In the coordination failure model
A) there is no role for government policy.
B) government policy works through the multiplier.
C) government policy can work by coordinating actions on the bad equilibrium.
D) government policy can work by coordinating actions on the good equilibrium.
E) government policy can only confuse people.

Question

Quizplus · Accepted Answer

In the coordination failure model, government policy can work by coordinating actions on the good equilibrium. This is because government policy can provide information or incentives that can help agents coordinate their actions towards the better outcome, thereby avoiding the bad equilibrium. Therefore, option D is the best choice. Options A, B, and E are incorrect since they either suggest that government policy has no role or has a limited role in addressing coordination failure. Option C is also incorrect since it suggests that government policy can only help coordinate actions on the bad equilibrium, which is not desirable in the context of the model.

In the Coordination Failure Model