Chapter 5 - Macroeconomics

Information problems create inefficient outcomes in:

Both the private and the public sectors.

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

Chronic budget deficits, misdirection of stabilization policy, unfunded liabilities = All of these

The governments ability to coerce can enhance economic efficiency by:

Correcting market failures.

Weak government enforcement of contracts and laws tends to:

Discourage economic activity by encouraging private sector coercion such as blackmail and extortion.

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

Enforcing involuntary transactions.

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

Government has the legal right to force people to do things; private firms do not.

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

It does not help resource allocation, as there is no competitive forces within government that automatically direct resources to their best uses.

The many layers of the federal government in the U.S.

Lead to economic inefficiencies because of difficulty aggregating and conveying information.

Which of the following is a source of government failure?

The enormous size and scope of government

Public choice economists hold that politicians will:

favor programs entailing immediate and clear-cut benefits vaguely defined or differed costs

Government officials tend to make:

inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs.

A special-interest issue is one whose passage yields:

large economic gains to a smaller number of people and small economic losses to a large number of people.

Public choice economists contend public bureaucracies are inefficient primarily because:

of the absence of competitive market pressures

Government's unfunded liabilities

result from the political bias towards immediate benefits and deferred costs.

Individual accountability within the government bureaucracy

tends to be lacking because of civil service protections and the complexity of government.