question

Which of the following is a key difference between the economic activities of government and those of private firms?

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Government has the legal right to force people to do things; private firms do not.

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

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correcting market failures.

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How does government's power to coerce behavior tend to reduce private-sector risk

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By enforcing contracts and discouraging illegal behavior that threatens private property.

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Which of the following is a source of government failure?

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The enormous size and scope of government

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Individual accountability within the government bureaucracy:

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tends to be lacking because of civil service protections and the complexity of government.

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Government officials tend to make:

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inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs.

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As it relates to corporations, the principal-agent problem is that

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the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).

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In representative democracy, voters are ____________ and politicians are ______________.

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principals; agents

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As it relates to the political process, the principal-agent problem results from the

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inconsistency between voters' interest in programs and politicians' interest in reelection.

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."Vote for my special local project and I will vote for yours." This political technique:

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is called "logrolling."

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Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

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moral hazard.

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Public choice economists hold that politicians will

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favor programs entailing immediate and clear-cut costs and vaguely defined or deferred benefits.

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The political tendency to favor spending priorities with immediate benefits but deferred costs results in:

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chronic budget deficits. misdirection of stabilization policy. unfunded liabilities.

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The U.S. federal government's largest unfunded liability is:

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Social Security.

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Which of the following impacts would economists expect to result from chronic budget deficits?

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Government control of an inefficiently large share of the economy's resources.

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.The estimated value of the U.S. government's unfunded liability to Social Security is

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$20.5 trillion.

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To curb the problem of voters wanting immediate benefits and deferred costs, many state governments in the United States have

answer

C. passed laws requiring balanced budgets.

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The U.S. Federal Reserve, the Bank of Japan, the Bank of England, and the European Central Bank are all in charge of what for the countries they represent?

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Monetary policy.

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In a sporting goods store, you can buy the equipment you want and forgo the rest. But in an election you "buy" the entire range of the candidate's positions, including some you may not agree with. This difference:

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reflects limited and bundled choices in the public sector

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According to some economists, the private sector is more efficient than the public sector mainly because:

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the private sector has a clear test of performance: profit and loss.

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

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152 earmarks totaling $3.3 trillion.

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Regulatory capture is said to have occurred when which of the following is true?

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Rules and enforcement in an industry are heavily influenced by the industry being regulated.

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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.

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Regulatory capture often occurs because of which of the following?

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Nearly everyone with expertise works in the regulated industry.

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Which of the following is considered a potential solution to some regulatory capture?

answer

Deregulation of the industry.

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Deregulation:

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eliminates regulatory capture and can improve outcomes by increasing competition.

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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:

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special-interest effect.

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In 2011, Congress funded a sanctuary for white squirrels, a giant roadside coffee pot, and an antique bicycle museum. This is an example of

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pork barrel politics.

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In their effort to provide disaster relief after Hurricane Katrina, the Federal Emergency Management Agency (FEMA) made payouts on as many as 900,000 claims with invalid Social Security numbers or false names and addresses. This example illustrates

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bureaucratic inefficiency.

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Government loan guarantees tend to have the effect of:

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socializing losses and privatizing gains.

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Under what circumstances would government loan guarantees be socially beneficial?

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When the guarantees promote production of goods otherwise underproduced by the private sector.

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From an economist's perspective, when is government too big?

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When the marginal costs from additional government spending exceed marginal benefits.

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Subsidies for mohair production illustrate:

answer

why special-interest effects are often characterized by concentrated benefits and diffused costs.

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The collective action problem refers to:

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difficulty in organizing and motivating large groups to achieve desired outcomes.

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Government passes a law requiring all domestic clothing factories to pay workers at least $20 per hour. As a result, domestic clothing companies move their operations overseas, leaving domestic workers unemployed. This situation illustrates the problem of

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unintended consequences.

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Public choice theory focuses on the economics of:

answer

government decision making, politics, and elections.

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Suppose that Steve and Susie each perceives $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800. If the proposed tax levied on each for the park would be $300, a majority vote will:

answer

defeat this project and resources will be underallocated to it.

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Because majority voting fails to incorporate the strength of the preferences of individual voters, it

answer

under some circumstances produces economically inefficient outcomes.

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According to the paradox of voting:

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

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Some people argue that the three main television networks all have similar programming. If true, this observation might best be explained by the:

answer

median-voter model.

macroeconomics ch 5 – Flashcards

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