Final class of the semester, intended to show links between macro and micro-economics.
There’s certain things you can’t expect even a perfect market to provide in the right quantities. You need government.
Fiscal policy and macroeconomics. Stabalization, including inflation around 1 to 3 percent. Output near potential GDP. Sustainable balance of payments. Tools used to accomplish this: gov’t spending, tax cuts [sic]. … Shift taxation from income towards consumption to reduce double-taxation of savings. (Joel’s note: some opinions against this idea: 1, 2.) Spend in a way that raises productivity: better courts to support business, more operations and maintenance, health and education, skilled staff.
Microeconomics. Addressing market failure. Natural monopoly. Externalities. Public goods. Imperfect and asymmetric information. Incomplete markets due to adverse selection.
Example one: peak-load problem for mass transit. Economic theory says you should change more at peak times.