Economics: Module 10
What are the secondary effects of transfers?
-When beneficiaries have to do something (for example, wait in line, fill out forms, lobby government officials, take an exam, endure delays, or contribute to selected political campaigns) in order to qualify for a transfer, much of their potential gain will be eroded. When beneficiaries have to own something in order to get a subsidy, people will bid up the price of the asset needed to acquire the subsidy
Three things young people can do that will reduce the likelihood of future poverty?
1. Complete high school (at a minimum). 2. On entering the work force, continue working and seek a full-time job. 3. Get married before having a child.What
What is rent seeking?
Actions by individuals and interest groups designed to restructure public policy in a manner that will either directly or indirectly transfer income to themselves
What is the third major reason why central planning is inefficient?
Central planners spending the money of taxpayers will invest less wisely than investors risking their own money
What is the first major reason why central planning is inefficient?
Central planning merely substitutes politics for market decisions. Subsidies and investment funds disbursed by governmental planners are influenced by political rather than economic considerations
What is the second for reason for why subsidies are ineffective?
Competition for transfers erodes most of the long-term gain of the intended beneficiaries Criterion (e.g. own something, do something, or be something) for receipt of the transfers must be established and competition to meet the criterion will erode net benefits
What are the third secondary affect of anti-poverty transfers?
Government antipoverty transfers crowd out private charitable efforts -When the government does more to help the poor, predictably families, churches, and civic organizations will do less.
What is central planning?
Government makes major decisions about production of goods
What are two ways of earning wealth?
Production: People can get ahead by producing goods or services of value and exchanging them for income. This method of acquiring income helps the exchanging partners and enhances the wealth of society. Plunder: Sometimes people get ahead by "plundering" what others have produced. Plunder not only fails to generate additional income but also consumes resources and thereby reduces the wealth of society.
What is the third way subsidies and government favoritism endanger both political democracy and economic efficiency?
Subsidies and favoritism will create an improper, unethical relationship between business and political officials. Businesses will seek government favors in order to enhance profit.
What is the first way subsidies and government favoritism endanger both political democracy and economic efficiency?
Subsidies distort prices and encourage businesses to seek government favors rather than producing better products at a lower cost
What is the second way subsidies and government favoritism endanger both political democracy and economic efficiency?
Subsidies to some firms and sectors place other firms at a disadvantage
What is the fourth major reason why central planning is inefficient?
The efficiency of government spending will also be undermined because the budget of an unconstrained government is something like a common pool resource When money and resources are owned in common, there is little motivation to consider the future
Which of the following is true of the federal budget deficit?
The federal budget deficit is equal to the excess of federal spending relative to federal revenues during a year.
What is the second major reason why central planning is inefficient?
The incentive of government-operated firms to keep costs low, be innovative, and efficiently supply goods is weak.
Which of the following is a secondary effect of government action that levies taxes on some in order to transfer income to others?
The incentive to earn of both the people paying the higher taxes and those receiving the income transfers will be reduced. People will compete by modifying their behavior in an effort to qualify for the transfers. Transfer programs that protect potential recipients against adversity arising from imprudent decisions encourage them to make choices that increase the likelihood of the adversity.
What are the first secondary affect of anti-poverty transfers?
The income-linked transfers reduce the incentive of low-income individuals to earn, move up the income ladder, and escape poverty
What is crony capitalism?
The situation where the allocation of resources is determined by political favors rather than by consumer preferences translated through the market profit and loss system
What is the fifth major reason why central planning is inefficient?
There is no way that central planners can acquire enough information to create, maintain, and constantly update a plan that makes sense
What is the first reason for why subsidies are ineffective?
They reduce the incentive of both taxpayer-donors and transfer recipients to earn
What is the third for reason for why subsidies are ineffective?
Transfer programs reduce the adverse consequences suffered by those who make imprudent decisions, and this reduces their motivation to take steps to avoid the adversity
What are the second secondary affect of anti-poverty transfers?
Transfer programs that reduce the hardship of poverty also reduce the opportunity cost of risky choices such as dropping out of school or the workforce, childbearing by teenagers and unmarried women, divorce, abandonment of children by fathers, and drug use
Which of the following was an unintended consequence of regulations that made mortgage credit for the purchase of housing more readily available to persons with low and moderate incomes during the decade following 1995?
an increase in loans to borrowers with sub-prime credit and later an increase in the default rate on these loans
How do market entrepreneurs get ahead?
by providing consumers with products that are more highly valued than the resources required for their production
How do crony capitalists get ahead?
by providing political players with campaign contributions and other political resources in exchange for government contracts, subsidies, tax benefits, and other forms of political favoritism.
The dominant Keynesian view of the 1960s and 1970s stressed that?
changes in government spending and budget deficits can help stabilize an economy.
What does rent seeking do to resources?
diverts resources away from productive activities.
Income supplements large enough to significantly increase the economic status of poor people will?
encourage behavior that increases the risk of falling into poverty. reduce the incentive of transfer recipients to work and earn. encourage people to take steps to qualify for transfer benefits.
What does crony capitalism reflect?
govt. failure and endangers the legitimacy of the democratic political process
Which of the following were helped by the large subsidies the federal government provided for the production of ethanol?
grain farmers and ethanol refiners
Income transfers from richer to poorer Americans such as the War on Poverty, Aid to Families with Dependent Children, and the SNAP program (food stamps) have?
grown as a proportion of national income since 1965 and reduced the incentives of both taxpayers and transfer recipients to earn.
Which of the following is true?
in a market economy, the link between productivity and income provides individuals with an incentive to provide resources that are highly valued by others.
What does economic analysis discover about income transfers?
indicates that it is actually quite difficult to transfer income to a group of recipients in a way that will improve their long-term well-being due to secondary effects
As the baby boomers begin moving into the retirement phase of life during the years following 2010, spending on Social Security and Medicare will?
rise and this will make it more difficult for the federal government to balance its budget.
When enterprises get more funds from government subsidies provided by central planners and less from consumers, they will have incentive to?
spend more time trying to influence politicians and less time trying to reduce costs and please customers.
Private entrepreneurs are likely to make better investment decisions than central planners because?
the entrepreneurs who make mistakes must bear the costs of these mistakes personally.
How has the poverty rate from 1960s changed?
the poverty rate is virtually the same today as when the War on Poverty began
