Suppose the Share of Government Purchases Increases by 5 Percentage

question 152

Essay

Suppose the share of government purchases increases by 5 percentage points. Why should we predict that the resulting decline in investment will be less than 5 percent?

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Definitions:

Coase Theorem

A principle that asserts that if private parties can bargain over the allocation of resources without cost, they can solve the problem of externalities on their own.

Externalities

Economic outcomes that impact third parties not directly involved, which can either be advantageous or disadvantageous.

Significant Costs

Expenses that are sufficiently large to impact an entity's financial decisions or financial statements.

Externalities

Economic impacts of a product or service on parties who do not directly participate in the transaction, which can be negative (pollution) or positive (vaccination benefits).