Week 6 Flashcards
(42 cards)
When is a good excludable according to economists?
When a person can cheaply be prevented from using a good, economists say the good is excludable.
When is a good nonexcludable according to economists?
When a person cannot be cheaply prevented from using a good, economists say the good is non-excludable. Jeans are excludable; asteroid deflection is nonexcludable.
When is a good considered nonrival?
When one person’s use of a good does not reduce the ability of another person to use the same good, economists say the good is nonrival.
Whats the difference between private goods and public goods?
Private goods are excludable and rival.
Public goods are nonexcludable and nonrival.
What is a free rider?
A free rider enjoys the benefits of a public good without paying a share of the cost?
What are forced riders?
Some people want more national defense, some people want less, and pacifists want none. So, taxation means that some people will be turned into forced riders: they must contribute to the public good even though their benefits from the public good are low or even negative.
What part of the total amount of public goods produced should be produced by the government?
In principle, the government should produce the amount that maximizes consumer plus producer surplus or the total benefits of the public goods minus the total cost.
Explain club goods
Club goods are goods that are excludable but nonrival.
Explain common resources
Common resources are goods that are non-excludable but rival
Name the four types of goods
- Private Goods
- Common Resources
- Club Goods
- Public Goods
What does the aggregate demand curve tell us?
The aggregate demand curve tells us all the combinations of inflation and real growth that are consistent with a specified rate of spending growth.
Explain the Solow growth rate
The Solow growth rate is the rate of economic growth given flexible prices and the existing real factors of capital, labor, and ideas.
What is the RBC model?
Real business cycle
a way of thinking about business fluctuations often called the “real business cycle” model
In this model, the equilibrium inflation rate and growth rate are determined by the intersection of the AD and LRAS curves
Name a reason behind why growth rate fluctuates
One reason that the growth rate fluctuates is that economies are continually being hit by shocks, which shift the Solow growth rate
What is an aggregate demand shock?
An aggregate demand shock is a rapid and unexpected shift in the aggregate demand curve
Explain the phenomenon behind menu costs
Economist call the costs of changing prices menu costs because an obvious example is the costs of printing new menus when a restaurant changes its prices.
Name solutions to the tragedy of the commons
Command and control and, more recently, tradable allowances have been used to solve the tragedy of the commons problems.
What can be understood under ‘tragedy of the commons’?
The result of non-excludability and rivalry is often the tragedy of the commons: overexploitation and under maintenance of the common resource.
Name positive shocks that shift the aggregate demand curve
- A faster money growth rate
- Confidence
- Increased wealth
- Lower taxes
Name negative shocks that shift the aggregate demand curve
- A slower money growth rate
- Fear
- reduced wealth
- higher taxes
The government has two kinds of fiscal policy used to fight a recession. Name them
- The government spends more money
- The government cuts taxes, giving people more money to spend
Explain the multiplier effect
The additional increase in aggregate demand caused when expansionary fiscal policy increases income and thus consumer spending
Explain The Ricardian Equivalence
A tax cut opens the possibility of a special type of crowding out. When Ricardian equivalence holds, a tax cut doesn’t increase aggregate demand even in the short run.
What does crowding out mean?
When increased government spending comes at the expense of reduced private spending, we have the phenomenon of crowding out
