Readers Question: State intervention is necessary to maximize social welfare but intervention often comes at a heavy price. So why not rely on the market system to tackle the problem? It is one of the great debates of economics – How much should the government intervene in the economy. Firstly we have to consider occasions …
Definition of tight fiscal policy Tight fiscal policy involves increasing the rate of tax and/or cutting government spending. It is sometimes known as deflationary fiscal policy and aims to improve government finances Purpose of tight fiscal policy The aim of tight fiscal policy could be either Reduce inflationary pressure by reducing the growth of aggregate …
Definition of the Free Rider Problem – This is a situation where individuals are able to consume a good without paying. This creates a situation where there is little incentive to pay for the good – instead, we hope that others pay for it and we can get the good and save our money. Because of …
Supply side policies are government policies which seek to increase the productivity and efficiency of the economy. They can involve interventionist supply side policies (e.g. government spending on education) or free market supply-side policies (e.g. reduce government legislation) The main macroeconomic objectives of the government include: Higher economic growth Low inflation Low unemployment Equilibrium on …
A capitalist economic system is one characterised by free markets and the absence of government intervention in the economy. In practice a capitalist economy will need some government intervention, primarily to protect private property. (This is important to distinguish capitalism from anarchism, where there is absolutely no government present) Features of a capitalist economic system …
Due to lack of space in the book, we have published full bibliography on this website. Bibliography Chapter 1 Is it OK to be selfish? Frank, R H (1988) Passions Within Reason: The Strategic Role of the Emotions, p. xi. New York: W W Norton & Co. Galbraith, J K (1982) “Recession economics”, The New …
In behavioural economics, studies have suggested individuals value the concept of reciprocity. If people are kind to us, we have a greater tendency to respond in kind – behaving more altruistically than self-interest theory suggests. Reciprocity can also work in a negative sense, with agents willing to ‘punish’ those who abuse the ‘rules of the …
A budget surplus occurs when government tax receipts are greater than government spending. It means the government can either save money or pay off existing national debt. It is worth noting, that budget surpluses are quite rare in the past 120 years. Politicians have sometimes attempted to enshrine budget surplus into law but what are …