Chapter 1

Question 1

Public Finance

Answer 1

The study of the role of government in the economy.

Question 2

Four Questions of Public Finance

Answer 2

When should the government intervene in the economy? How might the government intervene? What is the effect of those interventions of economic outcomes? Why do governments choose to intervene in the way that they do?

Question 3

Market Failure

Answer 3

A problem that causes the market economy to deliver an outcome that does not maximize efficiency.

Question 4

Redistribution

Answer 4

The shifting of resources from some groups in society to others.

Question 5

Direct Effects

Answer 5

The effects of government interventions that would be predicted if individuals did not change their behavior in response to the interventions.

Question 6

Indirect Effects

Answer 6

The effects of government interventions that arise only because individuals change their behavior in response to the interventions.

Question 7

Political Economy

Answer 7

The theory of how the political process procedures decisions that affect individuals and the economy.

Question 8

Public Goods

Answer 8

Goods for which the investment of any one individual benefits everyone in a larger group.

Question 9

Social Insurance Programs

Answer 9

Government provision of insurance against adverse events to address failures in the private insurance market.