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BBAF 406: Public Finance Pre-IA Tutorial Session Quiz

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BBAF 406: Public Finance Pre-IA Tutorial Session Quiz

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Questions and Answers

According to classical economists, why is government intervention not necessary?

Aggregate demand creates its own supply

Government can self-correct temporary deviations

Government brings distortions into the market

Market mechanism can efficiently allocate resources (correct)

What is the focus of public finance?

Analysis of government activities (correct)

Historical perspectives on government intervention

Economic justification for private sector roles

Market analysis of supply and demand

What do classical economists view as a potential downside of government involvement in the market?

Price controls leading to distortions (correct)

Encouraging self-adjustment of market mechanisms

Efficient allocation of resources

Speeding up market corrections

Why do Keynesian economists argue for government intervention in the economy?

To create demand for firms to increase output Signup and view all the answers

In public finance, what is the role of Aggregate Supply (AS) according to classical economists?

Creates its own demand (Aggregate Demand) Signup and view all the answers

What is the main condition for government intervention according to the Chicago School (Neo-classicals)?

Government intervention is not needed unless it improves market outcomes. Signup and view all the answers

Why do economic arguments support the need for government activities in the economy?

The invisible hands of demand and supply may not allocate resources efficiently always Signup and view all the answers

Why might taxes not necessarily improve market outcomes, according to the text?

Taxes lead to a loss of consumer and producer surplus. Signup and view all the answers

What are the three economic objectives of government mentioned in the text?

Macroeconomic stability, equitable income distribution, economic growth Signup and view all the answers

Which function of government involves ensuring conformity with society's concept of 'fair' distribution of income and wealth?

Distribution function Signup and view all the answers

What is the primary role of the Allocation function of government?

Providing social goods and dividing total resources between private and social goods Signup and view all the answers

What is the purpose of the Stabilization or Macroeconomic stability Function of government?

Maintaining high employment levels and stable price levels Signup and view all the answers