罗森《财政学》第七版课后题答案.docx
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罗森《财政学》第七版课后题答案
Instructor’sManual
toaccompany
PublicFinance
SeventhEdition
SuggestedAnswerstoDiscussionQuestions
andSampleExams
byHarveyS.Rosen
March2004
©McGraw-Hill/Irwin2004
SuggestedAnswerstoDiscussionQuestions
Someofthequestionshavenosingle“correct”answer–reasonablepeoplecangooffindifferentdirections.Insuchcases,theanswersprovidedheresketchonlyafewpossibilities.
Chapter1
1.a.Putin’sstatementisconsistentwithanorganicconceptionofgovernment.Individualsandtheirgoalsarelessimportantthanthestate.
b.Rehnquistmakesaclearstatementofthemechanisticviewofthestate.
2.a.Apersonwithanorganicconceptionofthestatemightreactfavorably,arguingthatevenifanindividualownerisworseoffbecausehemustshowonlyFrenchmovies,thenationisbetteroffbecauseitachievesmoreunity.
b.Alibertarianwouldcertainlyrejectthispolicyandthereasoningbehindit--thereisno“nationalinterest”independentoftheinterestsofindividuals,andpeopleshouldhavetherighttoruntheirlivesinthewaythattheyprefer--includingseeingwhatevermoviestheywant.
c.ASocialDemocratwouldtrytobalancethesetwoaims,anditishardtopredicthowheorshewouldcomeout.
3.Mechanisticviewofgovernmentsaysthatthegovernmentisacontrivancecreatedbyindividualstobetterachievetheirindividualgoals.Withinthemechanistictradition,peoplecoulddisagreeontheobesitytax.Libertarianswouldsaythatpeoplecandecidewhatisbestforthemselves.Theydonotneedproddingfromthegovernment.Incontrast,socialdemocratsmightbelievethatpeoplearetooshortsightedtoknowwhatisgoodforthem,sothatgovernment-providedinducementsareappropriate.
4.a.Ifthesizeofgovernmentismeasuredbydirectexpenditures,themandatedoesnotdirectlyincreaseit.Costsofcompliance,however,maybehighandwouldappearasanincreaseina“regulatorybudget.”
b.It’shardtosaywhetherthisrepresentsanincreaseordecreaseinthesizeofgovernment.OnepossibilityisthatGDPstayedthesame,andgovernmentpurchasesofgoodsandservicesfell.Anotheristhatgovernmentpurchasesofgoodsandservicesgrew,butataslowerratethantheGDP.Onemustalsoconsidercoincidentfederalcreditandregulatoryactivitiesandstateandlocalbudgets.
c.Thefederalbudgetwoulddecreaseifgrants-in-aidwerereduced.However,ifstateandlocalgovernmentsoffsetthisbyincreasingtaxes,thesizeofthegovernmentsectorasawholewouldnotgodownasmuchasonewouldhaveguessed.
5.Theinflationerodestherealvalueofthedebtby0.032x£332billionor£10.6billion.Thisfigureshouldbeincludedasrevenuetothegovernment.
6.Thefederalgovernmentgrewby$450billion.However,becausethepricelevelwentupby16percent,intermsof2001dollarsthisamountedtoadecreaseof$224billion(=$1.86trillion-1.16x$1.41trillion).AsaproportionofGDP,federalspendingin1993was21.2percentandin2001itwas18.2percent.Hence,bybothmeasures,thesizeofgovernmentfell.Togetamorecompleteanswer,onewouldwantdataonthepopulation(tocomputerealspendingpercapita).Also,itwouldbeusefultoaddinexpendituresbystateandlocalgovernments,toseeifthetotalsizeofgovernmentfell.Also,althoughitwouldbehardertomeasure,onewouldwanttotrytogainsomesenseofhowtheregulatoryburdenontheeconomygrewduringthistimeperiod.
Chapter2
1.Therealitythatastronomersaretryingtounderstandisnotinfluencedbyany“policies”thatastronomersmightimplement.Moreover,theparameterswithwhichastronomersmustdealareconstantovertime,whiletheparametersineconomicscanchangeacrosstimeandspace.
2.Achangeinthemarginaltaxratechangestheindividual’snetwage.Thisgeneratesbothanincomeeffectandasubstitutioneffect.Aslongasleisureisanormalgood,theseeffectsworkinoppositedirections.Hence,onecannottellaprioriwhetherlaborsupplyincreasesordecreases.Onecouldasktaxpayerstodescribehowtheywouldchangetheirbehaviorundertheproposal,butitishardtoimaginethatthiswouldyieldusefulresults.Inasocialexperiment,acontrolgroupwouldconfrontthestatusquo,andanexperimentalgroupwouldfacethenewtaxregime.Thisisclearlyinfeasible.Econometricinvestigationoflaborsupplyseemsthebestapproach,particularlyifdataassociatedwithpastchangesintaxratescanbebroughttobearontheproblem.
3.Generally,economicoutcomesareaffectedbyanumberofvariables.Economistscannotperformcontrolledrandomizeexperiments,whichmakesitdifficulttoassesshowanysinglevariableaffectsagivenoutcome.Similarly,brainimpairmentmaybeduetoanumberoffactors.Ecstasyusersclearlyarenotarandomsampleofthepopulation.Hence,onedoesnotknowwhetherbrainimpairmentisduetoEcstasyorsomevariablethatiscorrelatedwithEcstasyuse.
4.Thetextpointsoutthepitfallsofsocialexperiments:
theproblemofobtainingarandomsampleandtheproblemsofextendingresultsbeyondthescopeoftheexperiment.Participantsinthestudyhadfoundittotheiradvantagetobeapartoftheexperiment,whichmayhaveresultedinaself-selectedpopulationunrepresentativeofthewidergroupofhealthcareconsumers.Further,physicians’“standardpractices”arelargelydeterminedbythecircumstancesofthepopulationasawhole,nottherelativelysmallexperimentalgroup.
5.Thereappearstobeaweakrelationshipbetweendeficitsandinterestrates.Indeed,itmightappearthatwhenlargedeficitsleadtolowerinterestrates.However,onewouldneedmoredatatoinvestigatethisquestion.OnewouldwanttolookatdeficitsrelativetoGDP.Onewouldliketocontrolforotherfactorsthatcanaffectinterestrates,suchasmonetarypolicyandthelevelofeconomicactivity.
Chapter3
1.a.Inthisparticularinsurancemarket,onewouldnotexpectasymmetricinformationtobemuchofaproblem–theprobabilityofafloodiscommonknowledge.Moralhazardcouldbeanissue–peoplearemorelikelytobuildnearabeachiftheyhavefloodinsurance.Still,onewouldexpectthemarketforfloodinsurancetooperatefairlyefficiently.
b.Thereissubstantialasymmetricinformationinthemarketsformedicalinsuranceandmalpracticeinsurance.Forefficientconsumption,thepricemustbeequaltothemarginalcost,andtheeffectofinsurancemaybetoreducetheperceivedpriceofmedicalcareconsumption.Thatwouldleadtoconsumptionabovetheefficientlevel.Becauseoftherolesofregulation,insurance,andtheshiftingofcostsfromtheuninsuredtotheinsured,thereislittlereasontoexpectthemarkettobeefficient.
c.Inthestockmarketthereisgoodinformation,andthousandsofbuyersandsellers.Weexpect,ingeneral,efficientoutcomes.
d.Fromanationalstandpoint,thereisagooddealofcompetitionandinformation.Theoutcomewilllikelybeefficient.However,somefirmsmightexercisesomemarketpower.
e.Studentloanmarketsmaybeimperfectbecauseofasymmetricinformation--studentknowsbetterthanlenderwhetherhewillworkhardenoughtorepaytheloan.
f.Carinsurancemarketsmaybeimperfectbecauseofasymmetricinformation.Driverswhoknowtheyareparticularlyaccidentpronewillbeparticularlylikelytowantcarinsurance(orpolicieswithgreatercoverage).
2.Pointarepresentsanequalallocationofwater,butitisnotefficientbecausethereisnotangency.Pointbisanefficientallocation(butnottheonlyone).
AD:
1)Thedashedlineispositionedatthehalfwaypointonthehorizontalaxis.
2)Pointbisatangency
3.Themarginalrateoftransformationbetweenforeignanddomesticmovesdependsontherationoftheirpricesbeforetaxesandsubsidies.Becauseofthewedgecreatedbythetaxesandsubsidies,thetwopriceratiosaredifferent.Therefore,themarginalrateofsubstitutionandmarginalrateoftransformationarenotequal,andtheallocationofresourcesisinefficient.
4.a.Socialindifferencecurvesarestraightlineswithslopeof–1.Asfarassocietyisconcerned,the“util”toAugustusisequivalenttothe“util”toLivia.
b.Socialindifferencecurvesarestraightlineswithslopeof–2.Thisreflectsthefactthatsocietyvaluesa“util”toAugustustwiceasmuchasa“util”toLivia.
5.Itishardtoseeanyredistributiveorefficiencygaintoaprogramoffreeconcerts.Ifyoubelievethatyoucan“improve”people’stastesbyexposingthemtoclassicalmusic,thentheremaybeameritgoodjustification.
6.a.Itishardtoseeamarketfailurehere.TheCoastGuardcansetarescuefeeequaltothemarginalcostofarescue.
b.Welfareeconomicsprovideslittlebasisforsuchasubsidy.
c.Asymmetricinformationisprobablynotaprobleminamarketlikethis,soitishardtoseewhytheprivateinsurancemarketisnotallowedtofunction.
d.Itishardtoimagineabasisinwelfareeconomicsforthisregulation.
e.Thisisnotanefficientpolicy.Iftheproblemisthattoomuchwaterisbeingconsumed,thentheansweristoincreasethepriceofwater.Onthatbasis,peoplecandecidewhetherornottheywanttoiletsthatrequirelesswater.
f.[needanswer]
7.Thesetofpossibleallocationsisastraightline100unitslong.EveryallocationisParetoefficient,becausetheonlywaytomakeonepersonbetteroffistomakeanotherpersonworseoff.
8.Itwouldseemthatmarketsareagoodsocialorderbythiscriterion.Everyoneactsselfishly(i.e.,maximizeshisownutility)buttheresultisaParetoefficientallocationofresources.Thisassumes,ofcourse,thatalltheconditionsfortheFirs