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Question: Macropoland is currently experiencing a recession--consumption and investment are very sluggish, and unemployment is quite high at 9%. Currently, inflation is very low at 0.4% (the historical average rate of inflation is about 2%). The Macropolish President has just hired you as her economic advisor. Your job is to prescribe policy that would enable the economy to recover from the recession. Explain how you could use the standard tools of expansionary monetary policy(EMP) and expansionary fiscal policy to stimulate this economy towards economic growth.
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The assignment is related to macroeconomic theories and policies. A hypothetical economy of Macropoland is in recession as indicated by all its leading economic indicators like consumption, investment , unemployment and inflation. As an economic adviser, the assignment recommends some appropriate economic policies to recover the economy from its current state of economic contraction. Expansionary fiscal policies and monetary polices are explained as the major standard tool to recover and restore the full employment equilibrium.
Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.
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