Assignment 5
1. A budget surplus is
a)
b)
c)
d)
the excess that results when government revenue is less than spending.
the shortage that results when government spending is greater than revenue.
the excess that results when government spending is less than revenue.
the excess that results when tax revenue is greater than anticipated in the budget
proposal.
e) Both a and b
2. In a market system we are more likely to see which of the following?
a)
b)
c)
d)
e)
Full employment
Individuals owning their own homes
Lazy workers
Gray, dull clothing styles
Long lines at the store
3. According to the text there is no practical way to establish ownership rights of ocean fish
stocks. The result
a)
b)
c)
d)
e)
is an example of what is known as a Shakespearean tragedy.
is an example of what is known as the tragedy of the commons.
is an example of what is known as the tragedy of the private.
is an example of what is known as the tragedy of public intervention.
is an example of what is known as an externality.
4. Public radio raises its funding by staging telethons where no programs are aired for a period of
time as the station begs for contributions. The stations have trouble raising money because of all
of the following except
a) people do not feel they want to contribute to the stations even if they listen to the
programs
b) the consumption of a good cannot be limited to the person who purchased it.
c) the government does not allow the radio stations to advertise.
d) people can listen to the radio programs whether they contribute or not.
e) the free-rider problem.
5. Which of the following is a public good?
a)
b)
c)
d)
e)
Lumber
Bulldozers
Lighthouses
Apartment buildings
Apples
6. According to the text, there are significant differences between the market system and the
centrally planned system. All of the following are differences except
a)
b)
c)
d)
e)
private ownership of businesses.
the existence of a government.
private ownership of land.
private individuals starting new businesses.
private choices and purchases of goods and services.
7. All of the following are used to justify the intervention of the government in the private economy
except
a)
b)
c)
d)
e)
the existence of private property rights.
public goods.
positive externalities.
market imperfections.
incentives to free-ride on others.
8. Suppose the American Medical Association has been able to persuade Congress to pass a nofault insurance law protecting doctors from malpractice suits. The reduction in costs to doctors is
a)
b)
c)
d)
e)
the same as an excise tax on medical services.
sure to be passed completely along to consumers.
an increase in costs to lawyers.
rent seeking.
a rent.
9. The term private property right refers to which of the following definitions?
a)
b)
c)
d)
e)
The limitation of ownership only to corporations.
A good or service that no government can ever sell.
A good that could never be owned by the government.
A good or service that can never be sold.
The limitation of ownership to an individual or an institution.
10. Fluctuations in the economy are called
a)
b)
c)
d)
e)
public choice.
the free-rider problem.
rent seeking.
business cycles.
None of these
11. According to the text, the government
a)
b)
c)
d)
e)
has the smallest role in centrally planned economies.
plays a role in every economy.
has no role in centrally planned economies.
plays a small role in Sweden.
plays virtually no role in the United Kingdom.
12. What do economists mean when they refer to the idea of the invisible hand?
a) That, in a market economy, the actions of the government are indistinguishable from
those of the consumers.
b) That consumers never reveal their true patterns of behavior.
c) That, in a market economy, consumers independently following their own interests
somehow arrive at efficient allocations.
d) That the government should act as part of the market.
e) That consumers never realize the government plays an important role in the economy.
13. In the United States, the market price of driving understates the full cost of driving to society
because
a)
b)
c)
d)
e)
people don't pay for the noise and pollutants their cars emit.
the price of gasoline is cheaper than in other countries.
there is a good highway system in the country.
the cost of car insurance is relatively low.
the automobile industry is very competitive.
14. According to the text which agency in the United States monitors the economy and advises
the president?
a)
b)
c)
d)
e)
Council of Economic Advisers
President
Federal Reserve
Congress
Treasury Department
15. Which of the following industries is, in most nations, a monopoly?
a)
b)
c)
d)
e)
The automobile industry
The shoe industry
The air transportation services
The toy industry
The national currency
16. Macroeconomic policy
a)
b)
c)
d)
e)
consists of monetary and fiscal policy.
is an economic function of government that began in the 1960s.
attempts to stabilize the market system in the United States.
attempts to promote fair trade practices among business firms.
deals with internalizing externalities.
17. Which of the following is true of the complete circular flow model?
a) The flow of imports and exports is controlled by the government.
b) Total output is equal to household income, business revenues, government income, and
net exports.
c) Business firms supply factors of production and demand government services.
d) Government services are supplied only to consumers.
e) Total output is equal to government spending.
18. Government spending and taxation is the focus of
a)
b)
c)
d)
e)
political policy.
monetary policy.
foreign policy.
public policy.
fiscal policy.
19. The reason the government is involved in so much of economic activity is
a)
b)
c)
d)
e)
unanimously agreed upon by economists.
to benefit businesses.
a point of controversy among economists.
to benefit special interest groups.
to benefit the general public.
20. If the production of a good involves large positive externalities, the government might
a)
b)
c)
d)
e)
subsidize that good because it is overproduced.
tax that good because it is underproduced.
subsidize that good because it is underproduced.
tax that good because it is overproduced.
attempt to restrict output of that good.
Essay Questions
1. What is the difference between monetary policy and fiscal policy?
2. What are two common market failures? Explain them briefly. (Make sure to describe why they
are failures of the market system)