In the U.S. market economy, the government performs the followingprominent roles, except
provide public goods and services.
promote economic stability and growth.
C. set prices for most resources.
D. modify the distribution of income.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
One major role that the government plays in the market economy of the U.S. is
setting production targets for major industries.
requiring minimum levels of employment in major industries.
allocating resources in various market activities.
D. setting laws governing economic activity.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
One key difference between government activities and private transactions is that
A. government can enforce involuntary transactions, whereas privatetransactions are mostly voluntary.
government can produce only services, whereas privateproducers can produceboth goods and services.
government does not run any production operations, whereas private firms have the main purpose of running production operations.
government does not earn revenues from its activities, whereas private firms aim to earn revenuesand profits.
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Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
The ability to impose fines, revokelicenses, and put peopleinto jail allows the government to
ensure positive profits for its agencies.
maximize revenues from its operations.
C. enforce involuntary transactions.
D. set market pricesfor goods and services.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
Government's ability to force peopleto do thingsinvoluntarily is
unconstitutional in the United States and other market economies.
always going to lead to lower economic efficiency.
C. beneficial if it is used to improve economic efficiency.
D. always beneficial in reducingthe deadweight loss in the economy.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
In a market economy, the government's abilityto coerce is beneficialinthe following cases, except in
correcting for positive externalities.
correcting for negative externalities.
producing public goods.
D. fixing resource prices.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of
A. goods with negative externalities.
B. goods with positiveexternalities.
private sector goods.
complementary goods.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
Government can use its abilityto coerce toward improving economic efficiency by
reducing the production of output with external benefits.
reducing the production of output with public-goods characteristics.
C. increasing the production of output with external benefits.
D. increasing the production of output with external costs.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
Making blackmail, extortion, and other forms of private coercionillegal is one way that government
A. reduces private-sector economic risk.
increases private-sector economic risk.
reduces the market's economic efficiency.
increases the economy's deadweight losses.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
Government can raise economic efficiency through all of the following policies, except
outlawing various forms of commercial deception.
imposing pollution taxes on polluting firms.
using tax money to subsidize goods with external benefits.
D. fixing the prices of various resourcesandproducts.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
In a market economy, privateparties are more willing to do transactions when they know that the government is able to
A. investigate and arrest peopleat random.
B. force people to honorcontracts or outlaw private coercion.
discriminate against one group or another in society.
revoke private agreements and contracts.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
Government's ability to reduce private-sector economic risks throughlaws and regulations would encourage all of the following, except
higher levels of privateeconomic investment.
formation of new businesses.
introduction of new products and processes.
D. reduction of private goods and services.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
154.
Refer to the provided graph. Suppose that it shows the S and D graphs in a marketwhere production entails a significant amount of pollution. In this case, the government should use its coercive power to make
A. the supply curve shift to the left.
the supply curve shift to the right.
the demand curve shift to the left.
the demand curve shift to the right.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
155.
Refer to the provided graph. Suppose that it shows the S and D graphs in a marketwhere the producthas all the characteristics of a public good. In this case,the government should use its coercive power to make
A. the supply curve shift to the left.
B. the supply curve shift to the right.
the demand curve shift to the left.
the demand curve shift to the right.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
156.
Refer to the provided graph. Suppose that it shows the S and D graphs in a market where usage of the productgenerates a lot of externalbenefits. In this case, the government should use its coercivepower to make
the supply curve shift to the left.
the supply curve shift to the right.
the demand curve shift to the left.
D. the demand curve shift to the right.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
The difficulties in managing government in a market economyinclude the following, except
the need for complex bureaucracy of various levels.
the need for detailed paperwork and inflexibility.
C. the close resemblance of government to the "invisible hand."
D. the lack of accountability in government.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
Government laws and policies need to be uniformlyenforced. But this leads toall of the following problems, except
inflexibility.
massive paperwork.
excessively detailed rules.
D. haphazard application.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
The problem of effectively aggregating and conveying information from bottom layers to top layers in massive government bureaucracies makes it hard for the high-levelofficials to
A. discern the prices of specific goods and services in the economy.
B. comprehensively assess the marginal costs and benefits of specific programs.
monitor the incomes of individual firms and households.
estimate the total amount of spending incurred by the government.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
Even in democratic governments, we tend to have a problem with accountability due to the following reasons, except
so many government activities are undertakensimultaneously.
civil-service protections apply to many bureaucrats.
the electorate cannot monitor each and every action of the government.
D. there is the markets' self-correcting mechanism in government.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
In assessing the efficiency of government policy, economic analysis would focus on
A. the size of government: big versus small.
B. marginal benefits versus costs of government policy and action.
presence or absence of the invisible hand.
revenues and profitability of the government agencies.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: II Topic: Governments EconomicRole
The term government failure refersto the
large losses suffered by publicly owned water, gas, and electriccompanies.
large number of bankruptcies that have occurredrecently among local governments.
C. economically inefficient outcomes caused by voting problemsor incentive structures in government.
D. inability of government agencies to provideadequate policeprotection in low-income neighborhoods.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The principal-agent problem refers to the problem of
communication between sports and entertainment stars with their agents.
how to split profits between labor and management.
C. the interests of delegates deviating from the interests of the delegators.
D. how stockholders of a corporation can elect a board of directors.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The situation where politicians make decisions that will raise their chances of reelection, even if those decisionsare detrimental to the general public,is referred to as the
A. moral hazard problem.
B. principal-agent problem.
adverse selection problem.
common good problem.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
In the corporate world of business, the principal-agent problem arises between
A. workers and managers.
B. managers and stockholders.
stockholders and bondholders.
corporations and their banks.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Which statement best describes a special-interest issue?
It is a program or policy that isadopted during a special sessionof Congress or a state legislature.
It is a policy issue in which both the supporters and opponents employ paid lobbyiststo represent their interests.
It is a program or policy which one political party stronglysupports and other political parties stronglyoppose.
D. It is a program or policy in which a large number of people will suffer small costs, while a small numberwill receive large gains.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The special-interest effect in government decisionmaking is significant because
A. it corrects instancesof spillover costs and benefits.
B. it can lead to programs with concentrated benefits and diffuse costs.
capitalistic economiesare based upon the pursuit of self-interest.
it allows us to avoid the collective-action problem.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The situation where "the few who yelltheloudest get heard" is referred to as the
A. special-interest effect.
principal-agent problem.
moral hazard problem.
adverse selection effect.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The so-called collective-action problem refers to the fact that
A. it is always difficult to collect fees from users of a service.
B. larger groups are more difficultto organize and motivate than smallerones.
larger groups often have more power than smaller groups.
collection agencies often abuse their power over individual consumers.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The so-called pork-barrel politics refers to congressional members
trading votes with one another.
receiving perks and freebies from businesses trying to sway their votes.
paying not much attention to the vocal special-interest groups.
D. inserting provisions for local narrowprojects into comprehensive legislation.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Rent-seeking behavior in public choice theory refers to
politicians trading votes with one another.
receiving perks and freebies from businesses trying to sway their votes.
C. specific groups appealingto government for special benefits at someone else's expense.
D. politicians getting low rent for their living quarters when government is in session.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The so-called collective action problemhelps explain why
minorities always bear the costs of programsvoted for by the majority.
businesses often find it difficult when they have to deal with a labor union.
it is hard for the government to discern the true preferences of everyone in society.
D. special-interest groups could have the costs of their narrowly focused programs be paid for by the general taxpayers.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The so-called collective action problemis the reason why
A. taxpayers are not able to effectively counter special-interest groups.
pork-barrel politics often fail to pass legislation.
we have local and national elections.
majority voting can lead to economically inefficient outcomes.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Lobbying actions that seek government legislation to providetax breaks to specificorganizations or industries would be an example of
how the median-voter model works.
how political choices are bundled.
C. rent-seeking behavior.
D. the paradox of voting.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Politicians seeking reelection tend to do the following, except
inserting "earmarks" in legislation.
favoring projects with clear benefitsand hidden costs.
C. favoring long-term projects over short-term ones.
D. engaging in pork-barrel politics.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Politicians who have to go through elections tend to focus on the short-term net benefits of projects becauseof
A. voters' tendency to more easily see short-term benefits rather than long-term ones.
the special-interest effect of specific groups among the electorate.
the ability of government to coercepeople to do things involuntarily.
pork-barrel politics and the principal-agent problem.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
"Unfunded liability" refersto a government commitment to
A. not pay the government bonds that are coming due.
B. spend in the future without also committing to collect enoughtax money to pay for it.
support the retirement funds of businesses that have gone bankrupt.
put money in specific mutual funds in order to vouch for the funds' liabilities.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The government's budget deficit refers to the
total amount of debt that the government has incurred over the years.
difference between the nation's amount of exports and its total amount of imports.
C. gap between government spending and its lower tax revenues.
D. decrease in the amount of government spending from one yearto the next.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
To make up for a shortfall in its annual budget, the government must borrow money by
A. issuing government (Treasury) bonds.
buying government (Treasury) bonds.
reducing its total public debt.
selling government stock.
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Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The government adds to its overall publicdebt whenever it
A. runs a budget deficit.
increases money supply in the economy.
buys government bonds.
raises tax collection.
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Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The government would be running a budgetsurplus if
government spending were lower than consumer spending.
tax revenues were less than government spending.
it imported less from abroad than it exported.
D. government spent less than it collected in taxes.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Many governments end up with chronic budget deficits because
A. many government programs are popular with voters, but hardly any voter likes paying taxes.
the nation simply cannot produce everything that it consumes, so it has to rely on other nations.
some resources are not available from within, so they have to be bought from other nations.
businesses do not want to have "big government" around too much.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
The public (or national) debt refers to the
same thing as a budget deficit.
deadweight loss in a market.
C. accumulation of all past budget deficits.
D. sum of all the debts of households and businesses.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Chronic budget deficits can lead to all of the following, except
A. overallocation of resources to the government sector,away from the private sector.
B. "smaller government" in the economy.
investors losing faith in the government's ability to repay its debts.
government being forced to make drastic cuts in its spending.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Many state and local governments in the U.S. have balanced-budget laws in orderto prevent politicians from
A. creating a "small government" economy.
B. succumbing to voters' strong preference for budget deficits.
facing a principal-agent problem.
collecting too much taxes.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
All of the followingare consequences of a government's having to deal with a "debt crisis," except
very restricted abilityto borrow money.
being forced to drastically raise taxes.
being forced to make drastic cuts in spending.
D. being forced to make huge increases in government spending.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
In the U.S., the Federal government runs a chronic budget deficit, whereas many state and local governments do not, because
A. many state and local governments have balanced-budget laws that make deficits illegal, while the Federal government does not.
voters in Federal elections tend to favor budget deficits, while voters in state andlocal elections do not.
many state and local governments face stricter accounting standards than the Federal government does.
elections at the state and local levels tend to occur more frequently than at the Federallevel.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
So-called business cycles refer to the multiyear periods
from when new products are launched to the point when they become obsolete.
between the purchases of new capital equipment and the point when they become junk.
from the origination of a business loan to the retirement or full repayment of the loan.
D. during which the economy's overall output and employment alternately expands and contracts.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Governments try to smooth business cycles by using the following policies,except
tax policies.
interest rate policies.
C. wage rate policies.
D. government-spending policies.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Monetary policy refersto the government's attemptat smoothing businesscycles through the use of changes in
A. tax rates.
B. interest rates.
wage rates.
government spending.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
Fiscal policy refersto the government's attempt at stabilizing the economy through the use of changes in
A. taxes and government spending.
interest rates and borrowing.
wage rates and employment contracts.
exchange rates and foreign trade.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failure and explain why it happens.
Test Bank: II Topic: Government Failure
During a period when output and employment are falling, the government will try to
increase tax rates.
increase interest rates.
reduce government spending.
D. stimulate borrowing and spending.
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Blooms: Understand Difficulty: 02 Medium