When the Government Chooses an Externality Policy That Aligns Private

question 148

Multiple Choice

When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality:

• A)it provides incentives to private decision makers to induce them to solve the externality problem on their own
• B)it typically uses command-and-control techniques
• C)the use of taxes is strictly forbidden
• D)subsidies are always the best policy

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Definitions:

Government Spending

Expenditures made by the government for the purpose of maintaining the economy and public services.

Paradox Of Thrift

The economic theory suggesting that increased saving in the aggregate can lead to a decrease in economic growth, income, and spending.

National Output

National output is the total value of services and goods produced by a country's economy over a specified period of time, essentially synonymous with Gross Domestic Product (GDP).

Saving Function

As income rises, saving rises, but not as quickly.