Question 1

Government loan guarantees tend to have the effect of:

Accepted Answer

Government loan guarantees provide a safety net for private lenders, enabling them to take more risks without having to bear the full costs of those risks. This means that if a borrower defaults on their loan, the government will step in and cover the lender's losses. This is a form of socializing losses, as the costs of the default are spread out among taxpayers rather than being born solely by the lender. However, if the borrower pays back the loan in full, the lender is the one who reaps the financial benefits, meaning that gains are privatized.

Question 2

When a nation is in a debt crisis,the government's level of debt is so high that:

Accepted Answer

In a debt crisis, the government's level of debt is so high that it is unable to find willing lenders to continue borrowing. This can lead to default or the need for a bailout from other countries or international organizations. Monetary policy may still have some effect, but the primary issue is the unsustainable level of debt. A fiscal stimulus may worsen the situation by increasing the government's debt burden. Other countries may also be hesitant to lend or invest in the nation due to the risk of default.

Question 3

"Earmarks" refer to:

Accepted Answer

Earmarks are a provision inserted into a larger bill by a member of Congress that directs specific funds to be spent on a particular project or benefit a specific group or constituency. These earmarks can be controversial because they may divert funds from more general needs or be perceived as wasteful spending.

Question 4

Narrow,specifically designated expenditures that are included in more comprehensive legislation are known as:

Accepted Answer

Earmarks refer to specific and designated expenditures included in larger legislation, often for the benefit of a particular congressional district or interest group. They are also known as pork barrel spending. Logrolls refer to the practice of exchanging favors or support, often used in negotiating legislation. Benefits-received allocations and progressive expenditures are not commonly used terms in reference to legislative appropriations.

Question 5

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

Accepted Answer

Regulatory capture refers to a situation in which a regulatory agency, which is supposed to regulate an industry or organization, is influenced or controlled by the very industry or organization it is meant to regulate. In this case, executives from the Ford, General Motors, and Chrysler companies are writing the rules regulating automobile safety and fuel requirements, which suggests that they may have undue influence over the regulatory agency. This is an example of regulatory capture.

Question 6

When congressional representatives vote on an appropriations bill,they must vote yea or nay,taking the bad with the good.This statement best reflects the:

Accepted Answer

This statement best reflects the concept of limited and bundled choices. Appropriations bills often include a variety of funding for different programs and projects, forcing representatives to vote on multiple issues at once and limiting their ability to choose only the programs they support. They must make a bundled choice and vote for the bill as a whole, which can result in some bad programs being funded along with good ones.

Question 7

Suppose lawyers seek legislation to limit the use of computer software that enables people to use their personal computers to self-prepare their own wills,trusts,and other legal documents.This is an example of:

Accepted Answer

Rent-seeking behavior is when an individual or group seeks to use the political process to gain economic benefits for themselves by convincing the government to create laws or regulations that give them an advantage over others. In this case, the lawyers are seeking legislation that would limit the use of software for self-prepared legal documents, which would give them more business and income.

Question 8

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

Accepted Answer

The private sector has a clearer test of performance in the form of profit and loss, which serves as a strong motivator to increase efficiency and productivity to maximize profits. In contrast, the public sector does not have the same profit motive, which can lead to inefficiencies and waste.

Question 9

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

Accepted Answer

The answer of Which of the following is considered a...

Question 10

Proponents of deregulation point to all of the following industries as examples of successful deregulation except for:

Accepted Answer

Deregulation of pharmaceuticals is not a commonly cited example of successful deregulation. In fact, many argue that greater regulation is needed in this industry to ensure safety and prevent abuse.

Question 11

Under what circumstances would government loan guarantees be socially beneficial?

Accepted Answer

Government loan guarantees can be socially beneficial when they encourage the production of goods that have positive externalities or are public goods, which are typically underproduced by the private sector due to their inability to capture all the benefits of production. This can lead to a more efficient allocation of resources and greater social welfare.

Question 12

Public choice theorists point out that the political process:

Accepted Answer

Public choice theorists argue that the political process is similar to the market process in that individuals seek to advance their own interests. However, in the political process, voters and representatives often face limited and bundled choices, which can result in outcomes that do not reflect the preferences of the majority. This is a key difference between the political process and the marketplace.

Question 13

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:

Accepted Answer

This difference reflects limited and bundled choices in the public sector, as voters must accept all positions of a candidate, not just the ones they agree with, similar to a bundled purchase.

Question 14

Deregulation:

Accepted Answer

Deregulation can eliminate regulatory capture, which occurs when government regulators become too cozy with the entities they are supposed to be regulating, and can lead to more competition, potentially improving outcomes. However, it is important to note that deregulation may not always result in better outcomes, especially in industries generating substantial negative externalities. Additionally, certain government agencies responsible for human safety, financial regulation, and environmental protection should be cautious with deregulation to ensure protection of the public interest. Therefore, option B is the best choice as it acknowledges the potential benefits of deregulation while also recognizing its limitations. Option D is incorrect as the economic efficiency generated by deregulation is not always guaranteed.

Question 15

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

Accepted Answer

The answer of In 2012,the U.S.federal government legislation authorized:
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Question 16

Monetary stimulus is only helpful to an economy:

Accepted Answer

Monetary stimulus, such as lowering interest rates or increasing money supply, is generally used to boost economic activity and increase consumer spending during a recession or economic downturn. It is not helpful during high inflation, when the focus is on reducing spending and controlling prices. Negative externalities and the presence of public goods are not directly related to the effectiveness of monetary stimulus.

Question 17

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

Accepted Answer

Regulatory capture occurs when the industry being regulated has significant influence on the rules and enforcement in that industry, to the point where regulations may serve the interests of the industry rather than the public. Option B refers to monopolies, option C refers to regulatory burden, and option D refers to consumer sovereignty - all separate concepts from regulatory capture.

Question 18

Regulatory capture often occurs because of which of the following?

Accepted Answer

Regulatory capture occurs when the regulated industry has a significant influence over the regulatory agency due to a high correlation between industry experts and regulatory officials. This can result in policies that benefit the industry at the expense of the public.

Question 19

Which of the following will tend to socialize losses and privatize gains?

Accepted Answer

Government guarantees tend to socialize losses by shifting the risk from the private investor to the taxpayer while privatizing gains by allowing the investor to keep any profits earned.

Question 20

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

Accepted Answer

Regulatory capture occurs when regulatory agencies are influenced or controlled by the industry they are supposed to regulate. This means that the regulations implemented may serve the private interests of the industry, rather than serving social interests such as consumer safety and environmental protection. Therefore, regulatory capture is a problem because it undermines the objectives of regulation and can lead to negative consequences for society.

Quiz 5: Governments Role and Government Failure