Briefly explain the benefits-received principle and why it does not work well for pubic goods. Give an example that is not in the text.
What will be an ideal response?
The benefits-received principle means that the individuals receiving the benefits are those who pay for them. Although this principle may work for some private goods, it does not work well for public goods such as national defense and the judicial system. For example, because we collectively consume the safety benefits of having a police force, it is not possible to find out who benefits and by exactly how much in order to tax them proportionally.
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As the general price level in the country of Norweinshire rose, the average interest rate in the economy increased, thereby lowering aggregate expenditure. This relationship between price level, interest rate, and aggregate expenditure is referred to as the:
a. total price effect. b. interest rate effect. c. wealth effect. d. real-balance effect. e. income effect.
In the 1980s, the dangerous Ebola virus entered the United States through contaminated monkeys that were imported for use in medical experiments. Suppose this virus had not been contained but had spread to the general population. Assume that the virus is lethal in half of the people who are exposed to it. Describe the resulting effect on labor productivity