Economics Chapter 5 Practice

_____________ is a potential remedy to regulatory capture because there is no regulatory agency left to capture.

Deregulation

_________ (two words) politics is a means of securing a government project that yields benefits mainly to a single political district.

Pork barrel

__________-agent problems are conflicts that arise when tasks are delegated by one group of people to another group of people.

Principal

____________ (two words) behavior is the appeal to government for special benefits at taxpayers' expense.

Rent seeking

A certain project has an expected cost more than its expected benefit, but it is popular and the benefits are immediate, while the costs are paid out over time. Therefore politicians may choose to a) Approve it because they will face re-election before the costs are apparent. b) Approve it because people will recognize the costs exist, but still prefer the benefits. c) Reject the project because costs are higher than the benefits. d) Reject the project because they will face re-election before the costs are apparent.

a) Approve it because they will face re-election before the costs are apparent.

Private institutions a) Are imperfect and the government's economic function is mainly to correct that system's shortcomings. b) Are much more likely to function perfectly than institutions in the public sector. c) are perfect and government intervention is unnecessary. d) Are much less likely to function perfectly than institutions in the public sector.

a) Are imperfect and the government's economic function is mainly to correct that system's shortcomings.

Government economic policies are not like Adam Smith's "invisible hand" because a) Government economic policies can result in mis-allocated resources. b) Government economic policies automatically direct resources to their best uses. c) Government economic policies always direct resources to their best use. d) Government economic policies always result in properly allocated resources.

a) Government economic policies can result in mis-allocated resources.

The massive size and scope of the government a) Hinders both the identification and the correction of inefficient government policy. b) Hinders only the identification of inefficient government policy. c) Hinders only the correction of inefficient government policy. d) Facilities the identification and correction of inefficient government policies.

a) Hinders both the identification and the correction of inefficient government policy.

Which of the following are examples of the government reducing private-sector economic risks? a) Making blackmail illegal. b) Enforcing contracts. c) Making theft illegal. d) Allowing extortion. e) Price fixing in private markets.

a) Making blackmail illegal. b) Enforcing contracts. c) Making theft illegal.

Government loan guarantees (select all that apply): a) Privatize gains b) Do not provide an inducement to reckless investment c) Are meant to increase the production of goods with positive externalities d) result in efficient investments in the private sector e) socialize losses

a) Privatize gains c) Are meant to increase the production of goods with positive externalities e) socialize losses

Which of the following roles does the government fulfill in the economy? a) Promotes economic stability and growth. b) Sets laws governing economic activity c) Provides goods and services the private market won't provide. d) Raises private-sector economic risks. e) Modifies the distribution of income.

a) Promotes economic stability and growth. b) Sets laws governing economic activity c) Provides goods and services the private market won't provide. e) Modifies the distribution of income.

Which of the following is not an example of inefficient interventions in the private market? a) Requiring children to wear helmets when riding a bicycle. b) The Securities and Exchange Commission's regulation of the financial industry. c) Providing guaranteed loans to green energy companies. d) Regulating competition and prices in the railroad industry in the 1800s.

a) Requiring children to wear helmets when riding a bicycle.

True or false: Special interest groups will often support even failing bureaucratic agencies to further their own agenda. a) True b) False

a) True

Fiscal policy attempts to a) Use changes in taxation and spending levels to offset the business cycle. b) Use changes in the money supply to regulate the economy. c) Use changes in interest rates to regulate the economy. d) Use changes in only government spending levels to offset the business cycle.

a) Use changes in taxation and spending levels to offset the business cycle.

When a government's tax revenues are less than its expenditures, it is called a) a budget deficit b) inefficient c) a debt crisis d) government debt

a) a budget deficit

Recessions a) provide politicians opportunities to target tax cuts or spending to special interests. b) provide politicians the opportunity to increase taxes or cut government spending. c) can not be affected by any action taken by politicians. d) make it difficult for politicians to increase government spending.

a) provide politicians opportunities to target tax cuts or spending to special interests.

In a response to complaints of high railroad rates, the Interstate Commerce Commission was established and began to regulate the railroad industry resulting in a) regulatory capture by the railroad executives b) greater levels of competition between railroad companies c) no profits for the railroad because of fixed rates d) deregulation in the railroad industry

a) regulatory capture by the railroad executives

Which of the following prevents accountability in government programs and agencies? a) The electorate is so large that they cannot pay attention to government officials. b) Elected government officials must oversee all government programs. c) Civil service protection effectively guarantees bureaucrats a job for life. d) Governments undertake so many activities that it is difficult for the electorate to judge how well programs are run.

b) Elected government officials must oversee all government programs. c) Civil service protection effectively guarantees bureaucrats a job for life. d) Governments undertake so many activities that it is difficult for the electorate to judge how well programs are run.

True or false: The government's ability to force people to do things is very beneficial because it is always used to increase efficiency. a) True b) False

b) False

True or false: The private-sector economic activities consist mostly of compulsory activities, the public sector economic activities are mostly voluntary. a) True b) False

b) False

Which of the following describes government failure? a) Government failure cannot happen because of voting problems. b) Government failure occurs because government officials put the interests of a minority above the interests of the majority. c) Government failure is caused by shortcomings in the public sector. d) Government failure can happen despite government officials knowing the preferences of what voters prefer. e) Government failure occur because there is an incentive for government officials to put voters' interest above their own.

b) Government failure occurs because government officials put the interests of a minority above the interests of the majority. c) Government failure is caused by shortcomings in the public sector. d) Government failure can happen despite government officials knowing the preferences of what voters prefer.

Which of the following are examples of the government reducing private-sector economic risks? a) Allowing extortion. b) Making theft illegal. c) Making blackmail illegal. d) Price fixing in private markets. e) Enforcing contracts.

b) Making theft illegal. c) Making blackmail illegal. e) Enforcing contracts.

Chronic budget deficits can a) Result in an over-allocation of resources to the private sector, resulting in economic inefficiency. b) Result in an under-allocation of resources to the private sector, resulting in economic inefficiency. c) Result in an under-allocation of resources to the public sector, resulting in economic inefficiency. d) Result in an over-allocation of resources to the public sector, resulting in economic inefficiency.

b) Result in an under-allocation of resources to the private sector, resulting in economic inefficiency. d) Result in an over-allocation of resources to the public sector, resulting in economic inefficiency.

Chronic budget deficits can a) Result in an over-allocation of resources to the private sector, resulting in economic inefficiency. b) Result in over-allocation of resources to the public sector, resulting in economic inefficiency. c) Result in an under-allocation of resources to the private sector, resulting in economic inefficiency. d) Result in an under-allocation of resources to the public sector, resulting in economic inefficiency.

b) Result in over-allocation of resources to the public sector, resulting in economic inefficiency. c) Result in an under-allocation of resources to the private sector, resulting in economic inefficiency.

In the case of a public good, a) The private sector produces the right amount of the product because they are able to charge each consumer for the product. b) The private sector fails to produce enough of the good because it is impossible to charge many of the beneficiaries for the product. c) The private sector fails to produce enough of the good because the beneficiaries are unwilling to pay the price. d) The private sector products too much of the good because many people want the product.

b) The private sector fails to produce enough of the good because it is impossible to charge many of the beneficiaries for the product.

Which of the following are reasons for the detailed rules and regulations in the government? a) To make sure that bureaucrats have discretion in applying laws. b) To make sure that laws are uniformly enforced. c) To make sure that laws are uniformly applied. d) To cause inefficiency. e) To cause massive amounts of paper work.

b) To make sure that laws are uniformly enforced. c) To make sure that laws are uniformly applied.

The special interest effect is evident in a) log-jamming. b) pork barrel projects and earmarks. c) earmarks and political action committees. d) the principle agent problem.

b) pork barrel projects and earmarks.

Government failure a) Refers to misinformation provided to the electorate when they are voting for representatives. b) refers to economically inefficient outcomes caused by shortcomings in the public sector. c) refers to the voting problems that cause inefficiencies in government. d) refers to failure of government to provide basic human needs.

b) refers to economically inefficient outcomes caused by shortcomings in the public sector.

Civil service protection a) enables elected officials to fire ineffective bureaucrats b) shields bureaucrats from political pressures c) requires bureaucrats to be personally responsible for bad decisions d) prevents bureaucrats from holding a job for life

b) shields bureaucrats from political pressures

Solyndra received a loan guarantee from the Department of Energy. The loan guarantee resulted in loans a) loans that were partially backed by the federal government. b) that had to be paid by the government c) that were fully paid back d) from investors who had previously been willing to invest

b) that had to be paid by the government

A ________ ________ occurs when a government's tax revenues are less than its spending during a particular year.

budget deficit

Which of the following is NOT an example of political corruption? a) A warden releases a prison inmate whose family has done a favor for him. b) A building inspector passes the inspection of a house built by a contractor who paid him a bribe. c) A building permit is issued to a friend of a building inspector. d) A clerk in the local tax office lowers the tax bill of a local business who offers free services in return.

c) A building permit is issued to a friend of a building inspector.

Which of the following are the basic forms of political corruption? a) A government official accepts campaign contributions from constituents. b) A government official requires no incentive to do his job. c) A government official demands a bribe to do something she is not legally entitled to do. d) A government official must be bribed to do what he should be doing as part of his job.

c) A government official demands a bribe to do something she is not legally entitled to do. d) A government official must be bribed to do what he should be doing as part of his job.

Which of the following might be more likely to be rejected by politicians? a) A program with immediate benefits and high, but long-term, costs. b) A program whose benefits and costs are both realized in the long term. c) A program with easily identifiable immediate costs and high but long-term benefits. d) A program that provides immediate benefits, but whose higher cost will be covered through selling government bonds.

c) A program with easily identifiable immediate costs and high but long-term benefits.

Congress is confronted with the limited-choice, bundled goods problem because a) Appropriations legislation includes only the project to which the bill is directly related. b) Appropriations legislation combines two or three spending items into a single bill. c) Appropriations legislation combines hundreds or thousands of spending items to a single bill. d) No member is able to add unrelated spending items into an appropriations bill.

c) Appropriations legislation combines hundreds or thousands of spending items to a single bill.

In a(n) ________, investors lose confidence in the ability of the government to repay its debts, resulting in the inability of the government to borrow. a) Free market b) Recession c) Debt crisis d) Expansion e) Growing economy

c) Debt crisis

When the government reduces private-sector risk, a) Economic activity decreases. b) Fewer new goods are introduced. c) More new businesses form. d) Lower levels of investment occur.

c) More new businesses form.

The special interest effect can be caused by a) big business making large donations to re-elect incumbent politicians. b) special interest groups raising awareness of issues among the large number of voters who will benefit from government action. c) a small number of people advocating for and benefiting from a program from which they benefit at the expense of a much larger group of people. d) large special interest groups lobbying Congress for tax increases.

c) a small number of people advocating for and benefiting from a program from which they benefit at the expense of a much larger group of people.

Government loan guarantees a) always go to firms most likely to be successful. b) result in the most efficient use of investment funds. c) can provide an incentive for firms to invest recklessly. d) privatize losses and socialize gains.

c) can provide an incentive for firms to invest recklessly.

A citizen can a) completely satisfy his preferences for both public and private goods. b) choose which public goods he would like to purchase. c) exactly satisfy personal preferences, but must accept a bundle of public goods that may not satisfy his preference for public goods. d) exactly satisfy his public preferences, but must accept a set bundle of private goods that may not satisfy his private preferences.

c) exactly satisfy personal preferences, but must accept a bundle of public goods that may not satisfy his preference for public goods.

Government failure occurs because a) government officials pay attention to the preferences of voters. b) minority voters more effectively voice their concerns than the majority. c) incentive structures facing government officials lead them to put their own interests above those of their voters. d) government officials cannot effectively satisfy voters because their interests are so varied.

c) incentive structures facing government officials lead them to put their own interests above those of their voters.

Rent seeking differs from the usual profit seeking a) Because corporations, trade associations and professional organizations will not rent seek, but will profit seek. b) Because profit seeking looks to increase profits by influencing government corporate policies. c) Because firms spend time influencing government policy through voting, but spend a great deal of money reducing costs. d) Because rent seeking looks to increase profits by influencing government policies.

d) Because rent seeking looks to increase profits by influencing government policies.

In a debt crisis, a) Investors have great confidence in the ability of the government repay its debts, resulting in the over-borrowing by the government. b) The government chooses not to repay its debts, resulting in the inability of the government to borrow. c) Investors will reduce lending because private debt is excessive. d) Investors lose confidence in the ability of the government to repay its debts, resulting in the inability of the government to borrow.

d) Investors lose confidence in the ability of the government to repay its debts, resulting in the inability of the government to borrow.

Government bureaucracy is necessary because a) The limited number of elected officials are capable of running the government. b) Hiring government employees ensures the efficient implementation of government policy. c) Hiring government employees amounts to kick-backs to political supporters. d) The limited number of elected officials cannot manage all the government's affairs.

d) The limited number of elected officials cannot manage all the government's affairs.

The following are problems associated with directing and managing government a) Easy information aggregation, inflexibility of government, and the need for bureaucracy. b) The massive size and scope of government, inflexibility of government, and significant accountability within government. c) The massive size and scope of government, flexibility of government agencies and the need for bureaucracy. d) The massive size and scope of government, inflexibility of government agencies, the need for bureaucracy.

d) The massive size and scope of government, inflexibility of government agencies, the need for bureaucracy.

In a representative democracy, principal-agent problems arise because a) bureaucrats seek to enhance their power. b) politicians seek to serve the constituents who elected them. c) bureaucrats seek to serve the constituents who elected them. d) politicians seek re-election that may conflict with the best interest of constituents.

d) politicians seek re-election that may conflict with the best interest of constituents.

In response to complaints of high railroad rates, the Interstate Commerce Commission was established and began to regulate the railroad industry resulting in a) deregulation in the railroad industry. b) no profits for the railroad industry because of fixed rates. c) greater levels of competition between railroad companies. d) regulatory capture by the railroad executives.

d) regulatory capture by the railroad executives.

Regulation can cause _________ when it generates outcomes that are less beneficial than intended.

inefficiency

A ____________ (2 words) uses mostly markets and prices to coordinate and direct economic activity.

market system

A ________ externality results in overproduction of a product where all the costs of production are not borne by the producer.

negative

__________ corruption occurs when government officials abuse their entrusted powers for political gain.

political

A government agency that is supposed to supervise a particular industry is said to have suffered _________ (two words) if its regulations and enforcement activities come to be heavily influenced by the industry it is supposed to be regulating.

regulatory capture

Many critics argue that many government investments look like prime examples of _________ (two words).

rent seeking

The _____________ (two words) effect happens when a small number of people obtain a government program that gives them large gains at the expense of a much greater number of people.

special interest

A(n) _________ (two words) occurs when the government commits to making a series of future expenditures without simultaneously committing to collect enough tax revenues to pay for those expenditures.

unfunded liability