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ECON 104 Chapter 3: Chapter 3

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School
Simon Fraser University
Department
Economics
Course
ECON 104
Professor
Vasyl Golovetskyy

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Document Summary

This text was modified by basil golovetskyy under a creative commons attribution- Introduction to economic analysis, unattributed, found at http://www. saylor. org/books/. Recall what we have learned about normative and positive statements in chapter 2 (find and re-read it if you do not remember). A normative statement has no true or false status. There is no empirical way to contest your friend"s statement that orange is better than red. Notice, though, that one can usually change a normative statement into a positive one by defining the ambiguous terms in such a way that they mean something all people understand the same way. Let us change the above to for me, orange is better than red. now, we would understand that a person speaking likes orange colour more than she likes red. With another bit of defining the terms, better means it has greater value to me, it becomes testable.

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Related Questions

Assignment 4 (Chapter 23) Sequestration 2013

Dear Colleagues,

Using the goods and services model from the text (what I have labeled the 'Commodities Model' in my syllabus or the Keynesian Cross), please offer a basic analysis of the sequestration of expenditures by the Federal Government that took effect on March 1st. Please limit your analysis to an expenditure equation containing only personal consumption expenditures (C) and planned investment (Io). (The aggregate expenditures equation would be limited to AE = C + Io.) Please note that I want you to ignore the impact of any direct reduction in governmental expenditures upon aggregate expenditures as is discussed in chapter 24. In particular, discuss and model the effects of the Sequestration on C. Also, would there be a possible effect on Io? Please explain the conclusions that you reach. Before beginning your analysis please read the articles listed below:

Sequestration: The Truth Behind The Spending Cut€, Mani.

http://www.istockanalyst.com/finance/story/6318811/sequestration-the-truth-behind-the-spending-cuts

Paragraph 7 in particular in the article above

Fiscal Multipliers, the IMF & the OBR, Weldon, Duncan.

http://touchstoneblog.org.uk/2012/10/fiscal-multipliers-the-imf-the-obr/

Deleveraging Shocks and the Multiplier (Sort of Wonkish)€, Krugman, Paul,

http://krugman.blogs.nytimes.com/2012/10/09/deleveraging-shocks-and-the-multiplier-sort-of-wonkish/

In your analysis, please use the Keynesian Theory of Consumption as the model to represent household expenditures. You may assume that the aggregate expenditure function (line) has only consumers and business, and business expenditures are not dependent upon income (as presented in the text).

Of what importance is the discussion of the multiplier mentioned in the last two articles?

Is it possible that business expectations about the future will change?

What would change in the model as a result of this change in expectations (Please discuss the potential impact on inventories)?

As you perform your analysis, you do not have to specify exact values on the axes. Your response will be graded upon your ability to determine the direction in which incomes will change, either increasing or decreasing, due to the sequestration and if the change will be large or small. (Recall that income, Y, is represented on the horizontal axis in the Keynesian Cross model.) In your model, be sure to begin your analysis with aggregate expenditures at pre-sequestration levels and equilibrium income. Then indicate the appropriate movement of the consumption function and business planned investment and the effect on equilibrium income.

Also, provide a brief explanation of how unplanned investment would change as a result of the sequestration and how the unplanned investment causes equilibrium income to increase or decrease.

The book Principles of Economics, Tenth Edition, Chapter 23 - Sequestration 2013.

Question is this -How government intervenes in the economy from three perspectives: Fiscal, Monetary, and Supply Side efforts. You have also now looked at the criticisms of government involvement from the Classical perspective. Which approach makes the most sense to you?

Comment on this answer...

This is Answer-After learning about the classical economic viewpoint and the criticisms of government from it, I don't think there is one single approach that makes the most sense to me between fiscal, monetary, and supply-side policies. I think a minimal mix of the three is okay, and for each, they have their own given situations where they may work best in comparison to the others, or even work in conjunction with one another.

Increasing aggregate demand through fiscal policy may help the economy with unemployment and price levels, or it may hurt the economy instead and leave it in a worse state than it was previously found to be at. This could create artificial demand where there isn't true demand from the consumers. This could trick business and mess them up.

Controlling the supply of money through monetary policy may be helpful to the economy for taming inflation and keeping price stability. Controlling it too much could cause problems such as market unpredictability, which in turn could cause mixed results such as to scare people away or draw them into borrowing less or more money.

Increasing supply through supply-side policies may help the economy with unemployment and price levels. It could hurt people in ways such as people not receiving federal funding, or receive less of it (budget cuts in whatever that may be) due to tax cuts, exemptions, etc., from the government to businesses.

With these three perspectives in mind, I would prefer to see a more classical approach to economic situations. The perspectives of fiscal, monetary, and supply-side policy I think can each be helpful but would be best if they didn't have to be implemented in the first place. They have the potential to cause damage to the economy. After watching the classical economics video and reading the chapter, one thing that stood out to me and I think summarizes government involvement from a classical economists viewpoint is the government's role is like being the umpire in a baseball game. They should make sure everyone plays by the rules and only enters the game as a last resort. That approach makes sense to me.

home / study / business / economics / questions and answers / Question 1 Which Of The Following Is The Best Example ... Question: Question 1 Which of the following is the best exam... Bookmark Question 1 Which of the following is the best example of a positive externality? A car company lays off 10,000 employees in order to cut costs. An individual drives a large SUV, which increases the amount of greenhouse gases in the atmosphere. An individual smokes in a restaurant, which bothers other patrons. A child is vaccinated against a disease, which reduces the probability that other children will catch the disease. 4 points Question 2 As a result of a negative externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. As a result of a positive externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. high; high. low; low. high; low. low; high. 4 points Question 3 Based on the diagram below, the deadweight loss area associated with the market equilibrium equals: Week06_graph1.jpg $10 $50 $80 $1,000 4 points Question 4 A firm's accounting profit is given by total revenue: less implicit costs. less explicit costs. less economic profit. less implicit and explicit costs. 4 points Question 5 Suppose an activity has a private cost equal to $30 and a private benefit equal to $30. The associated social cost equals $35 and the social benefit equals $30. Which of the following statements is true about this activity? There is a negative externality associated with this activity but not a positive externality. There is a positive externality associated with this activity but not a negative externality. There is both a positive and a negative externality associated with this activity. There is neither a positive nor a negative externality associated with this activity. 4 points Question 6 The Coase Theorem implies that: the efficient level of an externality is generally zero. private individuals living in market economies should not be concerned with externalities. government intervention is not always needed to arrive at the efficient level of an externality. government laws are unnecessary. 4 points Question 7 An industry in which a small number of large firms sell products that are either close or perfect substitutes is: perfectly competitive. monopolistically competitive. an oligopoly. a monopoly. 4 points Question 8 When a negative externality is present in a market: a tax can increase the level of economic surplus. the social benefits are greater than the private benefits. there is generally too little of the good produced by private markets. the government should ensure that there are zero external costs associated in all markets. 4 points Question 9 In the presence of a positive externality, the government can arrive at the socially optimal output level by: paying producers a subsidy equal to the amount of social benefits associated with the activity. charging producers a tax equal to the amount of social costs associated with the activity. paying producers a subsidy equal to the amount of external benefits associated with the activity. charging producers a tax equal to the amount of external costs associated with the activity. 4 points Question 10 The tragedy of the commons is that: too few individuals have access to high quality healthcare. common people overconsume public goods. the quality of life for lower income people is generally lower than that of higher income people. a resource with no price tends to be exploited until its marginal benefit falls to zero. 4 points Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy.