Under what conditions will the political process provide an inefficient amount of a public good?
What will be an ideal response?
The government will provide an inefficient amount of a public good when voters are rationally ignorant of the marginal social benefits and marginal social costs of the good. In this case, bureaucrats, intent on maximizing the size of their budgets, will provide an inefficiently large quantity of the good.
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Which has a larger effect on aggregate demand: an increase in government expenditure or an equal sized decrease in taxes? Explain your answer
What will be an ideal response?
The greater the price elasticity of market demand, the less will be the reduction in market output from a price floor.
Answer the following statement true (T) or false (F)
From the standpoint of the economy as a whole, the role of insurance is
a. to entice risk-loving people to become risk averse. b. to promote the phenomenon of adverse selection. c. not to eliminate the risks inherent in life, but to spread them around more efficiently. d. not to spread risks, but to eliminate them for individual policy holders.
A high-risk premium makes default more likely.
Answer the following statement true (T) or false (F)