question

The government's ability to coerce can enhance economic efficiency by:

answer

correcting market failures.

question

Which of the following is a source of government failure?

answer

The enormous size and scope of government.

question

The idea of government failure includes all of the following except:

answer

extensive positive externalities from public and quasi-public goods.

question

Public choice theorists contend that:

answer

public bureaucracies are inherently less efficient than private enterprises.

question

To reduce politicization of policy making, many countries have given control of ________ to politically independent central banks.

answer

monetary policy

question

In 2012, the U.S. federal government legislation authorized:

answer

152 earmarks totaling $3.3 billion.

question

Which of the following would be the best example of regulatory capture?

answer

Executives from the Ford, General Motors, and Chrysler companies write the rules regulating automobile safety and fuel requirements.

question

Which of the following would best explain why regulatory capture is a problem?

answer

The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection.

question

What is the main problem with government guarantees that socialize losses and privatize gains?

answer

They encourage overly risky investments by insulating private investors from any losses.

question

(Last Word) In 2004, Congress passed a corporate tax relief bill with 276 provisions for tax breaks to groups such as restaurant owners, Hollywood producers, and NASCAR track owners. This is an example of the:

answer

special-interest effect.

question

A debt crisis refers to how much government spending exceeds tax revenues in a given year.

answer

False

question

Monetary policy attempts to change the level of spending by altering interest rates.

answer

True

question

The Securities and Exchange Commission's supervision of Wall Street financial firms is a possible example of regulatory capture.

answer

True

question

Public choice theory focuses on the economics of:

answer

government decision making, politics, and elections.

question

If the tax cost of this proposed project is $600 per person, a majority vote will:

answer

pass this project and resources will be overallocated to it.

question

According to the paradox of voting:

answer

majority voting fails under some circumstances to make consistent choices that reflect the community's underlying preferences.

question

The information contained in the table illustrates:

answer

The paradox of voting

question

Refer to the table. In a choice between public safety and parks:

answer

a majority of voters would favor parks.

question

Refer to the table. Suppose a five-person city council must decide via majority voting which of these stadiums to build. Also suppose that each of the stadium sizes has the support of one council member. According to the median voter model, the council will ultimately vote in favor of stadium:

answer

C

question

Logrolling can either increase or diminish economic efficiency.

answer

True

question

The three statistics that are the main focus for those measuring macroeconomic health are:

answer

real GDP, inflation, and unemployment.

question

Modern economic growth refers to countries that have experienced an increase in:

answer

real output per person.

question

Which of the following would an economist consider to be investment?

answer

Boeing building a new factory

question

For an economy to increase investment, it must:

answer

increase saving

question

Banks and other financial institutions:

answer

promote economic growth by helping to direct household saving to businesses that want to invest.

question

Shocks to the economy occur when:

answer

actual economic events do not match what people expected.

question

Demand shocks:

answer

refer to unexpected changes in the desires of households and businesses to buy goods and services.

question

Refer to the figure. Assuming this market is representative of the economy as a whole, a positive demand shock will:

answer

raise the price level but leave output unchanged.

question

Refer to the figure. Assuming this market is representative of the economy as a whole, a negative demand shock will:

answer

lower prices but leave output unaffected.

question

Refer to the figures. Which figure(s) represent(s) a situation where prices are flexible?

answer

A only.

question

Refer to the figures. If government policy can be used to affect the level of demand in the economy, these figures suggest that government policy:

answer

can affect the level of output in the very short run, when prices are stuck.

question

Nominal GDP measures a nation's output in current year prices.

answer

True

question

Real GDP measures the change in the price level over time.

answer

False

question

Modern economic growth refers to any situation where a nation's output increases.

answer

False

question

Economists refer to purchases of stocks and bonds as "investment."

answer

False

question

The amount of investment in an economy is ultimately limited by the amount of savings in that economy.

answer

True

question

Increasing investment in the present means forgoing future consumption.

answer

False

question

A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption.

answer

True

question

Demand shocks may be positive or negative.

answer

True

question

(Consider This) The term "economic investment" refers only to money spent purchasing newly created capital goods such as factories, tools, and warehouses.

answer

True

question

Government's ability to force people to do things involuntarily is:

answer

Beneficial if it is used to improve economic efficiency

question

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of:

answer

Goods with positive externalities

question

Government can raise economic efficiency through all of the following policies, except:

answer

Fixing the prices of various resources and products

question

Government's ability to reduce private-sector economic risks through laws and regulations would encourage all of the following, except:

answer

Reduction of private goods and services

question

Refer to the graph above. Suppose that its shows the S and D graphs in a market where production entails a significant amount of pollution. In this case, the government should use its coercive power to make:

answer

The supply curve shift to the left

question

Refer to the graph above. Suppose that its shows the S and D graphs in a market where usage of the product generates a lot of external benefits. In this case, the government should use its coercive power to make:

answer

The demand curve shift to the right

question

The term government failure refers to the:

answer

Economically inefficient outcomes caused by voting problems or incentive structures in government

question

The principal-agent problem refers to the problem of:

answer

The interests of delegates deviating from the interests of the delegators

question

In the corporate world of business, the principal-agent problem arises between:

answer

Managers and stockholders

question

The special-interest effect is significant because:

answer

It can contribute to economic inefficiency in the public sector

question

The so-called collective action problem is the reason why:

answer

Taxpayers are not able to effectively counter special interest groups

question

Lobbying actions that seek government legislation to provide tax breaks to specific corporations would be an example of:

answer

Rent-seeking behavior

question

"Unfunded liability" refers to a government commitment to:

answer

Spend in the future without also committing to collect enough tax money to pay for it

question

The government's budget deficit refers to the:

answer

Gap between high government spending and its lower tax revenues

question

Monetary policy refers to the government's attempt at smoothing business cycles through the use of changes in:

answer

Interest rates

question

During a period when output and employment is falling, the government will try to:

answer

Stimulate borrowing and spending

question

Some economists contend that government agencies are generally less efficient than private businesses due to the following reasons, except:

answer

Incompetent workers gravitate towards government, while motivated workers gravitate towards the private sector

question

"Regulatory capture" refers to the situation where a government agency charged with supervising and regulating a particular industry is:

answer

Strongly influenced by the firms in that industry

question

In thinking about the "principal-agent problem" in a democratic government, we assign the role of "principal" to the government.

answer

False

question

A budget deficit is another name for the public debt.

answer

False

question

Short-run fluctuations in output and employment are referred to as:

answer

business cycles

question

The period when output and living standards decline is referred to as:

answer

recession

question

The Great Recession occurred in:

answer

2007-2009

question

Real gross domestic product is a measure of the:

answer

Value of final output produced within a country in one year, adjusted for changing prices

question

Nominal gross domestic product:

answer

Measures the value of final output produced within a nation in one year, using current prices

question

Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to nominal GDP?

answer

Nominal GDP doubles

question

Suppose a small economy produces only HD TV sets. In year 1, 100,000 sets are produce and sold at a price of $1,200 each. In year 2, 100,000 sets are produced and sold at a price of $1,000 each. As a result:

answer

Nominal GDP decreases, while real GDP stays constant

question

High rates of unemployment:

answer

Indicate that society is not using a large portion of the talent and skills of its people

question

An increase in the overall level of prices in an economy is called:

answer

Inflation

question

Suppose a family's income increases by 5% at the same time that inflation is 6%. Then the family's living standard:

answer

Will decrease

question

Investment happens when:

answer

Resources are devoted toward increasing future output

question

Saving in the economy:

answer

Occurs when current spending is less than current incomes

question

A higher rate of investment now will generate:

answer

More future production

question

Which of the following is the best example of economic investment?

answer

Apple builds a new plant to manufacture iPads

question

Which of the following groups is the principal source of savings in an economy?

answer

Households

question

Increased optimism about the future will lead to:

answer

More current investment and more future consumption

question

In economics, the word "shocks" refers to:

answer

Situations where firms' expectations are not met

question

An increase in worker productivity will lead to a:

answer

Positive supply shock

question

Invetories held by firms:

answer

Tend to reduce the severity of short-run fluctuations

question

Between 2007 and 2009, the unempolyment rate in the u.s:

answer

rose from 4.7 to 10%

question

Which of the following statements is true? A. Short-run economic fluctuations are made worse because prices are flexible B. Short-run economic fluctuations would be less severe if prices were inflexible C.If prices were fully inflexible, there would be no short-run economic fluctuations D.If prices were fully flexible, there would be no short-run economic fluctuations

answer

D.If prices were fully flexible, there would be no short-run economic fluctuations

question

What impact will a negative supply shock have on the main measures of economic performance? a.Real GDP will increase, inflation will increase, and unemployment will decrease b. Real GDP will decrease, inflation will decrease, and unemployment will increase C. Real GDP will decrease, inflation will increase, and unemployment will increase D. Real GDP will increase, inflation will decrease, and unemployment will decrease

answer

C. Real GDP will decrease, inflation will increase, and unemployment will increase

question

If prices are "sticky" in the short run, then: a.The economy will respond to demand shocks primarily through changes in output and employment B. The economy will respond to demand shocks primarily through changes in prices and inflation C. Prices will adjust to equalize the quantities demanded and supplied of goods and services Incorrect Response D. Unemployment will not change in response to a demand shock

answer

a.The economy will respond to demand shocks primarily through changes in output and employment

question

Economists are sharply divided over how to best fight the Great Recession. A vocal minority of economists favor the "Structural Solution," arguing that the economy needs to undergo some structural adjustments and: A. Relying on the invisible hand of the market to reallocate resources, by letting weak firms die out quickly B. Government taking serious actions to increase the total demand for output in the economy C.Fixing prices so that consumers can afford the basic stuff they need, and also to control inflation D. Setting up social programs and welfare structures, to help out those who are suffering most from the recession

answer

A. Relying on the invisible hand of the market to reallocate resources, by letting weak firms die out quickly

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