Macroeconomics 8th Edition by David Colander

Exercise 3

In this chapter you learned the importance of automatic stabilizers. At the state level, "rainy day" funds play a crucial role in maintaining services when state revenues decrease during a recession. While this may appear to be a rational institution, institutions are social constructs and what appears rational depends upon individual belief systems. The existence of a rainy-day fund can be interpreted as definitive proof of excess taxation and, in states that allow voter referendums, this fund can be eliminated by a majority vote. What vested interests- those seeking something for nothing-benefit from such decisions? (Institutionalist)