and congressional representatives often face limited and bundled

is less prone to failure than is the
is a much fairer way to allocate society’s scarce resources than is the impersonal marketplace, which is dominated by high-income
involves logrolling, which is always

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

Test Bank: I Topic: Government Failure

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the This statement best reflects the

paradox of
regulatory capture
benefits-received
D. concept of limited and bundled

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

Test Bank: I Topic: Government Failure

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 This is an example of

the principal-agent
C. rent-seeking
limited and bundled choices.

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

Test Bank: I Topic: Government Failure

In a sporting goods store, you can buy the equipment you want and forgo the But in an election you “buy” the entire range of the candidate’s positions, including some you may not agree with. This difference

reflects limited and bundled choices in the public

describes the paradox of
describes the principal-agent problem in the public
creates bureaucratic inefficiency in the public

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

Test Bank: I Topic: Government Failure

According to some economists, the private sector is more efficient than the public sector mainly because

the private sector has a clear test of performance: profit and

wages, salaries, and fringe benefits are higher in the private
worker turnover is higher in the public
of extensive negative externalities in the public

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

Test Bank: I Topic: Government Failure

In 2015, S. federal government legislation authorized

152 earmarks, totaling $3.3
B. 105 earmarks, totaling $4.2

1,160 earmarks, totaling $19.6
11,700 earmarks, totaling $16.9

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

Test Bank: I Topic: Government Failure

Narrow, specifically designated expenditures that are included in more comprehensive legislation are known as

benefits-received
progressive

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

Test Bank: I Topic: Government Failure

“Earmarks” refer to

the additional votes that must be taken when a voting paradox
taxes that redistribute wealth or income from one income group to
C. authorized expenditures benefiting a narrow, specifically designated group that are included in more comprehensive spending
legislation focused on correcting negative externalities.

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

Test Bank: I Topic: Government Failure

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

Rules and enforcement in an industry are heavily influenced by the industry being

One firm controls an entire market, having captured customers away from other
Government imposes excessive regulations in an industry, resulting in
Consumers make all the rules for an industry, forcing firms into inefficient production

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

Test Bank: I Topic: Government Failure

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

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

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

Test Bank: I Topic: Government Failure

Regulatory capture often occurs because of which of the following?

Government officials want stronger control over industry
B. Nearly everyone with expertise works in the regulated

Patent law allows firms to gain monopoly power easily and therefore control a
Consumer groups are effective at lobbying the government for industry

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

Test Bank: I Topic: Government Failure

Which of the following is considered a potential solution to some regulatory capture?

bringing industry experts into the regulatory process
creating a standard set of regulations for all industries
C. deregulation of the industry
government subsidies for firms in the industry

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

Test Bank: I Topic: Government Failure

Proponents of deregulation point to all of the following industries as examples of successful deregulation except for

interstate

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

Test Bank: I Topic: Government Failure

Which of the following would best explain why regulatory capture is a problem?

The regulations implemented tend to reduce the profitability of the regulated industry and reduce global
Regulatory capture unduly increases the size and power of government, increasing costs for
Individuals implementing the regulations lack expertise about the industry and therefore make poor regulatory
D. The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental

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

Test Bank: I Topic: Government Failure

Deregulation

tends to improve outcomes in industries generating substantial negative
B. eliminates regulatory capture and can improve outcomes by increasing

is most appropriate to undertake by government agencies responsible for human safety, financial regulation, and environmental
always generates greater economic

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

Test Bank: I Topic: Government Failure

Government loan guarantees tend to have the effect of

socializing losses and privatizing

socializing gains and privatizing
socializing both gains and
privatizing both gains and

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

Test Bank: I Topic: Government Failure

Under what circumstances would government loan guarantees be socially beneficial?

when the guarantees socialize losses and privatize gains
when the guarantees stimulate production of goods generating significant spillover costs
C. when the guarantees promote production of goods otherwise underproduced by the private sector
when the guarantees increase company profits

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

Test Bank: I Topic: Government Failure

Which of the following will tend to socialize losses and privatize gains?

lowering interest rates to encourage private borrowing and investment
government regulation to promote human safety and environmental protection
government creating projects rather than supporting private efforts
D. government guarantees to private investors that they will get their money back even if the company fails

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

Test Bank: I Topic: Government Failure

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

They encourage overly risky investments by insulating private investors from any

The investments that do occur never generate production of goods underproduced by the private
They discourage private investment in worthwhile
They tend to benefit foreign companies at the expense of domestic

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

Test Bank: I Topic: Government Failure

The unlawful misdirection of governmental resources for personal gain is known as

political

adverse
the special-interest

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

Test Bank: I Topic: Government Failure

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 From this we can definitively conclude

that political corruption has
that logrolling has
that a principal-agent problem has
D. nothing; the Road Runner Club may have donated to Senator Sly because he already supported the jogging

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

Test Bank: I Topic: Government Failure

Political corruption occurs whenever

logrolling is used to secure votes for controversial legislation.
B. government officials use unlawful misdirection of governmental resources for their own personal

special interest groups contribute to elected officials, who in turn support legislation that benefits the special interest
there is pork barrel politics

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

Test Bank: I Topic: Government Failure

(Consider This) From an economist’s perspective,

small government is better than big
big government is better than small
regardless of size, government is incapable of achieving allocative or productive
D. the size of government doesn’t matter, as long as spending occurs up to where MB =

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

(Consider This) From an economist’s perspective, when is government too big?

Government is always too
when government activity exceeds 10 percent of gross domestic product
C. when the marginal costs from additional government spending exceed marginal benefits
when the marginal benefits from additional government spending exceed marginal costs

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

(Consider This) Subsidies for mohair production illustrate

why special-interest effects are often characterized by concentrated benefits and diffuse

why special-interest effects are often characterized by concentrated costs and diffuse
that larger groups carry greater political weight than smaller
the moral hazard

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

(Consider This) Smaller groups are sometimes able to achieve political victories against larger This is referred to as the

moral hazard
featherbedding
C. collective action
pork barrel problem.

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

(Consider This) The collective action problem refers to

logrolling behavior that results in inefficient
the tendency for legislatures to enact policies that are economically
the lack of political power of small groups of
D. difficulty in organizing and motivating large groups to achieve desired

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

(Consider This) A 2015 study of hospitals, power plants, and water utilities found that

public companies violated health and safety laws more than private

government employees are systematically less competent than those in the private
private companies violated health and safety laws more than public
there was no significant difference in the number of health and safety violations between public and private

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

(Consider This) According to a 2015 study, health and safety violations are more prevalent in public companies because

private companies have greater technical expertise than public
B. public companies are less likely to be fined for violating health and safety laws than private

laws for public companies are more stringent, making it more difficult for public companies to
public companies are more closely monitored, making it easier to detect

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

(Last Word) In 2011, Congress funded a sanctuary for white squirrels, a giant roadside coffee pot, and an antique bicycle These are examples of

the paradox of
B. pork barrel politics.

the benefits-received
the adverse selection

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

(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 This example illustrates

the benefits-received
C. bureaucratic
the problem of limited and bundled choices.

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

(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 This is an example of the

special-interest

benefits-received
paradox of
principal-agent

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

True / False Questions

The government’s ability to force people to do things can increase economic

TRUE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

Government’s ability to enforce laws and contracts increases private-sector economic

FALSE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

The invisible hand guides government’s economic activity just as it does with private economic

FALSE

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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

Because of the force of law and bureaucratic structure, government accountability is less of a problem than in the private

FALSE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

The size and scope of government inhibit the flow of information to decision makers, leading to inefficient

TRUE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: I Topic: Governments Economic Role

The pursuit through government of a transfer of wealth at society’s expense is called “rent “

TRUE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

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

FALSE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

Medicare is the S. government’s largest unfunded liability.

FALSE

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

Test Bank: I Topic: Government Failure

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

FALSE

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

Test Bank: I Topic: Government Failure

Fiscal policy is more susceptible to politicization than monetary

TRUE

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

Test Bank: I Topic: Government Failure

Changes in tax rates are a form of monetary

FALSE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

Monetary policy attempts to change the level of spending by altering interest

TRUE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

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

TRUE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

Regulatory capture occurs when government exerts excessive control over an

FALSE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

The Securities and Exchange Commission’s supervision of Wall Street financial firms is a possible example of regulatory

TRUE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

Economists widely support deregulation of industries that tend toward monopoly or generate substantial negative

FALSE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

Deregulation is seen as a solution to regulatory capture because it eliminates the regulatory agency that can or has been

TRUE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

Government loan guarantees tend to socialize gains and privatize

FALSE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

Government guarantees that socialize losses and privatize gains tend to encourage risky and imprudent

TRUE

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Blooms: Understand Difficulty: 02 Medium

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

Test Bank: I Topic: Government Failure

Multiple Choice Questions

The field of economics that analyzes government decision making, politics, and elections is called

public
B. public choice

collective
political

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public choice economists

analyze the incidence of
are also known as Keynesian
C. use the tools of economics to analyze decision making, politics, and elections in the public
are, by definition, economists employed by federal, state, and local governments.

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Which one of the following topics would be of the most interest to a public choice economist?

the theory of comparative advantage
the law of increasing opportunity cost
inflation and unemployment
D. rent-seeking behavior

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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

the economics of fiscal policy.
B. public choice
behavioral

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

“Government failure” is a prominent topic in

A. public choice
Keynesian
socialist
behavioral

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public choice theory focuses on the economics of

fiscal and monetary
the behavior of business
antitrust and regulatory
D. government decision making, politics, and

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Because majority voting fails to incorporate the strength of the preferences of individual voters, it

creates negative externalities.
B. under some circumstances produces economically inefficient
leads to market
leads to politics dominated by special-interest

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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 If the proposed tax levied on each for the center would be

$400, a majority vote will

defeat this project and resources will be underallocated to
pass this project and resources will be efficiently
pass this project and resources will be underallocated to
D. pass this project and resources will be overallocated to

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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

A. defeat this project and resources will be underallocated to
defeat this project and resources will be efficiently
pass this project and resources will be underallocated to
pass this project and resources will be overallocated to

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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

A. defeat this project and resources will be underallocated to
defeat this project and resources will be allocated
pass this project and resources will be overallocated to
defeat this project and resources will be overallocated to

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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

If the tax cost of this proposed project is $300 per person, a majority vote will

defeat this project and resources will be underallocated to
pass this project and resources will be allocated
C. pass this project and resources will be underallocated to
defeat this project and resources will be overallocated to it.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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

defeat this project and resources will be underallocated to
pass this project and resources will be allocated
C. pass this project and resources will be overallocated to
pass this project and resources will be underallocated to it.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

The political technique called logrolling

always increases economic
always decreases economic
C. involves trading votes to secure favorable outcomes that otherwise could be
is an example of the paradox of voting.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

The trading of votes by elected officials to secure favorable outcomes is called

splitting the
social
C.
grandstanding.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Senator A agrees to vote for Senator K’s state project in exchange for Senator K voting for Senator A’s state This is an example of

A.
the paradox of
the principal-agent
the median voter

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to

logrolling.
B. the paradox of
the median-voter
the special-interest

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

The principle that under some circumstances majority voting fails to make consistent choices reflecting the community’s underlying preference is best demonstrated by the

A. paradox of
concept of
median-voter
Coase

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

According to the paradox of voting,

public goods that cost more than the total benefits they confer may get produced under majority
trading of votes may either add to or subtract from economic
the median voter decides what public goods all voters should
D. majority voting fails under some circumstances to make consistent choices that reflect the community’s underlying

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Suppose that in a series of paired-choice votes, a new park is preferred to a new recreation center and a new recreation center is preferred to street Also suppose that street widening is preferred to a new park. This set of votes is an example of the

principal-agent
benefits-received
median-voter
D. paradox of

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public Good	Larry	Curley	Moe
Lighthouse	Third Choice	First Choice	Second Choice
Highway	Second Choice	Third Choice	First Choice
Submarine	First Choice	Second Choice	Third Choice

117.

Refer to the table. In a choice between the highway and the lighthouse,

a majority of voters favor the lighthouse.
B. a majority of voters favor the
the voters are indifferent between the
no voter decision is

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public Good	Larry	Curley	Moe
Lighthouse	Third Choice	First Choice	Second Choice
Highway	Second Choice	Third Choice	First Choice
Submarine	First Choice	Second Choice	Third Choice

118.

Refer to the table. The inconsistency illustrated by the table is that, while a majority of voters prefer the

A. highway to the lighthouse and the submarine to the highway, they also prefer the lighthouse to the
lighthouse to the highway and the lighthouse to the submarine, they also prefer the submarine to the
highway to the lighthouse and the submarine to the lighthouse, they also prefer the submarine to the
lighthouse to the submarine and the highway to the submarine, they also prefer the highway to the

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public Good	Larry	Curley	Moe
Lighthouse	Third Choice	First Choice	Second Choice
Highway	Second Choice	Third Choice	First Choice
Submarine	First Choice	Second Choice	Third Choice

119.

The information contained in the table illustrates

political
the median-voter
C. the paradox of
the principal-agent problem theorem.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public Good	Adam	Bob	Carl
Public Safety	Second Choice	Third Choice	First Choice
Parks	First Choice	Second Choice	Third Choice
Education	Third Choice	First Choice	Second Choice

120.

Refer to the table. In a choice between public safety and parks,

the outcome would depend on which item was listed first on the
a majority of voters would favor public
no voter decision is
D. a majority of voters would favor parks.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public Good	Adam	Bob	Carl
Public Safety	Second Choice	Third Choice	First Choice
Parks	First Choice	Second Choice	Third Choice
Education	Third Choice	First Choice	Second Choice

121.

Refer to the table. In a choice between parks and education,

no voter decision is possible.
B. a majority of voters would favor
the outcome would depend on which item was listed first on the
a majority of voters would favor parks.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public Good	Adam	Bob	Carl
Public Safety	Second Choice	Third Choice	First Choice
Parks	First Choice	Second Choice	Third Choice
Education	Third Choice	First Choice	Second Choice

122.

Refer to the table. In a choice between education and public safety,

a majority of voters would favor
no voter decision is
C. a majority of voters would favor public
the outcome would depend on which item was listed first on the ballot.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Public Good	Adam	Bob	Carl
Public Safety	Second Choice	Third Choice	First Choice
Parks	First Choice	Second Choice	Third Choice
Education	Third Choice	First Choice	Second Choice

123.

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

A. paradox of
inefficiency of
principal-agent
the benefits of majority

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

The median-voter model implies that

political voting will be as economically efficient as “dollar voting” in competitive
all voters have about the same preferences for various public goods and
C. many people will be dissatisfied with the size of government in the
with majority voting, there can never be a consistent ordering of public good preferences.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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

A. adopt more extreme views when seeking his or her party’s nomination than when running against the other party’s
adopt less extreme views when seeking his or her party’s nomination than when running against the other party’s
favor extensive government spending because demand curves for public goods are added vertically rather than
favor the private resolution of externality problems rather than governmental

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

126.

Answer the question on the basis of the following table that shows the total costs and total benefits facing

Stadium	Total Cost	Total Benefit
A	$ 80	$140
B	100	200
C	130	250
D	165	290
E	220	300

a city of five different potential baseball stadiums of increasing size. All figures are in millions of dollars.

Suppose a five-person city council must decide via majority voting which of these stadiums to build. Also suppose that each of the stadium sizes has the support of one council member. According to the median-voter model, the council will ultimately vote in favor of stadium

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

127.

Answer the question on the basis of the following table that shows the total costs and total benefits facing a city of five different potential baseball stadiums of increasing size. All figures are in millions of dollars.

Stadium	Total Cost	Total Benefit
A	$ 80	$140
B	100	200
C	130	250
D	165	290
E	220	300

The marginal cost and marginal benefit of stadium B (relative to A) are

$20 million and $50 million,
$100 million and $200 million,
$30 million and $50 million,
D. $20 million and $60 million,

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

128.

Stadium	Total Cost	Total Benefit
A	$ 80	$140
B	100	200
C	130	250
D	165	290
E	220	300

Based on cost-benefit analysis, the city should

not build any of these
build stadium
build stadium
D. build stadium

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

129.

Stadium	Total Cost	Total Benefit
A	$80	$140
B	100	200
C	130	250
D	165	290
E	220	300

Applying the median-voter model and assuming that there are equal numbers of voters supporting each stadium, we would expect

stadium C to be built, which would be the most socially efficient outcome.
B. stadium C to be built, but this would not be the most socially efficient
stadium D to be built because it produces the most socially efficient
no stadium to be built, because of political

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Suppose three roommates cannot agree on the size of a pizza to Domino argues for a medium pizza, Godfather contends a large pizza will be needed, and Little Caesar wants a super-large pizza. Assuming no paradox of voting, majority voting will result in a decision to order

a medium pizza.
B. a large
a super-large
two medium

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Some people argue that the three main television networks all have similar If true, this observation might best be explained by the

paradox of voting.
B. median-voter model.
law of diminishing marginal
ability-to-pay

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Suppose that friends Jennifer, Stephanie, and Megan cannot agree on how much to spend for a bouquet of flowers to send to a person who allowed them to use her beach house for the Jennifer wants to buy a moderately priced bouquet, Stephanie wants to buy an expensive bouquet, and Megan wants to buy a very expensive bouquet. Assuming no paradox of voting, majority voting will result in the decision to buy

an inexpensive
a very expensive
a moderately priced
D. an expensive

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

133.

Suppose a college economics department decides to use a single economics text for all sections of principles of economics. Also assume that the three individual members of the textbook selection committee have the following preferences.

Professor	Ideal Textbook	Analytical Level of the Textbook
Adams	C/F	Very Difficult
Bennett	M/B	Moderately Difficult
Clay	O/S	Relatively Easy

Assuming all other textbook qualities except analytical level are the same, paired-choice majority voting will result in the committee

being deadlocked and unable to decide on a
selecting the C/F
C. selecting the M/B
selecting the O/S book.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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

the paradox of voting.
B.
the benefits-received
adverse

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

(Consider This) Voter failure describes the situation where

an insufficient number of voters turn out to express their
voter preferences cannot be adequately captured because of a voting
C. voters support policies that would reduce productive and allocative
government officials make poor decisions that contradict voter preferences.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

(Consider This) Suppose voters pass laws that restrict immigration, which results in lower national output and higher prices for consumer This would be an example of

the paradox of voting.
B. voter
adverse

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

(Consider This) Which of the following is an example of voter failure?

A. Voters support adding stoplights that would increase congestion and travel costs without increasing safety or
Government officials ignore voter calls for regulations that would reduce negative externalities and enhance
Voters wanting greater highway safety are unable to express their preferences on how to achieve it because the voting system doesn’t allow
Voters wanting more government services are divided on what services they most prefer, leaving government officials to determine what is

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

True / False Questions

Logrolling can either increase or diminish economic

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Even if a majority of the population wants a law and the law is passed, the outcome may still be economically

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

The paradox of voting is that under majority voting rules, the median voter decides the election

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

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

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: I Topic: Public Choice Theory and Voting Paradoxes

Multiple Choice Questions

In the U.S. market economy, the government performs the following prominent roles, except

provide public goods and
promote economic stability and
C. set prices for most
modify the distribution of income.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

One major role that the government plays in the market economy of the S. is

setting production targets for major
requiring minimum levels of employment in major
allocating resources in various market
D. setting laws governing economic

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

One key difference between government activities and private transactions is that

A. government can enforce involuntary transactions, whereas private transactions are mostly
government can produce only services, whereas private producers can produce both goods and
government does not run any production operations, whereas private firms have the main purpose of running production
government does not earn revenues from its activities, whereas private firms aim to earn revenues and

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

The ability to impose fines, revoke licenses, and put people into jail allows the government to

ensure positive profits for its
maximize revenues from its
C. enforce involuntary
set market prices for goods and services.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Government’s ability to force people to do things involuntarily is

unconstitutional in the United States and other market
always going to lead to lower economic
C. beneficial if it is used to improve economic
always beneficial in reducing the deadweight loss in the economy.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

In a market economy, the government’s ability to coerce is beneficial in the following cases, except in

correcting for positive
correcting for negative
producing public
D. fixing resource

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of

goods with negative externalities.
B. goods with positive
private sector
complementary

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Government can use its ability to coerce toward improving economic efficiency by

reducing the production of output with external benefits.
reducing the production of output with public-goods
C. increasing the production of output with external benefits.
increasing the production of output with external costs.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Making blackmail, extortion, and other forms of private coercion illegal is one way that government

A. reduces private-sector economic
increases private-sector economic
reduces the market’s economic
increases the economy’s deadweight

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Government can raise economic efficiency through all of the following policies, except

outlawing various forms of commercial
imposing pollution taxes on polluting
using tax money to subsidize goods with external
D. fixing the prices of various resources and

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

In a market economy, private parties are more willing to do transactions when they know that the government is able to

investigate and arrest people at random.
B. force people to honor contracts or outlaw private
discriminate against one group or another in
revoke private agreements and

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Government’s ability to reduce private-sector economic risks through laws and regulations would encourage all of the following, except

higher levels of private economic
formation of new
introduction of new products and
D. reduction of private goods and

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

154.

Refer to the provided graph. Suppose that it shows the S and D graphs in a market where production entails a significant amount of pollution. In this case, the government should use its coercive power to make

A. the supply curve shift to the
the supply curve shift to the
the demand curve shift to the
the demand curve shift to the

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

155.

Refer to the provided graph. Suppose that it shows the S and D graphs in a market where the product has all the characteristics of a public good. In this case, the government should use its coercive power to make

the supply curve shift to the left.
B. the supply curve shift to the
the demand curve shift to the
the demand curve shift to the

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

156.

Refer to the provided graph. Suppose that it shows the S and D graphs in a market where usage of the product generates a lot of external benefits. In this case, the government should use its coercive power to make

the supply curve shift to the
the supply curve shift to the
the demand curve shift to the
D. the demand curve shift to the

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

The difficulties in managing government in a market economy include the following, except

the need for complex bureaucracy of various
the need for detailed paperwork and
C. the close resemblance of government to the “invisible “
the lack of accountability in government.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Government laws and policies need to be uniformly But this leads to all of the following problems, except

massive
excessively detailed
D. haphazard

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

The problem of effectively aggregating and conveying information from bottom layers to top layers in massive government bureaucracies makes it hard for the high-level officials to

discern the prices of specific goods and services in the economy.
B. comprehensively assess the marginal costs and benefits of specific
monitor the incomes of individual firms and
estimate the total amount of spending incurred by the

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Even in democratic governments, we tend to have a problem with accountability due to the following reasons, except

so many government activities are undertaken
civil-service protections apply to many
the electorate cannot monitor each and every action of the government.
D. there is the markets’ self-correcting mechanism in

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

In assessing the efficiency of government policy, economic analysis would focus on

the size of government: big versus small.
B. marginal benefits versus costs of government policy and
presence or absence of the invisible
revenues and profitability of the government

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

The term government failure refers to the

large losses suffered by publicly owned water, gas, and electric
large number of bankruptcies that have occurred recently among local
C. economically inefficient outcomes caused by voting problems or incentive structures in
inability of government agencies to provide adequate police protection in low-income neighborhoods.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The principal-agent problem refers to the problem of

communication between sports and entertainment stars with their
how to split profits between labor and
C. the interests of delegates deviating from the interests of the
how stockholders of a corporation can elect a board of directors.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The situation where politicians make decisions that will raise their chances of reelection, even if those decisions are detrimental to the general public, is referred to as the

moral hazard problem.
B. principal-agent
adverse selection
common good

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

In the corporate world of business, the principal-agent problem arises between

workers and managers.
B. managers and
stockholders and
corporations and their banks.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Which statement best describes a special-interest issue?

It is a program or policy that is adopted during a special session of Congress or a state
It is a policy issue in which both the supporters and opponents employ paid lobbyists to represent their
It is a program or policy which one political party strongly supports and other political parties strongly
D. It is a program or policy in which a large number of people will suffer small costs, while a small number will receive large

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The special-interest effect in government decision making is significant because

it corrects instances of spillover costs and benefits.
B. it can lead to programs with concentrated benefits and diffuse
capitalistic economies are based upon the pursuit of self-interest.
it allows us to avoid the collective-action

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The situation where “the few who yell the loudest get heard” is referred to as the

A. special-interest
principal-agent
moral hazard
adverse selection

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The so-called collective-action problem refers to the fact that

it is always difficult to collect fees from users of a service.
B. larger groups are more difficult to organize and motivate than smaller
larger groups often have more power than smaller
collection agencies often abuse their power over individual

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The so-called pork-barrel politics refers to congressional members

trading votes with one
receiving perks and freebies from businesses trying to sway their
paying not much attention to the vocal special-interest
D. inserting provisions for local narrow projects into comprehensive

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Rent-seeking behavior in public choice theory refers to

politicians trading votes with one
receiving perks and freebies from businesses trying to sway their
C. specific groups appealing to government for special benefits at someone else’s
politicians getting low rent for their living quarters when government is in session.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The so-called collective action problem helps explain why

minorities always bear the costs of programs voted for by the majority.
businesses often find it difficult when they have to deal with a labor
it is hard for the government to discern the true preferences of everyone in
D. special-interest groups could have the costs of their narrowly focused programs be paid for by the general

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The so-called collective action problem is the reason why

A. taxpayers are not able to effectively counter special-interest
pork-barrel politics often fail to pass
we have local and national
majority voting can lead to economically inefficient

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Lobbying actions that seek government legislation to provide tax breaks to specific organizations or industries would be an example of

how the median-voter model
how political choices are
C. rent-seeking
the paradox of voting.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Politicians seeking reelection tend to do the following, except

inserting “earmarks” in
favoring projects with clear benefits and hidden
C. favoring long-term projects over short-term
engaging in pork-barrel politics.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Politicians who have to go through elections tend to focus on the short-term net benefits of projects because of

A. voters’ tendency to more easily see short-term benefits rather than long-term
the special-interest effect of specific groups among the
the ability of government to coerce people to do things
pork-barrel politics and the principal-agent

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

“Unfunded liability” refers to a government commitment to

not pay the government bonds that are coming due.
B. spend in the future without also committing to collect enough tax money to pay for
support the retirement funds of businesses that have gone
put money in specific mutual funds in order to vouch for the funds’

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The government’s budget deficit refers to the

total amount of debt that the government has incurred over the
difference between the nation’s amount of exports and its total amount of
C. gap between government spending and its lower tax
decrease in the amount of government spending from one year to the next.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

To make up for a shortfall in its annual budget, the government must borrow money by

A. issuing government (Treasury) bonds.
buying government (Treasury)
reducing its total public
selling government

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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

The government adds to its overall public debt whenever it

A. runs a budget
increases money supply in the
buys government
raises tax

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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

The government would be running a budget surplus if

government spending were lower than consumer
tax revenues were less than government
it imported less from abroad than it
D. government spent less than it collected in

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Many governments end up with chronic budget deficits because

A. many government programs are popular with voters, but hardly any voter likes paying
the nation simply cannot produce everything that it consumes, so it has to rely on other
some resources are not available from within, so they have to be bought from other
businesses do not want to have “big government” around too

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The public (or national) debt refers to the

same thing as a budget
deadweight loss in a
C. accumulation of all past budget
sum of all the debts of households and businesses.

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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

Chronic budget deficits can lead to all of the following, except

overallocation of resources to the government sector, away from the private sector.
B. “smaller government” in the
investors losing faith in the government’s ability to repay its
government being forced to make drastic cuts in its

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Many state and local governments in the S. have balanced-budget laws in order to prevent politicians from

creating a “small government” economy.
B. succumbing to voters’ strong preference for budget
facing a principal-agent
collecting too much

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

All of the following are consequences of a government’s having to deal with a “debt crisis,” except

very restricted ability to borrow
being forced to drastically raise
being forced to make drastic cuts in
D. being forced to make huge increases in government

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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

In the S., the Federal government runs a chronic budget deficit, whereas many state and local governments do not, because

A. many state and local governments have balanced-budget laws that make deficits illegal, while the Federal government does
voters in Federal elections tend to favor budget deficits, while voters in state and local elections do
many state and local governments face stricter accounting standards than the Federal government
elections at the state and local levels tend to occur more frequently than at the Federal

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

So-called business cycles refer to the multiyear periods

from when new products are launched to the point when they become
between the purchases of new capital equipment and the point when they become
from the origination of a business loan to the retirement or full repayment of the
D. during which the economy’s overall output and employment alternately expands and

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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

Governments try to smooth business cycles by using the following policies, except

tax
interest rate
C. wage rate
government-spending policies.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Monetary policy refers to the government’s attempt at smoothing business cycles through the use of changes in

tax rates.
B. interest
wage
government

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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

Fiscal policy refers to the government’s attempt at stabilizing the economy through the use of changes in

A. taxes and government
interest rates and
wage rates and employment
exchange rates and foreign

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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

During a period when output and employment are falling, the government will try to

increase tax
increase interest
reduce government
D. stimulate borrowing and

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

When fiscal and monetary policies become highly politicized, these policies tend to

become more effective at stabilizing the
lose any effect at all on the
C. become destabilizing, instead of promoting
lead to rising budget surpluses.

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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

To prevent monetary policy from becoming highly politicized, many countries have

A. made their central banks be politically
put their central banks under the full control of their law-making
allowed the heads of their central banks to serve for very short
made elected officials be the heads of their central

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The concept of limited and bundled choice, as used in public choice theory, refers to the fact that

politicians may not be objective in evaluating economic policy programs due to their individual
because of the importance of television and other modern communication media, the best and brightest candidates may not be the ones elected by
C. in an election, each voter must select a candidate who has various preferences (in a wide array of issues) that do not exactly match the preferences of the
the most economically efficient public policy programs may not be selected because political leaders do not know enough about economics.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

In presidential elections, voters often find that they do not agree with any single candidate on all the issues that matter to them (the voters). This is known as the

principal-agent problem.
B. limited and bundled choice
rent-seeking behavior
lack of accountability

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Some economists contend that government agencies are generally less efficient than private businesses due to the following reasons, except

government bureaucracies do not face the profit motive, which is a major incentive that guides private firms
government bureaucrats tend to deal with failing programs by putting more resources into the programs, rather than eliminating the
C. incompetent workers gravitate toward government, while motivated workers gravitate toward the private
bureaucrats, along with the special-interest groups they serve, often gain enough political clout to keep their agencies going regardless of performance.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

A 2015 study of hospitals, power plants, and water utilities found that government-owned and operated companies were more likely than private companies to violate health and safety Possible explanations for this include the following,

except

Government-owned companies may have difficulty getting taxpayers and politicians to approve the funding needed to improve their
The health and safety laws appear to be applied much more leniently against government-owned companies than against private
C. Government-owned companies tend to be run by less qualified and less competent managers than the private
Government-owned companies are under less pressure to comply with the laws, because fines for violations are often delayed or even avoided.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

“Regulatory capture” refers to the situation where a government agency charged with supervising and regulating a particular industry is

A. strongly influenced by the firms in the very industry that it is
headed by bureaucrats who have a “lock” on their positions, without any
completely dominating and controlling the actions of firms in the industry.
headed by unelected government officials who have no strong desire to

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

One primary reason why regulatory capture may occur in an industry is that

the government designates unelected officials to head the various regulatory agencies of different
there is a lot of bribery and corruption going on in all major industries that the government seeks to regulate.
the industry’s leaders are the ones who pushed for the government to impose supervision and regulation over their
D. people who are qualified to supervise and regulate the industry often come from the industry

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Deregulation can solve the problem of regulatory capture and increase economic efficiency

if the deregulated industry quickly evolves into a monopoly.
B. if the deregulated industry becomes more
when the regulations covering the industry are
when the industry ends up generating substantial external

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Loan guarantees provided by the government for specific private-sector investments tend to

generate high positive returns for the
increase the financial risk faced by the private
C. attract private investors into the specific
eliminate the moral hazard problem among investors.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

When the government provides loan guarantees and in effect “socializes losses and privatizes gains” of a project or firm, it can lead to a

A. moral hazard problem among
regulatory capture
principal-agent problem within the
limited and bundled choice

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The provision of loan guarantees can improve economic efficiency when

there’s a moral hazard problem among investors.
B. the project supported has significant external
there is regulatory capture in the
the private investors are providing too much funds to the

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

Political candidates accept campaign contributions from
Government agencies impose fines for such things as traffic
C. A bureaucrat allows someone to look at confidential documents for an informal
A government agency receives donations for distribution to charity.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Which of the following countries had the least corruption, as reported in the Global Corruption Barometer survey in 2013?

Mexico
B. Italy
India
South Africa

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Political corruption occurs in the following instances, except when

government officials use their powers for personal
people pay a government official to do what she should be
people pay a bureaucrat to do something that he should not be
D. businesses pay property taxes and license

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

What is a likely explanation for why the budget of a government agency might increase beyond its optimal size?

the paradox of voting
the influence of the median voter
C. the power of special-interest groups
the allocative efficiency of government

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

the market system is highly vulnerable to imperfections, and therefore the socialist system is a much better system to
the government has much imperfection and creates a lot of inefficiencies; therefore, it is best to adopt a pure market
it is best to always compare perfect markets against an idealized benevolent government that efficiently responds to the wants of
D. we must carefully compare the benefits of government intervention in our markets against the costs of such

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

True / False Questions

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

FALSE

AACSB: Analytical Thinking AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

In order to achieve economic efficiency in market economies like the S., the government must be stripped of its power to coerce.

FALSE

AACSB: Analytical Thinking AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

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

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

Economic analysis would focus on the size of the government, in order to assess whether or not it fosters economic

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and list some of the difficulties associated with managing and directing the government.

Test Bank: II Topic: Governments Economic Role

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

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Critics of government contend that the market system creates incentives and pressures for internal efficiency that are absent in the public

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

“Good economics” is about marginal costs and marginal benefits of specific projects; “good politics” is more about clear benefits and hidden

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The “principal-agent problem” often arises in public choice when politicians pursue the best interests of their constituents.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The special-interest effect in government is the reason why firms in some industries are willing to pay huge amounts of money to

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

When the special-interest effect is the major reason for the passage of a government policy or project, then economic efficiency will always

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The “pork” in pork-barrel politics refers to government projects that politicians try to secure in favor of the common good for the whole

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Nobody gains from pork-barrel politics other than the

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Unfunded liabilities occur when the government considers long-term benefits and costs of projects, and approves only those with positive long-term net

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Budget deficit is another name for the public

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Voters’ preference for having government programs serve them is inherently in conflict with their preference to pay no

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Because of the so-called “bundled choice” problem, voters often vote for candidates that they are not entirely happy

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The collective action problem is the reason why there are no lobbyists representing the interest of general taxpayers or consumers in Washington,

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Loan guarantees provided by government will reduce the willingness of investors to take on the risk in a

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

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

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

The U.S. is among the countries that have very low levels of political corruption, as reported in the Global Corruption Barometer of

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

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

Test Bank: II Topic: Government Failure

Multiple Choice Questions

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

government decision
actions by elected
C. the impact of budget deficits on the public
voting and elections.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Problems with collective decision making and policy making in government are subjects that are studied in an area of economics called public

finance.
B.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

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

the special-interest effect.
B. the invisible hand of the
limited and bundled choice in
the majority voting

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

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

reduces the power of the median
is the primary reason for public sector failure.
C. may produce economically inefficient
creates the opportunity for the fallacy of limited decisions.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Assume that Matt, Joe, and Teresa are the only citizens in a 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

accepted, two in favor and one against.
B. defeated, two against and one in
accepted, three in favor and none
defeated, none in favor and three

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Assume that Matt, Joe, and Teresa are the only citizens in a 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

accepted; the public good is produced, even though it is economically inefficient.
B. defeated; the public good is not produced, even though it would have been efficient to do
accepted; the public good is produced, which is economically
defeated; the public good is not produced, which is the proper

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Assume that Matt, Joe, and Teresa are the only citizens in a 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 $ 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
defeated; the public good is not produced, even though it would have been efficient to do
accepted; the public good is produced, which is economically
defeated; the public good is not produced, which is the proper

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Assume that Abby, Ben, and Clara are the only citizens in a 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

accepted; the public good is produced, even though it is economically
defeated; the public good is not produced, even though it would have been efficient to do
C. accepted; the public good is produced, which is economically
defeated; the public good is not produced, which is the proper outcome.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Assume that Abby, Ben, and Clara are the only citizens in a 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

A. be produced, because the benefits are greater than the
not be produced, because the costs are greater than the
be put to a vote and produced only if voters approve
not be produced, even if voters vote in favor of

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a A proposed public good has a total cost of $1,000. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben, $210 to Clara, $180 to Joe, and $120 to Matt. In a majority vote, this proposal will most likely be

accepted, four in favor and one
defeated, one in favor and four
C. accepted, three in favor and two
defeated, two in favor and three against.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a A proposed public good has a total cost of $1,000. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben, $210 to Clara, $180 to Joe, and $120 to Matt. Who are likely to vote in favor of this proposal?

Abby, Ben, Clara, and Joe
Ben, Clara, Joe, and Matt
Ben, Clara, and Joe
D. Abby, Ben, and Clara

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a A proposed public good has a total cost of $1,000. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben, $210 to Clara, $180 to Joe, and $120 to Matt. In a majority vote, this proposal will most likely be

A. accepted; the public good is produced, even though it is economically
defeated; the public good is not produced, even though it would have been efficient to do
accepted; the public good is produced, which is economically
defeated; the public good is not produced, which is the proper

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Majority voting may produce economically inefficient outcomes because it

does not always lead to fair
requires everyone to vote and bear the
C. does not consider the strength of individual voters’ preferences.
does not provide benefits to everyone.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Interest groups result when people

in a certain zip code vote together.
B. who share strong preferences on a choice band
do not all vote in
do not have strong preferences on the issues to be voted

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

The trading of votes to secure favorable outcomes on decisions that would otherwise be defeated is called

median-voter
the special-interest
C. political
the paradox of voting.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Inefficiencies associated with majority voting may get resolved through

using the median-voter
bureaucratic
the paradox of
D. political

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Which of the following would be an avenue for resolving the inefficiencies associated with majority voting?

A. political logrolling
progressive taxation
proportional taxation
the paradox of voting

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Which would be an avenue for resolving the inefficiencies associated with majority voting?

the paradox of voting
progressive taxation
proportional taxation
D. special-interest groups

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting is

the fallacy of limited decisions.
B. the paradox of
the median-voter
political

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

The major problem with paired-choice majority voting is that the outcome

is
is subject to bribery and
C. may depend on the order of the
results in clear preferences among the choices.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Public Good	Voter X	Voter Y	Voter Z
Stadium	2	3	1
Park	1	2	3
Jail	3	1	2

264.

Refer to the provided table, which shows the ranked preferences of voters for three alternative projects, with “1” being the top preference. In a paired-choice vote between a stadium and a park,

A. a majority of the voters would favor the park, 2-to-1.
a majority of the voters would favor the stadium, 2-to-1.
a majority of the voters would favor the park, 3-to-0.
a majority of the voters would favor the stadium, 3-to-0.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Public Good	Voter X	Voter Y	Voter Z
Stadium	2	3	1
Park	1	2	3
Jail	3	1	2

265.

Refer to the provided table, which shows the ranked preferences of voters for three alternative projects, with “1” being the top preference. In a paired-choice vote between a jail and a stadium,

a majority of the voters would favor the jail, 2 to 1.
B. a majority of the voters would favor the stadium, 2 to
a majority of the voters would favor the jail, 3 to
a majority of the voters would favor the stadium, 3 to

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Public Good	Voter X	Voter Y	Voter Z
Stadium	2	3	1
Park	1	2	3
Jail	3	1	2

266.

Refer to the provided table, which shows the ranked preferences of voters for three alternative projects, with “1” being the top preference. In a paired-choice vote between a park and a jail,

a majority of the voters would favor the jail, 3 to
a majority of the voters would favor the park, 3 to
C. a majority of the voters would favor the jail, 2 to
a majority of the voters would favor the park, 2 to 1.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Public Good	Voter X	Voter Y	Voter Z
Stadium	2	3	1
Park	1	2	3
Jail	3	1	2

267.

Refer to the provided table, which shows the ranked preferences of voters for three alternative projects, with “1” being the top preference. This situation illustrates the voting inconsistency where a majority of voters prefer the

stadium over the park, the park over the jail, and the jail over the
park and jail over the stadium, and the jail over the
C. stadium over the jail, the jail over the park, and the park over the
stadium and jail over the park, and the park over the jail.

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

The sometimes inconsistent results coming from a series of paired-choice voting is due to

voters changing their
irrational preferences among some
C. a normal consequence of majority
voters not having a good idea of their preferences.

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Voters are making a choice to spend money on three projects: a dam, a school, or a In the choice between the dam and the school, the majority favors the school. In a choice between a dam and a road, the majority favors a dam. In a choice between a road and a school, the majority favors a road. These rankings indicate that majority voting may

result in economically efficient outcomes because of rent-seeking
reflect irrational
C. produce inconsistent
lead to consistent choices in spite of irrational community preferences.

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

When politicians support policies such as imposing punitive tariffs on imports, which are popular among voters but which also reduce economic efficiency, we refer to this as

regulatory capture.
B. voter
limited and bundled
paradox of

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

It is observed that the person representing the middle position on an issue will most likely determine the outcome of an This view is most closely associated with the

fallacy of limited
special-interest
paradox of
D. median-voter model.

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

When voters have different opinions about an issue, the position that is most likely to be adopted is that of the

rent
D. median

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

The median-voter model indicates that political parties will

target only those voters who can be influenced by rent
direct their work to voters who can be influenced by special
campaign at one end of the distribution of voter
D. try to appeal to the sentiments of the voter holding the middle

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

The reason why, under majority voting and consistent voter preferences, the median voter’s choice will tend to predominate is because

the median voter has the strongest preferences compared to the other
most voters strongly prefer the median
C. extreme voters on either side of the median would prefer the median over the opposite
voters’ preferences are bell-shaped, with most of them falling on the median.

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

One implication of the median-voter model is that at any point in time, most voters will

be happy with the amount of government involvement in the
find government involvement in the economy to be too
find government involvement in the economy to be too
D. be unhappy with the amount of government involvement in the

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

As voters “vote with their feet” and move to political districts where the median voter’s preference is closer to their own, the median voter’s preference will

C.
stagnate.

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

True / False Questions

Majority voting produces efficient outcomes because it takes into account the strength of the preferences of individual voters.

FALSE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Majority voting on whether or not a public good should be produced could lead to a result where a public good whose costs are bigger than the benefits would end up getting approved by the

TRUE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

If a public good provides social benefits that are greater than its costs, then the majority of voters would always vote in favor of producing the

FALSE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Special-interest groups result from people with strong preferences on a particular issue banding together to let policymakers know their preferences and could thereby lead to efficient

TRUE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Political logrolling, or vote trading, can turn a potentially inefficient voting outcome into an efficient

TRUE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

If choice A wins over choice B in a majority vote, while choice B wins over choice C in a majority vote, then we can conclude that choice A would win over choice

FALSE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Political logrolling always produces economically inefficient

FALSE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

The appeal to government for special benefits at taxpayers’ or someone else’s expense is called the paradox of

FALSE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Even if individual voters have clear preferences, and they stay consistent in their preferences, we could still end up with the paradox of

TRUE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

One consequence of the paradox of voting is that whoever sets the agenda of a vote could practically predetermine the results of the

TRUE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

In the median-voter model, the median voter refers to the voter who makes her choice at the midpoint of the voting

FALSE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

In the median-voter model, half the voters have stronger or more positive preferences than the median voter, while half of the voters have weaker or more negative

TRUE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

One prediction of the median-voter model is that during elections, candidates will tend to become “centrists.”

TRUE

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Blooms: Understand Difficulty: 02 Medium

Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

One implication of the median-voter model, as applied to a vote regarding how much government involvement to have in the economy, is that most voters would find the resulting government involvement either too large or too

TRUE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

“Voter failure” is one cause of government

TRUE

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Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majority voting.

Test Bank: II Topic: Public Choice Theory and Voting Paradoxes

Macroeconomics 21st Edition By McConnell - Test Bank

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