Deck 6: The Economics of Political Action

Question 1

Transfer payments are

A) payments made to individuals who are employed by the government.
B) payments made to individuals who provide goods and services to the government.
C) transfers of income from taxpayers to recipients who do not provide current goods and services for the payments.
D) omitted from the government expenditure figures.

Answer 1

transfers of income from taxpayers to recipients who do not provide current goods and services for the payments.

Question 2

Measured as a share of national income, government expenditures on income transfers during the last 70 years have

A) grown rapidly.
B) declined substantially.
C) been virtually unchanged.
D) increased throughout much of that period, but they have declined substantially since 1980.

Answer 2

grown rapidly.

Question 3

A special-interest issue is one that

A) allocates the cost of the activity in accordance with the benefits received.
B) benefits a small, well-organized interest group at the expense of taxpayers or consumers.
C) benefits everyone and imposes a cost on everyone.
D) benefits a small, well-organized interest group but makes that group pay for the cost of the program.

Answer 3

benefits a small, well-organized interest group at the expense of taxpayers or consumers.

Question 4

Which of the following provides the most reasonable explanation for why agricultural interests lobby for higher farm subsidies and price supports?

A) Without the farm subsidies, food shortages would result.
B) Subsidies promote the efficient use of agricultural resources.
C) Agricultural interests seek a redistribution of income favoring themselves.
D) The price support programs reduce food costs, which helps the poor.

Question 5

Combined federal, state, and local government expenditures in the United States were approximately 9 percent of the gross domestic product (GDP) in 1930. How large were government expenditures as a share of GDP in 2015?

A) approximately 15 percent
B) approximately 25 percent
C) approximately 30 percent
D) approximately 36 percent

Question 6

Which of the following is an example of a transfer payment?

A) wages paid to military personnel
B) benefits paid to Social Security recipients
C) purchase of aircraft by the Department of Defense
D) payments made to a contractor for construction of a highway

Question 7

An issue that generates substantial benefits to a small group of individuals while imposing a small cost on many others is called a

A) special-interest issue.
B) minority application.
C) commons policy.
D) national service.

Question 8

Special-interest legislation is characterized by

A) concentrated costs and concentrated benefits
B) concentrated benefits and widespread costs
C) widespread benefits and widespread costs
D) widespread benefits and concentrated costs
E) zero costs

Question 9

Which of the following is the most likely explanation for the imposition of a price floor in the market for corn?

A) Policymakers have studied the effects of the price floor carefully and they recognize that the price floor will improve the efficiency of resource use.
B) Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into enacting the price floor.
C) Buyers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor.
D) Sellers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor.

Question 10

Restrictions that limit sugar imports, subsidies for the construction of sports stadiums, and federal spending on programs like the construction of an indoor rain forest in Iowa all provide examples of government programs

A) based on careful analysis of benefits relative to cost.
B) designed to redistribute income from the rich to the poor.
C) that reflect the political attractiveness of special-interest issues.
D) that promote the general welfare.

Question 11

Direct income transfers account for approximately what percentage of total government spending?

A) 10 percent
B) 30 percent
C) 50 percent
D) 60 percent

Question 12

Between 1930 and 1980, government expenditures as a percent of GDP in the United States

A) more than tripled.
B) remained constant at 10 percent.
C) declined from 30 percent to 20 percent.
D) increased from 30 percent to 40 percent.

Question 13

If a federal agency requested funds to build a dam on an Idaho river to irrigate nearby farmland used for growing potatoes, the most active support for the project probably would come from

A) potato farmers who own land that wouldn't be irrigated by the project.
B) taxpayers who would pay for the project.
C) consumers of potatoes who might benefit from an expansion in supply and slightly lower potato prices.
D) potato farmers who own the land to be irrigated.

Question 14

In 2015, the combined expenditures of federal, state, and local governments in the United States were approximately 36 percent of gross domestic product (GDP). Approximately what percentage of GDP were government expenditures in 1930?

A) 9 percent
B) 19 percent
C) 29 percent
D) 39 percent

Question 15

In 2015, government income transfers redistributed what percentage of national income?

A) 1.1 percent
B) 7.7 percent
C) 17.3 percent
D) 25.5 percent

Question 16

Which of the following is true regarding government expenditures in the United States?

A) As a share of GDP, government expenditures were higher in 1950 than 2012.
B) Government expenditures were more than 30 percent of GDP in 1930.
C) Government expenditures as a share of GDP grew rapidly between 1930 and 1980.
D) In 2012, government expenditures at all levels summed to approximately 10 percent of GDP.

Question 17

Government action will often result in the counterproductive use of resources because

A) there is often a conflict between winning political elections and adoption of only productive programs.
B) many politicians are not interested in how their legislative votes will influence their chances of winning future elections.
C) politicians are often unwilling to listen to interest groups that have specialized knowledge.
D) voter participation is low; if more people voted, the political process would be more efficient.

Question 18

Which of the following is accurate regarding government expenditures in the United States?

A) The federal government spends considerably more than state and local governments combined.
B) The federal government spends more than local governments but less than state governments.
C) Local governments spend more than state governments, which in turn, spend more than the federal government.
D) Since 1930, total government expenditures as a share of GDP have declined.

Question 19

When politicians support policies that benefit small interest groups, such as farmers, at the expense of unorganized, widely dispersed groups, for example, taxpayers or consumers, this is a reflection of the

A) tragedy of interest.
B) special-interest effect.
C) unorganized interest effect.
D) shortsightedness effect.

Question 20

The major categories of federal government spending are

A) health care, national defense, Social Security, and other income transfers.
B) law enforcement, environmental protection, and national defense.
C) public education, garbage collection, and public parks.
D) health care, public education, and highways.

Question 21

Legislation that contains a number of projects benefiting local interests at the expense of the general taxpayer is called

A) balanced-budget legislation.
B) pork-barrel legislation.
C) voucher legislation.
D) public-goods legislation.

Question 22

Which of the following increases the political power of special interest groups and makes counterproductive government action more likely?

A) logrolling and pork barrel legislation
B) the rational-ignorance effect
C) public goods
D) both a and b, but not c

Question 23

Government decisions tend to be biased against actions that have

A) current costs and future benefits that are both easily observable.
B) future costs that are difficult to identify and current benefits that are easily observable.
C) future costs and future benefits that are both difficult to identify.
D) current costs that are easily observable and future benefits that are difficult to identify.

Question 24

Legislators often gain by bundling a number of projects benefiting local districts at the expense of general taxpayers together on a single bill. Such legislation is called

A) market failure legislation.
B) the rational-ignorance effect.
C) public-goods legislation.
D) pork-barrel legislation.

Question 25

Government decisions tend to be biased toward actions that have

A) current costs and future benefits that are both easily observable.
B) future costs that are difficult to identify and current benefits that are easily observable.
C) future costs and future benefits that are both difficult to identify.
D) current costs that are easily observable and future benefits that are difficult to identify.

Question 26

Legislation that offers immediate and easily recognized benefits, at the expense of costs that are observable only in the distant future, is often enacted even when economic inefficiency results. This can be expected because of

A) a lack of incentive for operational efficiency in the public sector.
B) market failure.
C) the special-interest effect.
D) the shortsightedness effect.

Question 27

The shortsightedness effect suggests that

A) politicians have a strong incentive to support projects that yield immediate and easily recognized benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future.
B) politicians have a strong incentive to support projects that yield benefits in the distant future, especially when the costs of the project must be paid for in the current period.
C) voters will tend to weigh future costs and benefits more heavily than current costs and benefits.
D) legislators will be unwilling to trade votes on issues, especially when those issues benefit only special interest groups.

Question 28

In which of the following situations is representative democracy most likely to lead to the adoption of an inefficient government program?

A) The program provides substantial benefits to a small interest group, and the costs are widespread among voters.
B) Both the benefits and costs of the program are widespread among voters.
C) The program is financed by a user charge that makes the individuals who benefit from the program pay for its cost.
D) The program provides widespread benefits to all voters and imposes a significant cost on a small interest group.

Question 29

Which of the following explains why pork-barrel spending is often approved, even when the spending is inefficient?

A) Each representative has little incentive to oppose pork-barrel spending since the tax savings would accrue to taxpayers throughout the nation.
B) General opposition to pork-barrel spending by a legislator would make it more difficult for the legislator to arrange for pork-barrel projects that provide concentrated benefits for his district.
C) Logrolling increases the likelihood that pork-barrel projects will be approved.
D) All of the above are correct.

Question 30

Under democratic representative government, spending on a government program will likely be larger than the amount consistent with economic efficiency when

A) tax costs are levied in direct proportion with the benefits received.
B) both the costs and benefits are widespread among the voters.
C) benefits of the program are highly concentrated, while the costs are widely dispersed among voters.
D) costs of the program are highly concentrated, while the benefits are widely dispersed among voters.

Question 31

Pork-barrel legislation typically bundles the pet projects of several special interest groups. Such legislation

A) is frequently enacted, even though the overall benefits to society are less than the overall costs to society.
B) seldom benefits special interest groups.
C) usually, if successful, helps the majority of taxpayers.
D) seldom passes because social benefits are far smaller than social costs.

Question 32

Which of the following is an example of political action that reflects the shortsightedness effect?

A) budget surpluses
B) the promise of future benefits without providing for their funding
C) spending on roads and highways
D) spending on programs that transfer income from the rich to the poor

Question 33

In which of the following situations is the political process likely to result in the inefficient and wasteful use of resources?

A) when the benefits are concentrated and the costs are concentrated
B) when the benefits are concentrated and the costs widespread
C) when the benefits are widespread and the costs are concentrated
D) when the benefits are widespread and the costs are widespread

Question 34

Which of the following explains why elected representatives will find borrowing to be an attractive method of financing current government programs?

A) the shortsightedness effect
B) pork-barrel politics
C) the invisible hand principle
D) the public goods argument for government spending programs

Question 35

The term pork-barrel legislation refers to

A) government spending programs financed with user charges.
B) the exchange between legislators of their votes on issues.
C) legislation that bundles together a number of projects, each benefiting local interests at the expense of general taxpayers.
D) the actions of legislators who are willing to trade their political votes for campaign contributions from special interest groups.

Question 36

According to economic theory, it is often rational for a politician to support special interest groups at the expense of unorganized, widely dispersed groups (for example, taxpayers or consumers)

A) only when the gains that accrue to the special interest group exceed the costs imposed on other voters.
B) when nonspecial-interest voters are unconcerned or uninformed about the issue, and campaign funds are readily available from the special interest group.
C) only if the government action is socially efficient.
D) only if the government action will reduce the monopoly power of business or labor and, thereby, lead to an improvement in the general welfare of consumers.

Question 37

For activities in which the benefits are concentrated and the costs widespread, governments are likely to undertake

A) too little of these activities relative to what would be efficient.
B) too much of these activities relative to what would be efficient.
C) exactly the amount of these activities that would be efficient.
D) none of these activities.

Question 38

The term logrolling describes

A) government spending programs financed with user charges.
B) the exchange between legislators of their votes on issues.
C) the actions of legislators who are willing to trade their political votes for campaign contributions from special interest groups.
D) government spending programs that primarily benefit loggers and other forest workers.

Question 39

Logrolling refers to

A) vote trading among legislators.
B) the tendency of voters to free-ride on the payment for public goods.
C) the power of well-organized interest groups.
D) the tendency of legislators to favor the interests of the timber (logging) industry.

Question 40

Which of the following refers to when legislators trade votes on legislation?

A) the shortsightedness effect
B) the special-interest effect
C) rational-ignorance effect
D) logrolling

Question 41

Subsidizing coal mining and orange growing have both been found to be economically inefficient in that the costs outweigh the benefits.  However, a subsidy on coal mining would help the coal producers in West Virginia and a subsidy on orange growing would help the orange farmers in Florida.  So the senator from West Virginia approaches the senator from Florida and says that he will vote for the orange subsidy if the Florida senator votes for the coal-mining subsidy.  The Florida senator agrees. Which term best describes what just happened?

A) the shortsightedness effect
B) logrolling
C) the use of user charges
D) the political voter theory

Question 42

Which of the following is a predictable side effect of increased government activity (for example, taxes and subsidies) designed to redistribute income among citizens?

A) improvement in the operational efficiency of government agencies
B) budget surpluses
C) reduction in the poverty rate
D) an increase in rent-seeking activity

Question 43

Most income transfer programs in the United States

A) are means-tested programs that transfer income to the poor.
B) allocate income to small businesses and small farmers.
C) are designed to help those with very little economic and political power.
D) allocate income to concentrated interest groups, such as the elderly, large farmers, and business interests.

Question 44

In 2006, the American Association of Retired Persons (AARP) spent over $70 million on lobbying-related expenses in an attempt to get policies enacted that would benefit retirees. In economics, the term used to describe such activity is

A) logrolling.
B) rent seeking.
C) influence peddling.
D) redistribution searching.

Question 45

Economic theory implies that the incentive for a manager of a publicly operated firm (for example, a state university or the post office) to promote internal efficiency of their operations would be

A) strong because inefficiency is easily detected and leads to the loss of voter support.
B) strong because public officials are unconcerned about personal gain.
C) weak because government employees are less educated than employees who work in the private sector.
D) weak because it is difficult for voters to detect inefficiency and for public officials to gain from actions that would improve the efficiency of government.

Question 46

From the standpoint of society as a whole, rent seeking is

A) counterproductive because it takes resources away from the creation of wealth in the private sector.
B) counterproductive because it fails to alter public policy.
C) productive because each interest group gains more than they spend on rent-seeking activities.
D) productive because the resources used in rent seeking have no opportunity cost to society.

Question 47

As more politically directed spending leads to more rent-seeking activity,

A) the spending will increase GDP, but only if it is directed toward productive activity.
B) the spending will decrease GDP, but only if it is directed toward unproductive activity.
C) resources will be channeled toward unproductive activity and away from productive activity.
D) resources will be channeled toward productive activity and away from unproductive activity.

Question 48

Which of the following represents why private production tends to be more efficient then government production?

A) Politicians have a strong incentive to support projects that have immediate and easily recognized benefits and distant and unidentifiable costs, even if the total costs outweigh the total benefits.
B) Politicians have a strong incentive to support programs where the benefits are highly concentrated on special interest groups and the costs are widely dispersed among voters, even if the total costs outweigh the benefits.
C) Private companies face a profit motive that keeps them operating efficiently, government bureaucracies use taxpayer money and, therefore, do not face this profit motive.
D) All of the above are reasons why private production tends to be more efficient then government production.

Question 49

Dairy farmers hold an annual Capitol Hill ice cream social that provides free ice cream for congressional staffers during which time representatives from the industry discuss issues with, and provide information to, congressional staff. This is an example of

A) logrolling.
B) rent seeking.
C) pork-barrel legislation.
D) the shortsightedness effect.

Question 50

In economics, actions by individuals and interest groups designed to influence public policy in a manner that will either directly or indirectly redistribute more income to themselves are known as

A) logrolling.
B) rent seeking.
C) influence peddling.
D) redistribution searching.

Question 51

Which of the following is true?

A) The incentives to engage in rent-seeking activities increase with the ease with which the political process can provide personal gain at the expense of others.
B) The amount of resources devoted toward rent seeking generally has no impact on the economic prosperity of a nation.
C) Income transfers directed toward the poor constitute about half of all income transfers in the United States.
D) All of the above are correct.

Question 52

According to public choice theory, which of the following groups will likely benefit the most from government income transfers under a system of representative democracy?

A) the poor
B) consumers
C) small businesses
D) concentrated interest groups

Question 53

When governments become more heavily involved in taxing one group in order to provide benefits to other groups, which of the following will be encouraged?

A) rapid economic growth
B) rent-seeking activity
C) an improvement in the efficiency of government bureaucracies
D) competitive private markets

Question 54

Public choice theory suggests that politicians will be most likely to favor redistribution of income from

A) the rich to the poor.
B) unorganized taxpayers to well-organized interest groups.
C) well-organized business groups to consumers.
D) none of the above.

Question 55

Which of the following factors explains why managers of government agencies (the public sector) have little incentive to operate efficiently?

A) It is relatively easy for voters to detect operational inefficiency in the public sector and do something to correct it.
B) Public-sector managers face fierce competition.
C) Public-sector managers have no fear of losses and bankruptcy when operational efficiency is not achieved.
D) All of the above explain why government agencies have little incentive to be efficient.

Question 56

When resources are allocated politically, rent-seeking will

A) channel resources toward government programs that generate large benefits relative to costs.
B) reduce GDP because it results in the wasteful use of resources.
C) lead to wasteful, rather than productive, use of resources.
D) improve the efficiency of resource use.

Question 57

Which of the following factors explains why managers of government agencies have little incentive to achieve operational efficiency?

A) Public-sector managers have no fear of bankruptcy when operational efficiency is not achieved.
B) Public-sector managers face fierce competition.
C) It is relatively easy for voters to detect operational inefficiency in the public sector and do something to correct it.
D) All of the above explain why government agencies have little incentive to be efficient.

Question 58

Producers tend to be better represented in lobbying efforts and other elements of the political process than consumers because

A) producers are generally more intelligent and, therefore, better informed.
B) producers are generally better organized than consumers.
C) producers are better educated than consumers.
D) the number of producers affected by the outcome of a particular political issue is usually greater than the number of consumers affected.

Question 59

Public choice analysis indicates

A) most income transfers will be directed toward the poor.
B) rent-seeking activities will improve the efficiency of resource allocation and promote economic growth.
C) rent seeking will be less attractive if the nation's legal (or constitutional) structure makes it difficult to use the political process to take the property or income of others.
D) politicians will consistently oppose programs favored by rent seekers if those programs reduce the welfare of society.

Question 60

As both the budget and regulatory powers of government grow, public choice analysis indicates that individuals and groups will find it in their interest to

A) increase their efforts devoted toward market production.
B) spend less time attempting to secure redistribution through government.
C) spend more time informing themselves about political issues, so they can cast a well-informed vote.
D) spend more time rent seeking.

Question 61

Which of the following is true of government activities under a system of representative democracy?

A) If a majority favors an activity, it must be productive.
B) If a majority opposes an activity, it must be counterproductive.
C) When voters pay in proportion to benefits received, productive activities undertaken by the government will be favored by an overwhelming majority of voters.
D) When voters pay in proportion to benefits received, productive activities will generally be defeated under a majority rule vote.

Question 62

Payments that users (consumers) are required to make if they want to receive certain services provided by the government are called

A) tax deductions.
B) transfer payments.
C) user charges.
D) sales taxes.

Question 63

In which case is the political process most likely to result in the acceptance of efficient projects and rejection of inefficient projects?

A) The benefits are highly concentrated, and costs are widespread among voters.
B) The costs are highly concentrated, and the benefits are widespread among voters.
C) Both the benefits and costs are widespread among voters.
D) The benefits accrue primarily in the future, while the costs are more visible during the current period.

Question 64

Which of the following is true of government activities under a system of representative democracy?

A) When voters pay in proportion to benefits received, all voters will gain if the government activity is productive.
B) If a majority opposes an activity, it must be counterproductive.
C) When voters must pay in proportion to benefits received for an activity undertaken by the government, the activity will most likely be rejected by the majority of voters.
D) Government activities must be productive in order to be eligible for vote.

Question 65

Which of the following is a distinguishing characteristic of a user charge?

A) Persons pay roughly in proportion to the extent that they use the good or service.
B) Persons with high incomes pay a larger amount than persons with lower incomes for the same good or service.
C) Persons with high incomes pay a larger percentage of their income than persons with lower incomes for the same good or service.
D) Persons with high incomes pay a smaller percentage of their income than persons with lower incomes for the same good or service.

Question 66

Other things constant, if both the benefits and costs of a public-sector activity are widespread among voters, the political process will generally result in the

A) rejection of productive activities and acceptance of unproductive activities.
B) acceptance of both productive and unproductive activities.
C) rejection of both productive and unproductive activities.
D) acceptance of productive activities and rejection of unproductive activities.

Question 67

Which of the following is a predictable side effect of increased government activity (for example, taxes and subsidies) designed to redistribute income among citizens?

A) improvement in the operational efficiency of government agencies
B) rapid economic growth
C) a reduction in the amount of lobbying
D) an increase in rent-seeking activity

Question 68

Which of the following statements is false?

A) Political activities consistent with economic efficiency tend to emerge naturally from the unconstrained democratic political process.
B) Constitutional rules establishing procedures and limiting the ability of the political process to engage in redistributive activities can improve the economic efficiency of government.
C) Rent-seeking activity tends to retard the economic prosperity of a nation because it takes resources away from productive private sector activities.
D) Unconstrained democratic governments often enact special-interest programs that waste resources and impair the standard of living of a country.

Question 69

Public choice analysis

A) assumes individuals in the public sector act in their own self-interests.
B) assumes individuals seek to serve the public interest rather than their own personal interests.
C) is the study of decision making in the formation and operation of private organizations.
D) assumes the government is a corrective device that takes the necessary action to offset economic inefficiency arising from market failure.

Question 70

When the government both provides a service and covers its costs through taxation,

A) the government has a strong incentive to supply consumers with desired goods at a low cost.
B) consumers are in a weak position to either discipline the suppliers or alter the quantity or quality of the service provided.
C) the invisible hand will direct decision makers toward the most efficient level of output.
D) Consumers have strong incentive to be cost conscious.

Question 71

A local government operates a city recreation center with a pool and tennis courts. The center is financed through $50 annual membership fees (required for members to use it). This type of financing is an example of a

A) head tax.
B) excise fee.
C) user charge.
D) progressive tax.

Question 72

Government decisions tend to be biased toward actions that have

A) current benefits that are easily observable and future costs that are difficult to identify.
B) current benefits and future costs that are both difficult to identify.
C) future costs that are easily observable.
D) clear benefits to the poor at no costs to the wealthy.

Question 73

Legislation that offers immediate and easily recognized benefits, at the expense of costs that are observable only in the distant future, is often enacted, even when economic inefficiency results. In economics this is referred to as the

A) long-term effect.
B) political-fallacy effect.
C) shortsightedness effect.
D) inefficiency effect.

Question 74

Public choice theory indicates that representative government yields outcomes more consistent with economic efficiency when a close relationship exists between the benefits received and the costs borne by each voter. Which of the following methods of financing a government program will most likely result in a close relationship between voter benefits and costs?

A) progressive income tax
B) retail sales tax
C) property tax
D) user charges

Question 75

Assume that you are a member of the U.S. House of Representatives from your home state and district. Which of the following best explains why you have a strong incentive to get the federal government to finance pork-barrel projects in your district?

A) Most of the benefits of pork-barrel projects within your district will accrue to your constituents, while most of the costs will be imposed on voters from other districts.
B) Most of the costs of pork-barrel projects within your district will be imposed on your constituents, while most of the benefits will accrue to voters from other districts.
C) Pork producers are a powerful political lobby that will influence the actions of legislators in all districts.
D) This is a trick question; in a representative democracy, there is little incentive for legislators to support pork-barrel projects.

Question 76

When the tax to fund a government project is allocated among voters in proportion to the benefits they receive from the project,

A) productive (efficient) projects will tend to be opposed by a majority of voters.
B) counterproductive (inefficient) projects will often be favored by a majority of voters.
C) projects that are productive (efficient) will tend to be favored by an overwhelming majority of voters.
D) democratic political decision making can be expected to work poorly.

Question 77

Which of the following is true?

A) When the government undertakes an activity, we can be assured that all voters will gain.
B) If a government activity is favored by most citizens, it must be productive.
C) If most voters oppose a government activity, it must be counterproductive.
D) When voters pay in proportion to benefits received, all voters will gain if the government activity is productive.

Question 78

In which one of the following situations is the political process most likely to result in both the acceptance of efficient (productive) programs and the rejection of inefficient (counterproductive) political activities?

A) The people who benefit from a government program pay the costs of the program roughly in proportion to the benefits that each receives.
B) The benefits are highly concentrated, and the costs are widespread among voters.
C) The costs are highly concentrated, and the benefits are widespread among voters.
D) The benefits accrue primarily in the future, while the costs are more visible during the current period.

Question 79

Which of the following is an example of a good that is produced by the public sector but consumers purchase it in proportion to the benefit received?

A) milk
B) public education
C) first-class mail delivery from the U.S. Post Office
D) national defense

Question 80

Public choice analysis suggests that bureaucrats and public-sector managers have a strong incentive to

A) economize on their spending so more funds will be available for other government programs.
B) ensure that their budget is exactly the size that would be considered economically efficient.
C) expand their budgets to sizes beyond what would be considered economically efficient.
D) keep individual legislators fully informed as to every expenditure.