Should the government intervene to correct market/government
failures ?
What are the generic policies mechanisms for addressing market
and government failures?
1. In general, what are some of the tactics the government uses
to correct market failures? List 3 and
provide a brief explanation of the opportunity
costs involved in correcting these failures.
2. Briefly discuss the key difference(s) between Keynesian
Economics and Neoclassical Economics.
In attempts to correct market failures, a government policy is
proposed. Assume that the costs of a potential new government
program will be paid now by many individuals. The benefits will be
received by a relatively small number of individuals several years
in the future. Why might these conditions affect a government's
success or failure in attempting to decide whether or not to
establish the new program?
Suppose that a government passed a new law that requires firms
to comply with strict regulations. This law discourages investment
in the country. At the same time, government surplus increases
sustainability because of effective policies. In a single well
labeled graph , show the consequences of above information on the
market for loanable funds. Be sure to specify changes in the
equilibrium interest rate and equilibrium quantity of loanable
funds.
The financial sector is heavily regulated. Explain how
government regulations help to solve information problems,
increasing the effectiveness of financial markets and
institutions.