Provide a justification for favoring in-kind transfer payments over cash transfer payments. Why might the fungibility of money erode the strength of this justification?
What will be an ideal response?
One justification for favoring in-kind transfer payments over cash transfer payments is that we also care about maximizing the utility of the taxpayer. For paternalistic reasons taxpayers may want to restrict the choices of transfer recipients and thus would like to provide benefits in-kind where taxpayers have more control in seeing that the income is used in a manner deemed appropriate. The fungibility of money weakens this argument because in situations where the value of the in-kind transfer is less than the individual would have bought anyway the in-kind transfer is equivalent to cash for the recipient. Thus, even an in-kind transfer might not constrain recipient behavior in a way consistent with the desires of taxpayers.
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The above figure shows Dana's marginal benefit curve for ice cream. If the price of ice cream is $2 per gallon, then the maximum that Dana is willing to pay for the 8th gallon of ice cream is
A) $1. B) $2. C) $3. D) $5.
A decrease in government spending will result in a decrease in the price level and a decrease in real GDP in the long run
Indicate whether the statement is true or false
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A) long-term; long-term B) long-term; short-term C) short-term; long-term D) short-term; short-term
Economic losses mean that firms will exit from a market in the short run.
Answer the following statement true (T) or false (F)