Why isn't national defense provided by free markets?
What will be an ideal response?
National defense is a public good. This fact means that it is hard to exclude anyone from consuming the benefits of national defense. If left to the free market, it would be very difficult for private companies to charge people for protection. People would be unwilling to pay for the service because they can get it without paying. The free-rider problem would make the ability to earn a profit a difficult or impossible prospect and hence little or no defense would be provided.
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The quantity of money demanded is proportional to
A) real GDP. B) the price level. C) the nominal interest rate. D) the real interest rate. E) the inflation rate.
A country engaging in trade according to the principles of comparative advantage gains from trade because it
A) is producing exports indirectly more efficiently than it could alternatively. B) is producing imports indirectly more efficiently than it could domestically. C) is producing exports using fewer labor units. D) is producing imports indirectly using fewer labor units. E) is producing exports while outsourcing services.
If a society uses the market system, it must rely solely on markets to solve all of its problems
a. True b. False Indicate whether the statement is true or false
When policy makers are constantly shifting back and forth between expansionary and restrictive monetary policy, this is most likely to
A) keep the general level of prices relatively stable because the periods of restrictive policy will just offset the periods of expansion. B) help promote economic stability because changes in monetary policy can be counted on to exert a predictable impact on the economy quickly. C) promote economic stability and stimulate employment. D) promote instability because the time lags of monetary policy are long and unpredictable.