CHAPTER 2

THE ECONOMY: MYTH AND REALITY

DISCUSSION QUESTIONS

1. The United States is the country with the largest economy in the world.  The relatively large population in the U.S. is a contributing factor but productivity of workers and accumulated wealth are significant reasons why the U.S. economy is so large.

3. There are several possible answers to this question—the question is designed to get students to think about these differences before using models.  One straightforward answer is that the factors of production in Connecticut produce output that is worth more than what is produced in New Mexico.  This could be because labor is more productive in Connecticut because of a better educated workforce.  Another answer is that the cost of living is higher in Connecticut than it is in New Mexico.

6. The government is a referee—it enforces laws and establishes order. The government is a business regulator—it imposes restrictions on businesses on society’s behalf. The government provides security through national defense. The government levies taxes to finance its spending. Finally, the government redistributes income from high income households to lower-income ones.

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