Are we passing the national debt burden on to our children?
One side of this argument is that the debt is mostly internal, so financing the debt only involves exchanging old bonds for new bonds among U.S. citizens. The burden of the debt falls only on the current generation when the trade-off between public-sector goods and private-sector goods along the production possibilities curve occurs. The counter-argument is that there is a sizable external debt that transfers purchasing power to foreigners.
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Consider a market for used cars. Suppose there are only two kinds of cars: lemons and good cars. A lemon is worth $1,500 both to its current owner and to anyone who buys it. A good car is worth $6,000 to its current and potential owners
Buyers can't tell whether a car is a lemon until after they have bought the car. What do economists call the problem that buyers of used cars face? What kind of cars (lemons, good cars, or both) are traded? Explain and substantiate your answer.
What is the Coase Theorem? Under what conditions will the Coase Theorem break down?
What will be an ideal response?