and leah, reread what you said, so, um, ooops, sorry about that.

Are there more economists out there to confirm that the answer to 27 is a well-established fact?

Its an established fact that the advantage to capitalism is that it solves the problem of incredible complexity by distributing the decisions to a large number of individuals who decide based on their own information.

Leontief was another source for this. Essentially economies are just so complex that without a distributed decision making process it will just not work.

But there seem to be a lot of people who have a misconception of capitalism that it means ‘everything being provided by the market’. But capitalism does in fact suggest a government role in the market, in Adam Smith’s the Wealth of Nations this included the provision of national defense, the provision of civil defense, and the establishment of select public institutions, as the three roles of the government. The last one is pretty broad and includes lighthouses, or roads, as well as free and compulsory public education.

In modern economic parlance these would be dubbed “positive externalities” since they benefit people not involved in their transaction, thus the level they’d be provided through the free market would not reflect their true cost/benefit. The flipside to this issue is “negative externalities”, which are things which impose a cost to people not involved in the transaction (e.g. pollution) and thus the government’s proper role is to tax or legislate an adjustment to that cost.

The income tax question had two right answers. A progressive income tax is explicitly about pushing profits back into investments in industrial societies. Otherwise, it *only* happens during a serious war, like the Civil War.

Given the alternatives of “free market” and “centralized planning”, the existence of the information problem is decisive. The question does not address issues of market failure, bounded rationality, information asymmetries, public goods, natural monopolies, unequal distribution, or a number of other factors that can cause bad outcomes in a free market. The outcome asked about is economic prosperity, presumably in the aggregate. I don’t know of any case of an entire economy in which centralized planning has led to greater output than a market system. Does anyone have an example to offer?

30) “…stimulate economic activity when the economy is in a severe recession?” Reducing taxes and raising spending. This is the Keynesian approach. With the goal being to stimulate the economy, you won’t be raising taxes more than necessary. Get the economy going again and then raise taxes. Better in the short term, if possible, to borrow (from bond-holders who can be paid back later) and print money to get the economy back into expansion and then raise taxes.

33) (since you mentioned it anon) If taxes equal government spending, then: government debt is obviously not zero (deficit is). “Per person” means on average. Distribution again is not addressed. If T(taxes)=G(Government Spending) and n is population, then T/n = G/n.
The question again didn’t discuss distribution, if each and every person pays and receives the same amount in taxes, or if they receive as much in government spending as they pay in taxes.

I can see people thinking 27 has a false presupposition, but surely there are some circumstances where free markets work better than central planning (regardless of whether the situation is as universal as the question implies) and surely A is the correct explanation for why free markets work when they do.

I also found the wrong answers on the Socrates/Plato/Aristotle/Aquinas question so painful that I would have trouble respecting anyone who didn’t manage to get that right.