Term
| What government policies follow from consumer and firm behavior and the market outcome described in your answers to questions 2 and 4 above? Be sure to distinguish between liberal and conservative views. |
|
Definition
| liberal views--While they agree that market outcomes are the result of rational decision-making and are efficient, they disagree that these outcomes are fair, or sustainable. Therefore, government should intervene in market outcomes to make them fairer and less volatile. These can be classified as redistribution, stabilization, and allocation. |
|
|
Term
|
Definition
| Refers to the redistribution of income, and can be accomplished in a number of ways, through taxes, income transfers, provisions of goods and services, at or below cost. |
|
|
Term
|
Definition
| These are activities designed to stabilize the running of the national economy. Stabilization activities include antirecessionary policy, or anti-inflationary policy, or, other wise known as expansionary or contradictory policy. Typically, stabilization goals are pursued through fiscal policy and monetary policy. |
|
|
Term
|
Definition
| Actions of government that change the pattern of output in the economy. Allocative activities occur through government expenditures (regardless of if they are carried out by public or private means), taxes and subsidies, and regulatory policy |
|
|
Term
| Conservative Views of firm behavior and market outcome |
|
Definition
| They emphasize the assumption in neoclassical economics that all people are free, rational choosers and that therefore, all economic outcomes are the result of free choice, and as a result are fair and optimal. The policies in turn, argue for minimal government intervention in markets. |
|
|
Term
| Definition of Public Choice Theory |
|
Definition
| Conservative neoclassical theory suggests the best solution, in response to market imperfections, is to protect the institution of private property from those who would reform, regulate, or destroy it, and to do this by leaving competitive markets alone. |
|
|
Term
| Explanation of public choice theory |
|
Definition
| The argument upon which this behavior resides is that most market imperfections are caused by the quite visible interference of human beings and bureaucracies in the workings of supply and demand |
|
|
Term
| How is public choice theory different from conservative neoclassical theory of government? |
|
Definition
| One major difference is how we understand government, and in turn, how our understanding of government influences the policy recommendations offered, or implemented. For public choice theorists, this (market) process is the most democratic, fair way of making decisions and settling differences, way more fair than any legislated decision imposed by some self-maximizing policy-maker. |
|
|
Term
| What are Kuttner's concerns about conservative policies? |
|
Definition
a. Misdescribe the dynamics of human motivation
b. Ignore the role of civil society and the realms of political rights when a market does not exist
c. Markets price things incorrectly—a critique of the pricing mechanism, which presumably enables markets to realize optimal economic outcomes |
|
|
Term
| Keynes Base Assumption of policies |
|
Definition
| The market is unstable and unpredictable; equilibrium was not a natural process. |
|
|
Term
|
Definition
| the use of mathematical probability applied to economics, on the ground that the future cannot be reduced to outcomes that can be calculated through probability models—precisely because of his contention that the market is NOT mechanically precise. |
|
|
Term
| What did Keynes focus on when criticizing the price mechanisms |
|
Definition
| he focused on understanding how the existence of money & uncertainty transforms the way we should conceive the buying and selling as a system for organizing the economy, particularly the notion of rationality. He argued, once we consider money, the original assumptions of neoclassical theory do not hold. The REAL market is driven by expectations of the future, and economic agents make bets through saving or borrowing, and as such, can withhold their buying power. Therefore, the market is driven by expectations of the future, and producers must decide if changing demand is real or just a reflection of a series of best that will reverse. |
|
|
Term
| Why did Keynes believe that economic agents cannot act rationally? |
|
Definition
| Because they can only guess the future and they are blind to the big picture. |
|
|
