Introduction to Economics

1. “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy.” Evaluate this statement made more than 150 years ago by the Scottish philosopher Alexander Tytler. Indicate why you either agree or disagree with it.

2. When the government uses subsidies, tax credits, and other forms of government favoritism to allocate investment funds, will this action tend to promote productive projects and restrain counterproductive ones? Why or why not?

3. As income transfer programs accompanying the War on Poverty increased beginning in the latter half of the 1960s, what happened to the poverty rate? Does economics indicate that this was surprising? Why or why not?