Essay preview
Chapter 1
GOVERNMENT ACTIVITY IN THE
MODERN MIXED ECONOMY
Public Finance, 10th Edition
David N. Hyman
Adapted by Chairat Aemkulwat
for Public Economics 2952331
Chairat Aemkulwat, Public Economics 2952331
Outline: Chapter 1 GOVERNMENT ACTIVITY IN THE
MODERN MIXED ECONOMY
1. Individuals, Society, and Government
2. The Mixed Economy, Markets, and Politics
3. Circular Flow in the Mixed Economy
4. Government Expenditures in Thailand and the United States 5. Financing Government Expenditure in Thailand and the United States 6. Aging Populations: Implications for Public Finance
Chairat Aemkulwat, Public Economics 2952331
2
Allocation of Resources
1. Individuals, Society, and Government
Resources are allocated between government and private use:
• For government use:
- Roads
- Schooling
- Fire Protection
• For private use:
- Food
- Clothing
• Units of private goods and services are forgone by
individuals so that government can provide goods and
services.
Chairat Aemkulwat, Public Economics 2952331
3
Production Possibility Curve
1. Individuals, Society, and Government
Chairat Aemkulwat, Public Economics 2952331
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5
ANS.
5. The increased allocation of resources to government provision of health services implies that fewer resources can be used for other goods and services.
The student should plot health care services on one of the axes and “all other goods and services” on the other axis.
As production of health care services increases, given fixed resources and technology, production of other goods and services must decline.
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7. Given a point on the old production possibility curve,
the outward shift allows movement in the northeast
direction to a point on the new production possibility curve corresponding to an increase in production of both private
and government goods and services.
6
ANS.
6. This answer is more in the form of an opinion, but
should be based on Figure 1.1. The key observation in
the student’s answer is that all the spending
cuts/additions suggested should still proportionately add
to 100% with justifications for increases and decreases
in spending.
The Mixed Economy
2. The Mixed Economy, Markets, and Politics
Characteristics of a mixed economy:
1. Government supplies many goods and services
2. Government regulates private economic activity
3. Government expenditures equal 1/5 to ¼ of GDP
4. Government participates in markets as a buyer of
goods and services
Chairat Aemkulwat, Public Economics 2952331
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Circular Flow
3. Circular Flow in the Mixed Economy
Chairat Aemkulwat, Public Economics 2952331
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Circular Flow
Chairat Aemkulwat, Public Economics 2952331
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Circular Flow
3. Circular Flow in the Mixed Economy
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Chairat Aemkulwat, Public Economics 2952331
Government Expenditures in the U.S.
3. Circular Flow in the Mixed Economy
• Government purchases divert productive resources
from private use:
- National defense
• Steel, labor
• Government transfer payments redistribute
purchasing power among citizens:
- Social benefits
• Social Security, Medicare
Chairat Aemkulwat, Public Economics 2952331
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