Question

1. Discuss the pluses and minuses of government action in the economy? What role should government play in the case of public good and externalities?

2. What happened to the US economy during the Great Depression and what was the New deal?

3. Define GDP and the components of GDP. How is GDP computed? What is the difference between money GDP and real GDP? Why are we concerned about this difference?

4 . Analyze each of the following activities and explain if they would be counted in the GDP, and why or why not:

a. deterioration of the water quality in the Atlantic Ocean,

b. the purchase of a new automobile,

c. services provided free of charge by a homemaker,

d. the production and sale of illegal drugs, e. the purchase of 100 shares of American Airlines stock, f. the installation of airbags in every automobile.

5 . Discuss the following: The consumer drives the US economy? Explain.

6. What is inflation and how does it differ from deflation. How do we measure the inflation rate?

7. Why is a high inflation rate harmful?

Answer 1

1. The pluses and minuses of government action are as:

safety of the consumer as its main aim

safety of the general public and environment is protected by the government.

It cares and works for the stability of the economy and wellbeing of the people.

The growth is suppressed by the establishment of the vast or massive bureaucracy

Consumers can be forced to pay more by creating monopolies.

Costly or harsh regulations

                                    The role of the government in the case of public good and externalities should be to work for corrective Taxation and/or Regulation (direct controls – regulations, specific taxes in case of negative externality and subsidies, consumers: low interest loans, supplier: immunizations, med research in case of positive externality)

1. Unemployment Reached 25 Percent (15 million were unemployed), wages of the people who were lucky to have jobs fell 42 percent. GDP was cut from $103 billion to $55 and millions of investors were wiped out.

In response to the great depression launch of several federal programs (support for farmers, the unemployed etc}, public work projects, financial reforms (changes to the monetary system) as well as regulations by the government to bring back normalcy in the economy)