Answer to Question #138375 in Macroeconomics for fion

Question

US Country A
Personal consumption expenditures 67.86% 50%
Gross private domestic investment 17.5% 35%
Government consumption expenditures and gross investment 17.49% 10%
Exports of Goods and Services 11.73% 135%
Imports of Goods and Services 14.58% 130%
Net exports of Goods and Services -2.85% 5%


Businessmen concern about the economic environment of a country and its
business opportunities.
Which country is more likely to follow the principle of “Big Market, Small
Government”? Explain your answer. [4 marks]

Answer 1

Solution:

The country that is most likely to follow the principle of "Big Market, Small Government" is country A.

The country has a capitalist kind of market economy, where it responds to the needs of the market and does its best to support and promote economic development within a small government's limits. In this kind of market, the government does not intervene in any sector of the market, which allows the private sector to thrive on its own. In this market, factors of production are owned by the people, the allocation is decided by the supply and demand forces, and there is a commitment to a free market, free trade, and open competition.

The country limits its government public expenditure; the private sector is given more freedom in the market; it focuses more on exports. This can be indicated by the expenditure percentages highlighted above with regard to the country. The country focuses on more exports; gross domestic private investment is enhanced by giving the private sector freedom. Personal consumption expenditure is balanced with the economy and government consumption expenditure, and gross investment is reduced.