Chapter 20.4 Flashcards
What are interventionist oriented policies?
The use of government involvement to stimulate or regulate economic growth and development.
Why are interventionist policies used?
To correct market deficiencies
What are the 2 types of interventionist policies?
Redistribution and provision of merit goods
What are examples of redistribution policies?
Tax policies, transfer payments, minimum wage
What do tax policies involve?
Progressive taxation policy can help a country to reduce income and wealth inequalities, which can ensure economic growth as low-income individuals and households have a higher marginal propensity to consume. This means that they are more likely to spend any extra income they receive, thereby increasing the level of aggregate demand in the economy
What are transfer payments?
Transfer payments are financial assistance made to less affluent and less fortunate members of society
What are examples of transfer payments?
State pensions, unemployment benefits, child allowances
What is a limitation of transfer payments?
Developing governments do not tend to have sufficient funds to pay for all the necessary transfer payments needed to lift people out of poverty.
What is minimum wage?
A minimum wage is the lowest amount of money that employers are legally obliged to pay their workers per time period.
Why is minimum wage implemented?
To help wage earners to receive a higher amount deemed to provide people with a sufficient living wage. This means that workers can afford basic necessities and have a greater chance of being able to save a proportion of their income.
What are merit goods?
Are products that create positive externalities when they are produced or consumed, that is, MSB > MPB.
What happens to merit goods if the government is not involved?
Are under-provided and under-consumed in the free market
What are examples of merit goods?
Education, health, and infrastructure services
Why should there be a good health care service?
-Enables the workforce of the country to be healthy and productive. This helps to minimize absenteeism from work, which reduces the number of working days lost due to illness.
-Universal access to vaccinations, can prevent the spread of contagious diseases and pandemics.
-Promotional campaigns to raise awareness of health-related diseases.
Why should there be a good education system?
-Education ensures there are spillover benefits to the country because the social benefits accrued from education and training surpass the private benefits in the long run
-Educated and well-trained individuals are more likely to succeed in their own life by increasing their earning capacity.
-Education can therefore help individuals escape the poverty trap.
-An investment in higher education leads to improvement in research and development.
