Describe an arms race in economic terms. Is it rational for countries to participate in an arms race?
What will be an ideal response?
An arms race is a prisoners' dilemma where it is in each participant's best interest to participate in an arms race and try to win the race. If the participants could agree to not participate, for example by signing treaties limiting military buildup, then both countries would be made better off. It is rational for countries to participate in an arms race even though it makes them worse off then they would be if they cooperated. That is because if they are lightly armed and their opponent is heavily armed and they get in a conflict they will suffer higher losses than if they were both armed and get in a conflict.
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A(n) ________ is represented by a rightward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve
A) increase in quantity demanded; increase in demand B) decrease in demand; decrease in quantity demanded C) increase in demand; increase in quantity demanded D) increase in demand; decrease in demand
The nominal interest rate equals the real interest rate ________ the inflation rate
A) plus B) times C) minus D) divided by
Because taxes distort incentives, they cause markets to allocate resources inefficiently
a. True b. False Indicate whether the statement is true or false
Which of the following is a statement with positive economic analysis?
A) Lower wages increase employment and reduce the unemployment rate. B) Slower money growth reduces inflation. C) A reduction in the size of the budget deficit will reduce interest rates. D) all of the above