CHAPTER FIVE HOMEWORK

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

C

Politicization of fiscal and monetary policy: A. Refers to the use of fiscal and monetary policy to help foreign governments. B. Is the primary reason for public sector efficiency. C. Refers to the use of fiscal and monetary policy to help politicians before an election. D. Creates the opportunity for the fallacy of limited decisions.

C

How does government's power to coerce behavior tend to reduce private-sector risk? A. by enforcing contracts and discouraging illegal behavior that threatens private property B. by guaranteeing that the government will financially cover any losses by private-sector firms C. by strictly regulating the allocation of most property resources in the economy D. The coercive power of government only increases private-sector risk.

A

In what way, if any, does the invisible hand affect government resource allocation? A. It enhances government efficiency by promoting competition for resources within government. B. It does not help resource allocation, as there are no competitive forces within government that automatically direct resources to their best uses. C. It rewards government bureaucrats who are most efficient at implementing public policies. D. It reduces government efficiency by sending market signals that interfere with government decision making.

B

The government's ability to coerce can enhance economic efficiency by A. eliminating income inequality. B. correcting market failures. C. preventing resources from going to their most valued uses. D. restraining self-interest.

B

What is the correct criterion in evaluating government programs? A. The size of government: A larger government provides more goods. B. The size of government: A smaller government has lower taxes. C. By comparing the marginal benefit to the marginal cost of the government program. If the marginal benefit exceeds the marginal cost this is an efficient program. D. By comparing the marginal benefit to the marginal cost of the government program. If the marginal cost exceeds the marginal benefit this is an efficient program

C

. In corporations, owners are and managers are . A. agents; principals B. stockholders; bondholders C. agents; employees D. principals; agents

D

. Information problems create inefficient outcomes in A. the private sector but not the public sector. B. the public sector but not the private sector. C. neither the private nor the public sector. D.both the private and the public sectors

D

. Which of the following is a key difference between the economic activities of government and those of private firms? A. Private firms face the constraint of scarcity; government does not. B. Government focuses primarily on equity; private firms focus only on efficiency. C. Private economic activities create externalities; government activities do not. D. Government has the legal right to force people to do things; private firms do not.

D