April 20, 2010 - Homework # 40

April 20, 2010 - Homework # 40 - Gaith Kalai Economics IB...

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Gaith Kalai Economics IB 1, Drogaris Homework # 40 Page 268, question 1: How do interventionist supply-side policies differ from market-oriented supply-side policies? Interventionist supply-side policies are policies that Keynesian economists would argue for; on the other hand, market-oriented supply-side policies are policies neoclassical economists would argue for. The first policy argues that the market needs government intervention, while the later argues that the market is better off left alone. Interventionist supply-side policies presupposes that the free market economy cannot by itself achieve the desired results in terms of increasing potential output, and argue that what is required for this purpose is government intervention. The following response will discuss different areas where interventionist supply-side policies and market-oriented supply-side policies collide, and why the interventionist supply-side policies may be preferable. Education is one of the most distinct components that lead to greater potential output. If a person is educated, then this advantage gives him a further step in giving inputs that will stimulate the economy. This is the same case with training. If a person is trained for a specific job, then he is able to work more efficiently because he is aware of the obligations he is required to achieve. Better training and education leads to an improvement in the quality of labor resources, which is one of the factors increasing an economy’s production possibilities. Had a market-oriented supply-side policy been established, these government owned sectors would have been privatized, which in effect would mean that not everyone would be able to afford an education or pre-training before working (leading to inefficiencies). Since education has a lot of positive externalities, it thereby justifies government intervention. In the world today, there have been numerous debates on whether the United States
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This document was uploaded on 10/26/2011 for the course PLIR 2050 at UVA.

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April 20, 2010 - Homework # 40 - Gaith Kalai Economics IB...

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