1. A government fulfills a protective function when it
a. taxes some citizens in order to provide income transfers to others or provides
... [Show More] funds for flood control projects and builds highways.
b. prevents illegal seizure of private property.
c. established and enforces minimum wage laws.
2. Which of the following is the best example of a public good?
3. Which of the following is true?
4. Which of the following is true?
5. When the government becomes more heavily involved in imposing regulations and taxes on some in order to provide favors to others
6. Measured in terms of the reduction in private sector output, what is the cost of taxing a dollar away from the private sector and transferring it to the government?
7. Special-interest programs are highly attractive to vote-seeking politicians because
8. Under a democratic representative government, legislators will have a strong incentive to support the positions of well-organized special-interest groups because
9. Which of the following best explains why legislators often find debt financing more attractive than taxation?
10. Politicians have incentive to support special-interest groups at the expense of unorganized, widely dispersed groups (for example, taxpayers or consumers)
a. 11. Which of the following explains why pork-barrel spending is often approved, even when the spending is inefficient?
b. Each representative has little incentive to oppose pork-barrel spending since the tax savings would accrue to taxpayers throughout the nation.
c. 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 or her district.
d. Logrolling increases the likelihood that pork-barrel projects will be approved.
e. All of the above are correct.
11. The difference between the national debt and a federal budget deficit is
12. Transfer payments are
13. The effectiveness of government antipoverty programs is reduced because they
14. The increase in transfer payments initiated by the War on Poverty during the latter half of the 1960s resulted in
15. Which of the following will increase the likelihood a person will experience periods of poverty?
16. Central planning is an ineffective method to organize an economy because
17. Which of the following will reduce the effectiveness of centralized economic planning?
a. The central planners will be unable to maintain sufficient information for a sound economic plan in a world of dynamic change.
b. The central planners spending the funds of taxpayers will make poorer investment choices than investors spending their own money.
18. The choices of the central planners will be influenced by political, rather than economic, considerations.
19. From the viewpoint of economic efficiency, does representative democracy do a good job of handling special-interest issues?
20. When decentralized governmental units operate independently and compete with each other, governments will attract residents and expand their tax base when
21. The U.S. constitution prohibits government from imposing tariffs and quotas that restrict _______________. The authors of Common Sense Economics would also apply this prohibition to _______. (Fill in the blanks)
22. If a three-fourths majority of both houses of the U.S. Congress was required for approval of a spending project, economic analysis indicates that
23. A special-interest issue generates substantial personal benefits
24. The political structure that is most consistent with economic growth and progress is
1. Why is private ownership an important source of economic prosperity?
2. Under a system of private property, could a 60-year-old owner of a tree farm benefit by planting and caring for a crop of Douglas firs, most of which will not be ready to harvest for 50 years?
3. Which of the following is most important if a country is going to achieve and sustain rapid economic growth?
4. Even-handed enforcement of contracts fuels economic prosperity because it
5. Competition is present when
6. What role do losses play in a competitive market?
They send a message that more value would be created if the resources were used to produce other goods.
7. Which of the following best summarizes the importance of business failure and the central idea of “creative destruction in a market economy”?
8. If a nation is going to achieve and sustain a high rate of economic growth, it must
9. “Wal-Mart is a low-wage firm and this indicates that it exploits its workers.” Which of the following should cause one to question the validity of this statement?
10. In recent decades labor markets in European countries like Italy and Spain have been
a. more highly regulated and the unemployment rates of the European countries have been higher than the United States.
11. If the government levies $20 billion in taxes to finance additional spending on military weapons, the net impact on total employment will be
12. Which of the following contributed to the soaring housing prices of 2002-2005?
13. Which of the following is true of regulation?
14. Inflation is
15. The Fed’s low short-term interest rate policy of 2002 to 2004 encouraged decision makers to
16. Why do foreigners export goods and services to buyers in the United States?
17. Which of the following resulted from the Smoot-Hawley trade bill of 1930?
Seven Major Sources of Economic Growth
1.Legal system: The foundation for economic progress is a legal system that protects privately owned property and enforces contracts in an evenhanded manner. Makes people accountable for their actions and promotes the wise development and conservation of resources for the future. There are doomsday predictions, but the market takes over and people conserve and find alternatives.
Evenhanded Enforcement
¢Protects private property rights against abuse and gives owners of private property the right to exclusive use and transfer of their rights.
¢This allows property owners to focus on resource allocation, efficient production, investment, and technological advancement.
2.Competitive markets: Competition promotes the efficient use of resources and provides a continuous stimulus for innovative improvements. Encourages efficient production.
Profits and losses decide what firms will survive and what goods will be produced.
¢The approval of central planners, a legislative majority, or business rivals is not necessary for an entrepreneur to try out a new idea.
¢Competition is not pro-business.
¢Businesses often lobby government officials requesting favors that will limit competition.
3.Limits on government regulation: Regulatory practices that reduce trade also retard economic progress.
4.An efficient capital market: To realize its potential, a nation must have a mechanism that channels wealth into wealth-creating projects.
5.Monetary stability: A stable monetary policy is essential for the control of inflation, efficient allocation of investment, and achievement of economic stability.
6.Low tax rates: People will produce more when they are permitted to keep more of what they earn.
7.Free trade: A nation progresses by selling goods that it can produce at a relatively low cost and buying those that it would be costly to produce domestically.
Ten Elements of Clear Thinking About Economic Progress and the Role of Government
1.Government promotes economic progress by protecting the rights of individuals and supplying a few goods that are difficult to provide through markets.
2.Allocation through political voting is fundamentally different from market allocation, and economic analysis indicates that the latter is more consistent with economic progress. 3. The costs of government are not only taxes.
4.Unless restrained by constitutional rules, special-interest groups will use the democratic political process to fleece taxpayers and consumers.
5.Unless restrained by constitutional rules, legislators will run budget deficits and spend excessively.
6.Government slows economic progress when it becomes heavily involved in providing favors to some at the expense of others.
7.The net gain to those receiving government transfers is less, and often substantially less, than the amount they receive.
¢Government serves a protective function when it Creates, upholds, and maintains a legal framework. Protects and enforces the rights of individuals to their —Supplies public goods…goods not easily provided by markets because they are consumed jointly and it is difficult to exclude those who do not pay.
—National defense and regional flood control projects provide examples.
The political process is merely an alternative form of social organization in which individuals make and carry out choices collectively. Markets allow for diverse representation. [Show Less]