Macroeconomics exam two questions

Which of the following groups does the quotation in Scenario 6-1 suggest would have the most influence on public sector action? a. taxpayers b. nonunion workers c. special interest groups d. consumers

C

"The ideal policy, from the viewpoint of the state, is one with identifiable beneficiaries, each of whom is helped appreciably, at the cost of many unidentifiable persons, none of whom is hurt very much." (George Stigler, A Dialogue on the Proper Economic Role of the State) ____ 1. Refer to Scenario 6-1. This statement is probably a. incorrect because voters are well informed on a wide range of political issues. b. incorrect because the political process dilutes the influence of special interest groups, because like other citizens, their members have only one vote. c. correct because the well-informed voter will favor policies that cater to the views of small groups of people. d. correct because voters who have a strong personal interest in an issue will tend to support candidates who cater to their views, whereas most other voters ignore the issue.

D

9. When analyzing public sector decision making, economic theory assumes that voters, politicians, and government officials will a. respond to changes in personal benefits and costs when making public sector choices. b. pursue the public interest even when it conflicts with their private interests. c. pursue primarily public interests because competition is less intense in the public sector. d. do none of the above.

a

Assume that you are a member of the U.S. House of Representatives from your home state and district. Which of the following best explains why you have a strong incentive to get the federal government to finance pork-barrel projects in your district? a. Most of the benefits of pork-barrel projects within your district will accrue to your constituents, whereas most of the costs will be imposed on voters from other districts. b. Most of the costs of pork-barrel projects within your district will be imposed on your constituents, whereas most of the benefits will accrue to voters from other districts. c. Pork producers are a powerful political lobby that will influence the actions of legislators in all districts. d. This is a trick question; in a representative democracy, there is little incentive for legislators to support pork-barrel projects.

a

Assume that you are a member of the U.S. House of Representatives from your home state and district. Which of the following best explains why you have a strong incentive to get the federal government to finance pork-barrel projects in your district? a. Most of the benefits of pork-barrel projects within your district will accrue to your constituents, while most of the costs will be imposed on voters from other districts. b. Most of the costs of pork-barrel projects within your district will be imposed on your constituents, while most of the benefits will accrue to voters from other districts. c. Pork producers are a powerful political lobby that will influence the actions of legislators in all districts. d. This is a trick question; in a representative democracy, there is little incentive for legislators to support pork-barrel projects.

a

Automatic stabilizers are government programs that tend to a. reduce the ups and downs in aggregate demand without legislative action. b. bring expenditures and revenues automatically into balance without legislative action. c. signal Congress that legislative changes are needed. d. increase tax collections automatically during a recession.

a

Economists use the term shortsightedness effect to describe which one of the following phenomena? a. Politicians tend to support actions that have immediate and easily recognized current benefits. b. Individuals are apt to spend their income on goods that bring immediate personal benefits. c. Voters elect politicians on the basis of campaign promises, regardless of what they may do once they are in office. d. Politicians support the programs of special interest groups in order to get elected; however, special interest support may be detrimental later, costing politicians popularity after the programs are implemented.

a

Government decisions tend to be biased toward actions that have a. current benefits that are easily observable and future costs that are difficult to identify. b. current benefits and future costs that are both difficult to identify. c. future costs that are easily observable. d. clear benefits to the poor at no costs to the wealthy.

a

Keynesian countercyclical budget policy suggests that a. a budget deficit is needed if the economy is operating at less than full employment. b. a budget deficit should be planned during an inflationary boom. c. the budget must be balanced if the national debt is growing more rapidly than the economy. d. the budget should always be in balance

a

Public choice analysis a. assumes individuals in the public sector act in their own self-interests. b. assumes individuals seek to serve the public interest rather than their own personal interests. c. is the study of decision making in the formation and operation of private organizations. d. assumes the government is a corrective device that takes the necessary action to offset economic inefficiency arising from market failure.

a

Senator Spendall is able to use his position on an important committee to set aside government funding specifically for a new bridge in his hometown. This is an example of a. earmarking. b. logrolling. c. pork-barrel legislation. d. the invisible hand principle

a

The crowding-out effect implies that budget deficits will a. increase real interest rates and lower the future stock of private capital. b. decrease real interest rates and increase the future stock of private capital. c. increase the productivity of workers in the future. d. lead to higher levels of income for workers in the future.

a

When is representative democracy most likely to lead to the adoption of an inefficient government program? a. when the program provides substantial benefits to a small proportion of voters and the costs are widespread among voters b. when both the benefits and costs of the program are widespread among voters c. when the program is financed by a user charge d. when a close relationship exists between the personal benefits received from the program and the tax cost imposed on each voter

a

When the federal government is running a budget surplus, a. government revenues exceed government expenditures. b. government expenditures exceed government revenues. c. the economy must be in a recession. d. additional government borrowing will decrease the size of the national debt.

a

When voters pay in proportion to the benefits received from an economic action of the government, if the government activity is productive, a. all voters will gain. b. only a smaller proportion of voters will gain. c. less than a simple majority of voters will gain. d. approximately 50 percent of the voters will gain.

a

Which of the following is true about the market and public sectors? a. Competitive behavior is present in both sectors. b. The public sector utilizes the price mechanism more than the private sector. c. In both sectors, individuals always pay for the goods and services they consume. d. There is more free choice for individual consumers in the public sector than in the private sector.

a

Which of the following is true of government activities under a system of representative democracy? a. When voters pay in proportion to benefits received, all voters will gain if the government activity is productive. b. If a majority opposes an activity, it must be counterproductive. c. When voters must pay in proportion to benefits received for an activity undertaken by the government, the activity will most likely be rejected by the majority of voters. d. Government activities must be productive in order to be eligible for vote.

a

Which of the following refers to when legislators trade votes on legislation? a. logrolling b. the special interest effect c. rational ignorance d. the shortsightedness effect

a

Which of the following statements is False? a. Political activities consistent with economic efficiency tend to emerge naturally from the unconstrained democratic political process. b. Constitutional rules establishing procedures and limiting the ability of the political process to engage in redistributive activities can improve the economic efficiency of government. c. Rent-seeking activity tends to retard the economic prosperity of a nation because it takes resources away from productive private sector activities. d. Unconstrained democratic governments often enact special-interest programs that waste resources and impair the standard of living of a country.

a

. In the case of a private good, which of the following forms of economic organization will result in the strongest incentive for consumers and producers to economize? a. The good is produced privately and taxes are used to provide it to consumers free of charge. b. The good is produced privately and consumers purchase it with their own money. c. The good is produced by government enterprises and the cost of its production is covered by taxes. d. The good is produced by government enterprises and consumers purchase it with their own money.

b

A person's marginal tax rate determines the percentage of a. taxes that are allocated to the repayment of government debt. b. additional earnings that the individual is permitted to keep. c. the individual's total income that must be paid in taxes. d. additional taxable income allocated to saving rather than investment.

b

According to the Bureau of Economic Analysis, government income transfer payments amounted to approximately what percent of national income? a. 5 percent b. 16 percent c. 28 percent d. 50 percent

b

According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate? a. a reduction in government expenditures b. an increase in government expenditures or reduction in taxes, financed by borrowing c. a balanced federal budget d. an increase in taxes

b

If output is less than full employment in the Keynesian model, what is needed to restore full employment? a. an increase in the price level b. an increase in aggregate demand c. a reduction in government expenditures d. an increase in aggregate supply

b

In the Keynesian model, the primary determinant of consumer spending is a. the interest rate. b. disposable income. c. expectations of inflation. d. the stage of the business cycle

b

Increases in government expenditures and large budget deficits are projected for 2010-2019. The crowdingout and new classical views indicate this fiscal policy will lead to a. lower interest rates and tax rates that will enhance economic growth. b. higher interest rates and tax rates that will slow economic growth. c. increases in aggregate demand that will lead to strong economic growth. d. high rates of future inflation.

b

Keynesian critics would argue that expansion in government debt during a recession would lead to a. consumer optimism and a substantial increase in private consumption and investment. b. higher future interest payments and tax rates. c. lower future interest payments and tax rates. d. a strong recovery and substantial future economic growth.

b

Public choice analysis indicates that a. because government action provides public goods, it always increases the wealth of the citizenry. b. unconstrained democratic governments often enact special-interest programs that waste resources and impair the standard of living. c. constitutional rules limiting public-sector activity generally lower the economic efficiency of the overall economy. d. Politicians and voters are better able to judge the public interest than their own private interest.

b

Public choice theory suggests that politicians will be most likely to favor redistribution of income from a. the rich to the poor. b. disorganized individuals to well-organized special interest groups. c. middle-income taxpayers to both the rich and the poor. d. well-organized business and labor groups to consumers

b

When the government both provides a service and covers its costs through taxation, a. the government has a strong incentive to supply consumers with desired goods at a low cost. b. consumers are in a weak position to either discipline the suppliers or alter the quantity or quality of the service provided. c. the invisible hand will direct decision makers toward the most efficient level of output. d. Consumers have strong incentive to be cost conscious.

b

Which of the following is most likely to lead to an increase in current consumption? a. an increase in personal income tax rates b. an increase in one's expected future income c. a decrease in one's marginal propensity to consume d. an increase in the interest rate

b

According to Keynesian theory, which of the following would most likely stimulate an expansion in real output if the economy were in a recession? a. an increase in tax rates b. a balanced budget c. a budget deficit d. a budget surplus

c

According to the Keynesian view, expansionary fiscal policy will have its greatest impact a. when planned aggregate expenditures equal total output. b. during a strong economic expansion. c. when widespread unemployment is present. d. during a period of severe inflation

c

Economic theory leads us to expect that the typical voter will be uninformed on many issues because a. most issues are so complex that voters will be unable to understand them. b. even though information is free, most voters do not care. c. information is costly, and the individual voter casting a well-informed vote can expect negligible personal benefit. d. citizen apathy about political matters is inevitable, except when decisions are made by referendum.

c

If a fiscal policy change is going to exert a stabilizing impact on the economy, it must a. be expansionary. b. be restrictive. c. be timed correctly. d. keep the federal budget in balance

c

If the federal government runs a budget deficit in order to finance an increase in spending, where do the funds to finance the spending come from? a. increased personal income taxes b. additional money printed by the Federal Reserve c. additional bonds issued by the U.S. Treasury d. the financial assets of the members of Congress who are legally responsible for the deficit

c

In which case is the political process most likely to result in the acceptance of productive programs and rejection of unproductive political activities? a. when the benefits are highly concentrated and costs widespread among voters b. when the costs are highly concentrated and the benefits widespread among voters c. when both the benefits and costs are widespread among voters d. when the benefits accrue primarily in the future, whereas the costs are more visible during the current period

c

Legislation that offers immediate and easily recognized benefits, at the expense of costs that are observable only in the distant future, is often enacted, even when economic inefficiency results. In economics this is referred to as the a. long-term effect. b. political-fallacy effect. c. shortsightedness effect. d. inefficiency effect.

c

Market allocation and the political process differ in that a. competition is present in the market sector but not in the political sector. b. scarcity is a constraint in the market sector but not the political sector. c. there is a one-to-one link between payment for and receipt of a good in the market sector, but this is often not true in the political sector. d. in the political sector, voters have a strong incentive to acquire information that will help them make better decisions, but in the market sector, consumers do not have much incentive to acquire information.

c

Public choice analysis suggests that bureaucrats and public-sector managers have a strong incentive to a. economize on their spending so more funds will be available for other government programs. b. ensure that their budget is exactly the size that would be considered economically efficient. c. expand their budgets to sizes beyond what would be considered economically efficient. d. keep individual legislators fully informed as to every expenditure.

c

The Keynesian macroeconomic model was highly popular for several decades following World War II because it provided an explanation for a. the strong economic recovery following the end of the war. b. the high inflation rates of the 1950s. c. the prolonged unemployment of the 1930s. d. the high rate of investment during the Great Depression.

c

The crowding-out effect suggests that a. expansionary fiscal policy causes inflation. b. high marginal tax rates crowd out tax deductions. c. the demand stimulus effects of a budget deficit will be weak because the borrowing to finance the deficit will lead to higher interest rates. d. a budget surplus will cause the economy to slip into a major recession.

c

The expenditure multiplier is used to calculate the change in a. spending caused by a change in income. b. equilibrium income resulting from a change in interest rates. c. equilibrium income resulting from an independent change in spending. d. investment caused by a change in consumption.

c

The modern consensus view of fiscal policy stresses a. that the federal government should always balance its budget. b. that offsetting factors make fiscal policy much less effective than the Keynesian view suggested. c. that proper timing of fiscal policy is very difficult to achieve, rendering fiscal policy less useful as a stabilization tool. d. that both b and c are true.

c

When the economy enters a recession, automatic stabilizers create a. higher taxes. b. more discretionary spending. c. larger budget deficits. d. larger budget surpluses.

c

Which of the following is a potential drawback of an expansion of government spending projects during a recession? a. Spending projects are easily reversed once the economy has recovered. b. Government spending projects are not included in the calculation of GDP. c. Those benefiting from spending projects will lobby for a continuation of these projects long after the economy has recovered. d. Government spending projects will not encourage rent-seeking activity.

c

Which of the following is an example of a good that is produced by the public sector but consumers purchase it in proportion to the benefit received? a. milk b. public education c. first-class mail delivery from the U.S. Post Office d. national defense

c

Which of the following is legally permitted to use coercive force to modify the actions of adults against their will? a. banks b. corporations c. governments d. all of the above

c

Which of the following statements is true? a. The empirical evidence indicates that countries with higher marginal tax rates have higher economic growth rates. b. Unlike other policies, supply-side tax cuts have their full impact on an economy instantaneously. c. The supply-side effects of changes in marginal tax rates take place over lengthy time periods. d. In the 1960s and 1980s, when the marginal tax rates were reduced, the share of income taxes paid by high-income taxpayers fell.

c

Which of the following will make it difficult to institute fiscal policy in a stabilizing manner? a. Politicians will find it more attractive to raise taxes than to increase spending. b. Politicians will find it attractive to increase taxes during a recession, but they will be reluctant to reduce them during an expansion. c. Politicians will find budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion. d. Politicians will find budget surpluses attractive during a recession, but they will be reluctant to run budget deficits during an expansion.

c

At the most basic level, the distinguishing characteristic of government that makes it different from private firms is a. the difference in incentive structure motivating economic activity. b. its ability to direct resources in a manner that is more economically efficient. c. its ability to produce goods and services that people value. d. its ability to use coercive force against people to modify their behavior or force them to pay for a good or service whether they benefit from it or not.

d

Despite many differences, the market and public sectors are similar in which one of the following respects? a. In both sectors, income (or power) is distributed on the basis of the same criterion. b. Consumers in the market sector and voters in the public sector are equally well informed. c. Voluntary exchange, rather than compulsion, is characteristic of both sectors. d. It will be costly to use scarce goods, whether through the private or the public sector

d

Expansionary fiscal policy financed by government borrowing can lead to a. higher interest rates and lower private investment under the crowding-out view. b. an increase in aggregate demand under the Keynesian view. c. no change in aggregate demand under the new classical view. d. all of the above

d

Giving local governments more power is less dangerous than giving the same power to the national government because a. local governments generally have more strict constitutional rules they must operate under. b. it is easier to vote in local elections than national elections. c. only national-level governments are allowed to use coercive force. d. higher exit options exist at the local level--it is easier for people to move away from a bad local government.

d

John Maynard Keynes and his followers argued that the Great Depression was primarily the result of a. excessive government spending. b. large budget deficits. c. the perverse monetary policies of the Fed. d. insufficient aggregate spending on goods and services.

d

Legislation that offers immediate and easily recognized benefits, at the expense of uncertain costs that are in the distant future (such as financing by government debt), is often enacted even when economic inefficiency results. This can be expected because of a. a lack of incentive for operational efficiency in the public sector. b. market failure. c. the special-interest effect. d. the shortsightedness effect

d

Legislators often gain by bundling a number of projects benefiting local districts at the expense of general taxpayers. Such legislation is called a. market failure legislation. b. the rational ignorance effect. c. public goods legislation. d. pork-barrel legislation

d

Other things constant, a reduction in marginal tax rates will tend to increase aggregate supply because the lower taxes will increase a. disposable income, which will induce an increase in consumption and aggregate supply. b. business optimism, which will increase both investment and aggregate supply. c. savings, which will lead to lower interest rates, an increase in consumption, and an increase in aggregate supply. d. the attractiveness of productive activity relative to leisure and tax avoidance.

d

Other things constant, an increase in marginal tax rates will a. decrease the supply of labor and reduce its productive efficiency. b. decrease the supply of capital and decrease its productive efficiency. c. encourage individuals to buy goods that are tax deductible instead of those that are more desired but nondeductible. d. do all of the above.

d

Public choice theory indicates that competitive forces between candidates in elections provide a politician with a strong incentive to offer voters a bundle of political goods that she believes a. is best for the economic and political situations the country faces. b. will most likely clear the legislative process. c. will increase the welfare of society. d. will increase her chances of winning elections

d

The theory of public choice a. analyzes the likelihood that various public sector alternatives will be instituted. b. assumes that economic incentives influence the choices of voters. c. applies the tools of economics to the collective decision-making process. d. is all of the above.

d

Which of the following factors weakens the case for private-sector provision of goods and services as opposed to public-sector provision? a. weak incentives for operational efficiency b. rent-seeking c. the shortsightedness effect d. externalities

d

Which of the following is a major insight of the Keynesian model? a. Changes in output, as well as changes in prices, play a role in the macroeconomic adjustment process, particularly in the long run. b. A general overproduction of goods relative to total demand is impossible because production creates its own demand. c. The responsiveness of aggregate demand to changes in supply will be directly related to the availability of unemployed resources. d. Fluctuations in aggregate demand are an important potential source of business instability

d

Which of the following is a predictable side effect of increased government activity (e.g., taxes and subsidies) designed to redistribute income among citizens? a. improvement in the operational efficiency of government agencies b. budget surpluses c. reduction in the poverty rate d. an increase in rent-seeking activity

d

Which of the following is a predictable side effect of increased government activity (for example, taxes and subsidies) designed to redistribute income among citizens? a. improvement in the operational efficiency of government agencies b. rapid economic growth c. a reduction in the amount of lobbying d. an increase in rent-seeking activity

d

Which of the following is the best explanation of how expansionary fiscal policy can crowd out net exports? a. Expansionary fiscal policy leads to high budget deficits. Foreigners become concerned about the stability of the United States and stop buying American goods as a result. b. When the government spends more, some of its spending is on foreign goods. As imports rise, net exports fall. c. The higher interest rates associated with expansionary fiscal policy attract foreign investors. To buy U.S. financial assets, foreigners bid up the real exchange rate, which in turn causes net exports to fall. d. The cut in taxes associated with expansionary fiscal policy stimulates aggregate supply. As aggregate supply rises, consumers have a greater incentive to purchase domestic goods, causing imports to fall and net exports to drop.

d

Why might increases in government spending be ineffective during a recession? a. The level of aggregate demand will not affect output and employment during a recession. b. Increases in government spending cannot stimulate aggregate demand. c. According to the Keynesian view, fiscal policy will be largely ineffective during a recession. d. Recessions often reflect a coordination problem related to the composition of aggregate demand, not just its level

d