Economics: Government Failure and Market Intervention

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What is an example of a government intervention to correct market failure?

Encouraging government capture by interest groups

Subsidizing education or healthcare services (correct)

Imposing tariffs on imported goods

Implementing a voting mechanism to determine public goods

What is meant by 'government failure' in economics?

The failure of the government to provide public goods

When the government fails to adequately correct for market failure (correct)

The absence of a price mechanism in the economy

The failure of the market to provide private goods

What is the primary difference between an open economy and a closed economy?

The presence or absence of international trade (correct)

The level of government intervention in the economy

The type of goods and services produced in the economy

The level of economic growth in the economy

What is the purpose of the 'voting mechanism' in economics?

To determine the level of public goods society wants Signup and view all the answers

What is the term for goods and services produced domestically but sold to other countries?

Exports Signup and view all the answers

How can we determine if a country is an open economy or not?

By examining the proportion of exports and imports as a percentage of GDP Signup and view all the answers

What is the likely effect of a depreciation of a country's currency on its export earnings?

Increase in export earnings Signup and view all the answers

What is a key difference between an open economy and a closed economy?

Open economy interacts with the rest of the world, a closed economy does not Signup and view all the answers

Which of the following is a determinant of exchange rates?

Differences in inflation rates between countries Signup and view all the answers

What is a benefit of the removal of domestic industry protection and other barriers to free world trade?

Increase in economic efficiency Signup and view all the answers

What is a function of Central Banks in determining exchange rates?

Setting interest rates and intervening in the currency market Signup and view all the answers

What motivates everyday people and businesses to invest in a particular currency?

Expectations of higher interest rates Signup and view all the answers

What percentage of GDP is consumption typically?

55% - 60% Signup and view all the answers

What is the most volatile component of GDP?

Investment Signup and view all the answers

What would be the result of a demand-side shock on the economy?

Reduction in demand for certain goods and services Signup and view all the answers

What is the definition of potential GDP?

The maximum output level possible for an economy when all firms are producing at normal capacity Signup and view all the answers

What was the immediate supply-side shock caused by the Covid-19 pandemic?

Closure of many businesses Australia-wide Signup and view all the answers

What is the value of net exports in terms of GDP?

Normally between -2.0% and +1% of GDP Signup and view all the answers

What is the primary goal of the Reserve Bank of Australia's monetary policy?

Achieving full employment of the labour force Signup and view all the answers

What is the target inflation rate set by the Reserve Bank of Australia?

Between 2% and 3% on average over the medium-term Signup and view all the answers

What is the purpose of the Reserve Bank of Australia's demand management policy?

To smooth economic fluctuations in the short run Signup and view all the answers

What is an example of an economic shock that may influence the Reserve Bank of Australia's monetary policy?

A natural disaster such as a drought Signup and view all the answers

What is the advantage of the Reserve Bank of Australia's independence from the government?

It enables the RBA to focus on achieving macroeconomic objectives Signup and view all the answers

What is the primary tool used by the Reserve Bank of Australia to implement its monetary policy?

Interest rates Signup and view all the answers

What is the multiplier effect according to the theory?

One person's income is spent, becoming another person's income, and so on Signup and view all the answers

What is the term for the time it takes for policy makers to recognize a problem?

Recognition lag Signup and view all the answers

What is the result of an increase in government purchases, according to the crowding out effect?

A decrease in private expenditure Signup and view all the answers

What is the term for the upward pressure on prices of inputs and wages due to government purchasing?

Resource crowding out Signup and view all the answers

What is the total time lag for fiscal policy, according to the text?

Up to 18 months Signup and view all the answers

What is the consensus among economists regarding crowding out in the long run?

There is complete crowding out in the long run Signup and view all the answers