Econ Exam 3

When decentralized governmental units operate independently and compete with each other governments will attract residents and expand their tax base as

they provide residents with desired services at an attractive cost

The fact that the voters perceive their votes as unlikely to actually change election outcomes causes

voters to have little incentive to become informed about canidates and political issues

Which strategy is most likely to restrain excessive spending by the federal government?

A constitutional rule requiring three-fourths approval of both Houses of congress for spending proposals

What is most necessary for a market economy to efficiently satisfy costumers?

Competition and open entry into markets

The economic way of thinking indicates that personal benefits and cost influence the actions of

Consumers, producers, voters, and politicians in both the public and private sectors

What is most likely to undermine long run growth?

High taxes, excessive regulation, and persistent inflation

Why is the market process more likely to approve productive projects and reject unproductive projects, than the political process

In the market, projects will continue to to be undertake only if they generate revenue that are sufficient to cover their costs

What statement best explains why legislators find debt financing more attractive than taxation?

The current cost of debt financing is less visible than taxation

General agreement exists that the legitimate economic functions of government includes

- protection against invasions from a foreign power - provision of goods that cannot easily be provided through markets - the maintenance of a framework of rules within which people can interact peacefully with one another

What is true about central planning?

-Central planning merely substitutes politics for market verdicts -Private investors risking their own money are likely to make better investment decisions than central planners -Central planners will be unable to acquire the information necessary to create maintain and update a plan that will allocate resources efficiently

What explains why pork-barrel spending is often approved, even when the spending is inefficient?

-Each representative has little incentive to oppose pork barrel spending since the tax savings would accrue to taxpayers throughout the nation -General opposition to pork barrel spending by a legislator would make it more difficult for the legislator to arrange for pork barrel projects that provide concentrated benefits for his or her district -Logrolling increases the likelihood that pork barrel projects will be approved

Which of the following explains why democratic decision making often leads to the adoption of counterproductive projects

-The special interest effect -the ration ignorance effect -logrolling

What is the best example of citizens "voting with their feet"?

Citizens choose where to live based on the services offered and the level of taxation

Why is there little incentive for legislators to fight for an overall reduction in government spending?

If a legislator is able to achieve overall spending cuts most of the benefits will accrue to voters in his district as well as the other 434 districts equally

If students who earn an A in a class were asked to transfer some of their points to low-performing students, what would most likely happen?

Neither high nor low performing students would work as hard to earn additional points

What factor explains why the managers of government agencies and firms have only a weak incentive to keep cost low and operate efficiently?

Public sector managers have no fear of losses and bankruptcy if operational efficiently is not achieved

Why are lobbying and other activities designed to acquire favors from the government often described as "plunder"?

These activities consume resources that would otherwise be used to create wealth and generate income

What is a good example of a public good?

an anti-missile system surrounding the city of Washington D.C

What is a predictable side effect of increased government activity (for example, taxes and subsidies) designed to redistribute income among citizens?

an increase in rent-seeking activity

Tranfers and subsidies currently account for

approximately 50 percent of the federal budget

The protective function of government is vitally important in order to

assure people that they will be permitted to keep most of what they earned

What will improve the efficiency of the government and help protect individuals from exploitation by their government?

competition among decentralized government units

What is a characteristic of a public good?

difficult to restrict their availability to paying customers

Taxes for financing of government projects involve coercion because

dissenting minorities must help pay for the project even though they are opposed to it

Governments promote growth and prosperity when they

encourage productive activity and discourage plunder

The persistent budget deficits of recent decades are

expected, because politicians have an incentive to spend on current programs financed by borrowing

As the baby boomers begin moving into the retirement phase of life during the years following 2010, spending on social security and medicare will

fall and this will make it more difficult for the federal government to balance it's budget

Various subsidy programs in the U.S illustrate that when the benefits are concentrated among targeted producers and the costs are widespread among unorganized consumers, the political process leads to

inefficient and wasteful use of resources

Federal spending is something like a common pool resource, because

intrest groups will figure that if they do not grab more of the federal budget other groups will

Government id most likely to align self interest of voters, politicians, and bureaucrats with economic progress when

it is limited in scope and remains neutral among the various subgroups of citizens

Economic analysis indicates that higher unemployment benefits will

lead to more lengthy spells of unemployment and a higher unemployment rate

When the federal government becomes heavily involved in levying taxes on some in order to finance programs that benefit well-organized interest groups, the expected result is

less rapid economic growth because of increased rent-seeking and adoption of counterproductive spending programs

The framers of the U.S Constitution sought to design a political system that would

limit the powers of the federal government and protect the rights of individuals

The distinctive feature of the American political process and the key to economic progress is

limited and decentralized government protection of people and their property from aggressors and provision of a limited set of public goods

The political structure that is most consistent with economic growth and progress is

limited government, protection of individuals from aggression by others and decentralized political decision making

When legislators trade votes on one issue for the votes of other legislators on other issues is called

logrolling

Once the criterion for receipt of an income transfer is established

people will modify their behavior in order to qualify for the transfer decreasing their net gain from the transfer

When the government becomes heavily involved in taxing some in order to make income transfers to others

per capita income will grow more rapidly and the poverty rate will decline

A government fulfills a protective function when it

prevents illegal seizure of private property

If a government is going to promote economic progress, which is most important?

protection of people and their property from aggressors and the provision of a few goods that are difficult to supply through markets

Public goods are often difficult for markets to allocate efficiently because

public goods must be produced by the government

Special interest issues are politically attractive because

special interest groups feel strongly about these issues, while most other voters are poorly informed

When managing budgets, a government agency will have the incentive to do what?

spend all of its allotted budget so that it can make a case for a larger budget next year

When the government is heavily involved in projects that provide benefits to some businesses at the expense of others, this will increase the incentive of business to

spend more time lobbying and seeking government favors

When enterprises get more funds from government subsidies provided by central planners and less from consumers, they will have the incentive to

spend more time trying to influence politicians and less time trying to reduce costs and please customers

Competition among decentralized governments units will

strengthen the incentive of governments to operate efficiently and cater to the views of citizens

As taxes increased to finance more income transfers

support for the income transfers among the recipients will increase

What is true

that in a market economy the link between productivity and income provides individuals with an incentive to provide resources that are highly valued by others

As personal income tax rates are increased

the incentive to engage in tax-avoidance activity increases

Which of the following is the best indication that a project is economically productive?

the total benefits exceed total costs