Deck 23: National Defense

Question 1

In 1960,national defense comprised about _____ of federal government expenditures.

A)one quarter
B)one-third
C)one half
D)two-thirds

Answer 1

C

Question 2

When costs are uncertain,a government might use a _____ contract,where the government pays the cost of the project plus an additional amount.

A)fixed fee
B)cost plus fixed fee
C)cost plus percentage fee
D)cost plus incentive fee

Answer 2

B

Question 3

Assuming that the part of the government's budget used for military expenditures reduces the amount available for consumption expenditures and that the benefits to military expenditures take longer to accrue than consumption expenditures,_____ decision-makers will _____.

A)democratic;be biased against military spending
B)democratic;be biased in favor of military spending
C)autocratic;be biased in favor of consumption
D)autocratic;be biased in favor of military spending

Answer 3

A

Question 4

Increased United States military expenditures and action in response to the terrorist attacks of September 11,2001 suggest that military officials in the United States _____.

A)could not wait to go to war
B)view the War on Terror as a negative externality
C)believe that military expenditures can act as a deterrent
D)are incompetent

Question 5

If controlling the level of military expenditures is the most important goal,the most appropriate type of procurement contract would be _____.

A)fixed fee
B)cost plus fixed fee
C)cost plus percentage fee
D)cost plus incentive fee

Question 6

Adding members to a military alliance _____

A)will always strengthen the alliance
B)will cause the alliance to dissolve
C)might weaken the alliance
D)will always weaken the alliance

Question 7

The optimal level of military expenditures is the level at which _____.

A)a country is completely protected from foreign invasion
B)a country spends more on national defense than all other countries along it to win an arms race
C)a country spends more on national than its rivals
D)the marginal benefit of additional expenditures equals marginal cost

Question 8

From 1960 to 1980,federal government spending on national defense _____.

A)declined from about half to less than one quarter of all expenditures
B)declined from one-third to less than one quarter of all expenditures
C)increased from about half to nearly 60 percent of all expenditures
D)increased from about one quarter to nearly one-half of all expenditures

Question 9

If a nation's level of military expenditures is just below the optimal level _____.

A)the nation's borders will be unprotected
B)the nation will not be protecting its interests abroad
C)the nation will not be projecting economic force
D)it is unclear what the marginal cost will be

Question 10

The effectiveness of a country's military expenditures depends on _____.

A)how much other nations spend in response
B)whether or not they are in an arms race
C)whether they have effectively estimated demand for national defense
D)depends on the size of a country

Question 11

The head of a stable dictatorship is likely to have _____ the president of the United States.

A)the same time horizon as
B)a shorter time horizon than
C)a longer time horizon than
D)a shorter tenure than

Question 12

To understand how decisions about military expenditures are made,it is probably most important to understand _____.

A)geography
B)economic warfare
C)the political process
D)strategic alliances

Question 13

Military force is most effective _____

A)when a country's army has superior numbers
B)when a country's navy is superior
C)if it causes the other side to back down
D)if it causes the other side to waste resources

Question 14

The early 1980s "Star Wars" space-based defensive weapons system was an example of _____.

A)economic warfare
B)a military alliance
C)negative externality
D)undefined property rights

Question 15

Military expenditures in democratic nations may be _____.

A)too low because politicians have long time horizons
B)too low because politicians have short time horizons
C)too high because politicians have long time horizons
D)too high because politicians have short time horizons

Question 16

National defense is a public good _____.

A)meaning it is an all-or-nothing proposition
B)however it can be adjusted on the margin
C)implying whatever output produced is efficient
D)a and c

Question 17

An arms race is an example of a _____.

A)positive externality
B)inframarginal positive externality
C)Coasean solution
D)prisoners' dilemma

Question 18

Since 1945,national defense expenditures as a percentage of GDP have _____.

A)fallen from 41 percent to 3.7 percent
B)fallen from 32.1 percent to 20.1 percent
C)fallen from 62.3 percent to 11.5 percent
D)fallen from 50.5 percent to 9.6 percent

Question 19

In an arms race between two nations,both would be better off if _____.

A)they could agree not to engage in the arms buildup
B)if more countries entered the arms race
C)one nation controlled more resources than the other
D)a conflict broke out in another part of the world

Question 20

One factor hastening the demise of the Soviet Union was _____.

A)its military alliance with Cuba
B)its attempt to keep up with the United States in an arms race
C)its inability to predict the optimal amount of defense spending
D)its strong economic output

Question 21

The decline in the percentage of the federal government's budget devoted to national defense is evidence of the lack of new demand for U.S.military activity.

Question 22

Conscription is a more advantageous way to obtain military personnel when _____.

A)expenditures on welfare are low
B)the conscripted are paid the same as a volunteer army
C)the army is large relative to the size of the civilian population
D)the country is a dictatorship

Question 23

Fixed fee contracts are desirable when there is little uncertainty regarding the output.

Question 24

The appropriate contract for the development of a one-of-a-kind submarine employing a considerable amount of new technology is a fixed fee contract.

Question 25

Military decisionmakers want to keep procurement costs low in order to increase the likelihood that the program will be approved.As a results,______.

A)maintenance costs on contracted output tend to be higher
B)maintenance costs on contracted output tend to be lower
C)maintenance costs on contracted output are minimized
D)maintenance costs on contracted output are eliminated

Question 26

When costs are uncertain,the type of procurement contract that will cover the uncertain costs plus an agreed-upon rate of return is _____.

A)fixed fee
B)cost plus fixed fee
C)cost plus percentage fee
D)cost plus incentive fee

Question 27

The first priority of national defense spending is the defense of economic interests abroad.

Question 28

One way to get a government contractor to consider life-cycle costs is to _____.

A)use a cost plus incentive fee contract
B)use a cost plus fixed fee contract
C)use a fixed fee plus contract
D)also write a maintenance contract with the contractor

Question 29

The optimal sharing group for national defense is the size of a nation.

Question 30

If two nations are equally armed it is highly likely that neither will initiate a conflict.

Question 31

A major drawback to cost plus fixed fee contracts when compared to fixed fee contracts is _____.

A)firms have an incentive to overbid
B)the government must monitor the firm's costs
C)the government has an incentive to award bids to the worst companies
D)there is an adverse selection problem

Question 32

Spending so much on arms that the economy of an adversary collapses is called market warfare.

Question 33

Dictatorships,whether stable or unstable,always have longer time horizons than U.S.presidents.

Question 34

Determining the optimal level of military expenditures is easy because the preferences of the median voter a reflected in the vote for president

Question 35

For procurement of conventional products like hammers and shovels,the most appropriate type of contract is ______.

A)fixed fee
B)cost plus fixed fee
C)cost plus percentage fee
D)cost plus incentive fee

Question 36

Individuals conscripted into military service _____.

A)are forced to work for less than the market wage
B)bear a heavy tax burden
C)are not necessarily those with a comparative advantage in being a soldier
D)all of the above

Question 37

One problem with a cost plus incentive fee procurement contract is _____.

A)it requires clearly defined output that is not really malleable
B)it almost always leads to higher costs
C)firms have a strong incentive to invest in the most expensive technology to complete the project
D)firms have an incentive to misrepresent final costs

Question 38

One reason why it is very difficult to write optimal military procurement contracts is because _____.

A)there are numerous possible producers
B)the military purchases many goods
C)new technology often has to be developed
D)there are many possible consumers of the product

Question 39

In 2000,total United States spending on national defense was less than five percent of GDP.

Question 40

One strategy that can be used to establish expensive procurement contracts is to start a program with relatively low initial costs.This strategy might be an unintended consequence of _____.

A)military alliances with nations producing needed military goods
B)unexpectedly high development costs associated with new technology
C)the political process
D)the incentives facing firms bidding for the expensive procurement contracts

Question 41

Describe how the level of U.S.military expenditures has varied as a percentage of GDP since 1945.Provide a brief discussion of what caused the level of military expenditures to vary over the years.

Question 42

Compared to a cost plus incentive fee contract,the cost plus percentage fee contract has strong incentives to minimize costs.

Question 43

Describe an arms race in economic terms.Is it rational for countries to participate in an arms race?

Question 44

Explain why procurement is such a problematic area for the military.What issues somewhat unique to the military make it necessary to utilize a variety of different procurement contract in order to attempt to get the correct output delivered at the lowest possible price? List four general types of procurement contracts.

Question 45

Explain the economic rationale behind military alliances.Do new members always strengthen the alliance? Why or why not?

Question 46

Assuming constant marginal cost curve,draw a diagram showing how the optimal level of military expenditures is determined.Clearly label your diagram.Why does the MB take the shape it does?

Question 47

Under a cost plus fixed fee contract the contractor cannot make a loss.

Question 48

For small armies,a volunteer army would be less costly.

Question 49

The true cost of any product purchased by the military is its purchase price.