Question

Special interest group Q receives a 1/10,000th slice of the economic pie. Its net benefit from either an economic growth policy or a transfer policy is $50,000. In order for group Q to be indifferent between the two policies, the economic growth policy would have to make the size of the economic pie (Real GDP) growth by _________________. This type of analysis is used to show that special interest groups tend press government for _____________ instead of ________________.

Answer 1

Answer:

(A) $500 million

(B) This type of analysis is used to show that Special Interest Groups tend to press the government for TRANSFERS instead of ECONOMIC GROWTH.

Explanation:

1/10,000 of the real GDP is = $50,000

RGDP = 50,000 ÷ 1/10,000

RGDP = 50,000 × 10,000 = $500,000,000

If special interest group Q would have to be indifferent (not care which policy is applied at the given time) between the 2 policies, then the economic growth policy would have to increase the size of the RGDP (the economic pie) by an amount sufficient enough for them to get their net benefit of $50,000.

The RGDP figure above ($500 million) is the amount by which RGDP (real gross domestic product) should grow, if Group Q will still get their net benefit when only the economic growth policy (EGP) is applied.

In this case, the EGP applied in place of the TP (transfer policy) would still fetch Group Q the minimum net benefit of $50,000

(B) This type of analysis is used to show that Special Interest Groups tend to press the government (policy makers and enforcers) for TRANSFERS instead of ECONOMIC GROWTH.