Sample Essay

In this case the opportunity cost of the cut in government programs to the society would be a negative life standard and this shows that this would not be a worthwhile government policy to undertake.Now let’s consider if the economy was not a mixed economy but instead was a free market structure. This would be analyzed on the invisible hand principle. Using this principle would entail the market regulating itself to equilibrium. In the case above since the production possibilities curve has already moved/shifted outwards the market would allow the deficit to persist in the short run but as investments increase and production increases then the free market would gradually reduce imports of both industrial and consumer goods.

This would leave the production possibilities curve at ppc2 and as the market increases exports arising from increased productivity the budget deficit would gradually come down and if the export market is very lucrative then a budget surplus would be something not to be unexpected in the long run.

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