Useful Economic Tools and Concepts Chapter 1

Useful Economic Tools and Concepts Economists have developed a number of basic concepts that are useful when we want to describe how an economy works, and to think about how we, in our private roles and through government action, might make it work better. This reading will present some of the most important concepts in economics, including how to approach trade-offs (when we have to choose among different things we might want); what markets really are (hint: they aren’t just one thing); and the importance, in economics, of such abstract things as trust and money. (You didn’t think money was abstract? Wait and see!) Before we get into these concepts, however, we’ll review economists’ basic tools of investigation. The concepts and methods we discuss in this reading will help us better understand modern economic debates. 1. Our Tools for Understanding Explaining macroeconomic phenomena, we will see, involves using three main modes of investigation: empirical, theoretical, and historical. Three main modes of investigation are empirical, theoretical, and historical 1.1 Empirical Investigation Empirical investigation is observation and recording of specific happenings in the world. It is convenient when the happenings of interest can be adequately described in terms of numerical data. However, useful empirical investigation of a specific item of interest may also be represented in words or images. empirical investigation: observation and recording of the specific phenomena of concern When the observations take the form of showing how a numerical economic variable changes over time, we call them time series data. time series data: observations of how a numerical variable changes over time You will be see many examples of time series data as you study economics—for GDP growth, employment, and other economic variables. The accompanying Math Review box will help your refresh your skills in working with data and graphs, using a time series example. Math Review: Graphing Empirical Data To help you review your math skills, we will recreate a famous macroeconomic graph. The Phillips curve, originally derived by economist A.W. Phillips using British data, played a very important role in U.S. economic theorizing and policymaking, especially during the 1960s. First, we can present the data in terms of a table. Table 1 presents data for the years 1963-1969, showing the average unemployment rate for the U.S. and the year-toyear inflation rate (i.e., the rate at which prices rose from one year to the next). Table 1 Year Unemployment Rate (percent) Inflation (percent per year) 1963 5.7 1.1 1964 5.2 1.5 1965 4.5 1.8 1966 3.8 2.8 1967 3.8 3.1 1968 3.6 4.3 1969 3.5 5 Source: Economic Report of the President 2004, Tables B-3, B-42. We can interpret this data in visual form, by plotting each series separately on a time series graph, as shown in Figures 1 and 2. For example, the third point from the left in Figure 1 represents the fact that, in the year 1965, the unemployment rate was 4.5%. What does the point labeled with a question mark represent? Figure 1 presents a visual picture of the fact that unemployment fell fairly steadily throughout this period. Figure 2 reveals that inflation steadily rose. Unemployment Rate (percent) 6 Year=1965, Unemployment = 4.5% 5 4 3 ? 2 1 0 1963 1964 1965 1966 1967 1968 1969 Year Figure 1. The U.S. Unemployment Rate, 1963-1969 During this period in the 1960s, the unemployment rate was generally falling. Inflation (percent per year) 6 5 4 3 2 1 0 1963 1964 1965 1966 1967 1968 1969 Year Figure 2. The U.S. Inflation Rate, 1963-1969 During this period in the 1960s, the inflation rate steadily rose. We might also be interested in how the two measures empirically relate to each other over time. For this, we can make a scatter plot graph, as shown by the dots in Figure 3. For example, the dot to the far right in this graph indicates that when the unemployment rate was 5.7%, inflation was 1.1%. The label on the point tells us that the year when this occurred was 1963. Interpret another point on the graph, with reference to Table 1, for practice. Inflation (percent per year) 6 5 1969 1968 4 1967 3 1966 2 1965 1964 1 1963 0 0 1 2 3 4 5 6 7 8 Unemployment Rate (percent) Figure 3. The Empirical Relation between Unemployment and Inflation in the U.S., 1963-1969 The smooth line that can be fitted to data points such as these became known as the Phillips Curve. When high values for one variable are associated with low values for the other (and low with high), we say the two variables have a negative or inverse relationship. On a scatter plot graph, such data points look as if they could be grouped around an (imagined) downward-sloping line. Conversely, when high values for one variable are associated with high values for another, and low with low, we say the two variables have a positive or direct relationship. On a graph, such a pattern of points suggests a upwardsloping line. Sometimes in empirical data such relationships, one way or the other, are very apparent. Other times, the data points may seem to be randomly scattered across a graph (or lie on perfectly horizontal or vertical lines), and so neither type of empirical relationship is apparent. If you study statistics and econometrics, you will learn how to describe empirical economic relationships (or the lack thereof) in a more formal and detailed way. In the case of inflation and unemployment rates over this period in the 1960s, the data points seem to form a very clear pattern. We have added a smooth line to the graph that comes very close to going through every data point. Anyone looking at this graph would conclude that inflation and unemployment are negatively or inversely related in these data. It seems that low unemployment is associated with high inflation. The smooth line drawn in Figure 3 is the famous Phillips Curve. negative (or inverse) relationship: the relationship between two variables if an increase in one is associated with a decrease in the other. positive (or direct) relationship: the relationship between two variables when an increase in one is associated with an increase in the other It is tempting to think that if two economic variables have an empirical relationship with each other, that there must be some kind of underlying relation between the two—or, in particular, that changes in one variable must be causing changes in the other. Sometimes this is true. In the case of the upward trends over time that have occurred in both global production and carbon dioxide levels, there is causality: Growing industrial production has led, over time, to increasing accumulations of CO2, one of the primary gases involved in global climate change. There are good scientific reasons to believe that the rise in accumulated carbon dioxide is a direct result of years of fossil fuels intensive economic growth. But two variables may be related empirically (or be “correlated” with each other, to use the statistical term) without there being a well-defined causal relationship between them. In the case of unemployment rates and inflation, graphed in the Math Review box, the two economic variables display a very strong empirical inverse relation for the period 1963-1969. Many economists during this period came to believe that this association was based on an underlying causal relationship. They thought that the government could “trade off” inflation and unemployment, suffering a little more inflation in order to get more people working. That is, it was thought that the government could make unemployment rates fall by allowing some inflation. The existence of an observable relationship between two economic variables does not imply that changes in one variable cause changes in the other. An important warning to keep in mind in all empirical work is that “correlation does not imply causality.” We can see why this sort of thinking had to be modified when we add data points for later years. In 1970 inflation continued to rise slightly, to 5.3 percent, while the unemployment rate unexpectedly also rose, to 4.9%. As you can see in Figure 4, the idea that there was a clear, causal relationship between these two variables became far less plausible as the nation moved into the 1970s and 1980s! Inflation (percent per year) 10 9 8 7 6 5 4 3 2 1 0 1975 1969 1970 1983 1963 0 1 2 3 4 5 6 7 8 9 10 Unemployment Rate (percent) Figure 4. The Empirical Relation between Unemployment and Inflation in the U.S., 1963-1983 The inverse relationship suggested by the Phillips Curve during the 1960s disappeared as the nation moved into the 1970s and 1980s. Empirical investigation creates the foundation for relevant macroeconomic analysis. Looking at the puzzle presented by the data on unemployment and inflation, we can see, however, that more tools are clearly needed if economists are to try to explain, rather than simply describe, macroeconomic phenomenon. 1.2 Theoretical Investigation The adjective “empirical” is usually contrasted with “theoretical,” where the latter refers to statements that are made on the basis of mental constructs and processes, such as assumptions and logical deductions. The class you are taking will introduce you to economists’ theories about how economies function. As you will see, the theories we introduce are based on “thought experiments.” Rarely having access to controlled laboratory experiments, as in the physical sciences, economists create theories based on assumptions about the economic agents and institutions, from which, with careful reasoning, they draw out potential implications for economic behavior. theoretical investigation: analysis based in abstract thought In the mid-1960s, for example, economists created theories that plausibly (that is, believably) explained how the downward-sloping Phillips curve might have come about. They made assumptions about how workers and investors would respond to monetary and fiscal policies and other economic conditions. They created plausible stories about a chain of events that would connect higher inflation to more people wanting to offer or accept jobs. In order to make it possible to build a theory, it is sometimes useful temporarily to isolate certain aspects of economic behavior from their larger historical and environmental context, in order to examine more closely the complex elements involved. A model is an analytical tool that highlights some aspects of reality while ignoring others. It can take the form of a simplified story, an image, a figure, a graph, or a set of equations, and it always involves simplifying assumptions. We’ll take a look at a couple of examples of economic models later in this reading when we examine the Production Possibility Frontier and the basic neoclassical model. model: an analytical tool that highlights some aspects of reality while ignoring others An important part of many models is the ceteris paribus assumption. This Latin phrase means “other things equal” or “all else constant.” In the models built around the Phillips curve relation in the mid-1960s, for example, one of the things “held constant” was people’s expectations about future inflation. The models assumed that even though inflation was rising steadily, people essentially wouldn’t notice. This assumption seemed to hold reasonably well for the period 1963-1969. Most economists now believe, however, that one of the main reasons for the jump in unemployment in 1970 was that people started to expect inflation, and to build inflation adjustments (such as cost-ofliving raises) into the contracts they made for employment. The theory built around the Phillips curve assumed that something (expectations) would stay constant, and the theory provided a plausible description of reality only along as this ceteris paribus assumption held. When it ceased to hold, new theories—now including an additional factor of expectations—were created. ceteris paribus: a Latin phrase meaning “other things equal” or “all else constant” Theorizing takes place in economists’ heads—hence the term “thought experiment.” “Is the resulting theory true?” you may rightly wonder. Generally, that is not a question that can be strictly answered “yes” or “no,” since our theories reflect only some selected aspects of the real world. Better questions to ask about economic theories include “Is the theory helpful in giving insight?” “Does it focus on things that we consider important?” Models can be useful—even though they require temporarily setting aside many complications and much of the larger context—when they are understood simply as tools to understanding, and when they remain open to revision as history evolves and new evidence is acquired. 1.3 Historical Investigation Throughout your study of economics, you will notice the importance of knowledge of historical events—observations of happenings in the near or distant past, within the context of what went before and what came after, that are broader than the more narrowly focused empirical investigation. The Great Depression of the 1930’s, World War II, the Bretton Woods monetary agreement of 1947, the oil crisis of 1973, the invention of computers, the entry of women into market work, and the growing concern about environmental issues—all are examples of historical events that have had significant macroeconomic impact. historical investigation: study of past events Economists have become increasingly aware that, while gathering and analyzing data and thinking theoretically about what could be true are valid and important tasks, a knowledge of the real-world evolution of political, economic, and social life is indispensable to understanding macroeconomics. Discussion Questions 1. Consider the following examples of investigation. For each one, indicate which mode of investigation it most closely represents – empirical, theoretical, or historical. a. a biologist tries to determine the number of different species of plants found on a plot of rainforest b. Albert Einstein develops his theory of relativity c. an economist measures how GDP varies across countries d. the political unrest in the United States during the 1960s and 1970s is explained to primarily be a result of the Vietnam War e. an economist states that a rise in inflation will lead to a fall in unemployment. 2. Model building is sometimes compared to map making. If someone asks you how to get to your house, what will you put on the map you draw for them? On the other hand, what if the question asked has to do with the location of the highest point in town, or the town’s political boundaries, or how your dwelling links up to the local sewer system? Is it possible for a single, readable map to answer every possible question? Does the goal you have in mind for the map affect what you put on it? 2. Economic Tradeoffs As individuals, and as members of a larger society, people make choices about what should be produced, how it should be produced, and for whom it should be produced. 2.1. Abundance and Scarcity When you think of all the abundant natural resources in our world, all the human time and intelligence that exist, all the investments that have been made in organizing human societies, and the massive stock of machinery and other productive resources now accumulated, you realize that the world is wealthy indeed. Although the distribution of resources is far from even, across countries or among people within countries, contemporary human society as a whole still has a rich resource base on which to build. No wonder that many world religions and ethical teachings encourage an attitude of gratefulness on the part of their adherents toward the sources of life’s abundance. abundance: resources are abundant to the extent that they exist in plentiful supply for meeting various goals. It may seem odd, then, that many economists emphasize the notion of scarcity— that is, the notion that there is too little to go around—when discussing society’s choices concerning what, how and for whom. What this really means is that even with all the available resources, and even with a steady eye on the goal of well-being, not everything that is socially desirable can be accomplished, at least not all at once.1 The current capacity of a particular hospital, for example, may allow it to increase the number of heart transplants it performs or increase the amount of care it can provide for the severely mentally ill, but not both. A given resource, like an hour of your time, when dedicated to one beneficial activity (like studying) will be unavailable for certain other beneficial activities (like relaxing with your friends). Choices have to be made. scarcity: resources are scarce to the extent that they are not sufficient to allow all goals to be accomplished at once Macroeconomics is centrally concerned with how an overall economic environment emerges from the choices made by individuals and organizations, and to what extent choices made by governments can make this economic environment better or worse. 2.2 Society’s Production Possibilities Frontier Economists use the notion of a societal production possibilities frontier to illustrate concepts of scarcity, tradeoffs, choice, full employment, and efficiency. The simplest version of this concept models an economy as if the only thing it has to consider is how to allocate its currently usable resources between the production of two possible flows of output over the coming year.2 The classic example is to take “guns” as one output, and “butter” as the other. In more general terms, the guns-andbutter tradeoff can refer to any society’s more general, and real-world, choice between becoming a more militarized society (“guns”) and becoming a more civilian- or consumer-oriented society (“butter”). 1 An alternative definition of scarcity, dating to the 1930s, defined resources as scarce relative to presumably unlimited human wants, without any question of whether these wants promoted well-being or not. 2 The resources considered to be available for economic production in the coming year will be only a portion of a society’s total resource stock. Some quantities of resources—for example, of nonrenewable mineral and energy resources—should be left idle this coming year in order to provide a base or production in year thereafter. The question of how to wisely decide how much should be considered to be available for production in the coming year is discussed in the following section. Figure 5 shows a production possibilities frontier (PPF) for this case. In this graph, the quantity of “butter” produced over a year is measured on the horizontal axis, or X axis. The quantity of “guns” is measured on the vertical axis, or Y axis. Every point on the graph represents a pair of quantities: one quantity of guns and another of butter. The points on the PPF curve illustrate the maximum quantities of guns and butter that the society could produce. For example, point A, where the curve intersects the horizontal axis, shows that this society can produce 120 units of butter if it does not produce any guns. Moving up and to the left, point B illustrates production, over the year, of 60 units of butter and 8 units of guns. 3 If the society produces no butter, how many guns can it produce? While it may seem odd to think about a society that only produces two goods, the PPF figure is nevertheless helpful for illustrating several important economic concepts. production possibilities frontier (PPF): a curve showing the maximum amounts of two outputs that society could produce from given resources, over a given time period Figure 5. Society’s Production Possibilities Frontier As you select different points along the PPF you see that the more you get of one good, the less you can have of another. 3 At this level of abstraction, it is not necessary to specific about what is meant by “units.” You may imagine these as tons of butter and thousands of guns, if you like. Also, it is possible to imagine PPFs that include more than two products—but they would have to be graphed in three (or more) dimensions. Scarcity Point C in Figure 2.5 represents a production combination that is not attainable, given existing resources. To produce at that point would take more resources than society has. The PPF is specifically defined so that only those points on or inside it represent outputs that can actually be produced. Tradeoffs Points that lie on the PPF illustrate the important notion that scarcity creates a need for tradeoffs. Along the frontier, one can get more of one output only by “trading off” some of the other. Figure 2.5 illustrates the important concept of opportunity cost. Opportunity cost is the value of the best alternative to the choice one actually makes. Looking at the PPF, we see that the cost of increasing gun production is less butter. For example, suppose the economy is at Point A, producing 120 units of butter and no guns, but then decides that it needs to produce eight guns. Point B illustrates that after some resources have been moved from butter production into producing the eight guns, the maximum amount of butter that can be produced is 60 units. The gain of eight guns comes at a “cost” to the economy of a loss of 60 units of butter. Likewise, starting from a point where the economy is producing some guns, the “cost” of producing more butter would be fewer guns. opportunity cost: the value of the next best alternative, foregone when a choice is made Efficiency An efficient process is one that uses the minimum value of resources to achieve the desired result. Put another way, efficiency is achieved when the maximum value of output is produced from a given set of inputs. Points that lie on the PPF illustrate the maximum combinations that a society can produce. But what about points inside the frontier, such as point D? At point D, the economy is not producing as much as it could. It is producing 40 units of butter and 4 guns, even though it could produce more of one or the other, or both. Some resources are apparently being wasted. There are at least three reasons why this could occur. First, the resources may be wasted because they are being left idle. For example, workers may be left unemployed, or cows could be left unmilked. Second, even if resources are fully employed, the technology and social organization being applied to the resources may be less that the best. For example, suppose the gun factory is poorly designed, so that a lot of the workers’ time is wasted carting parts from one area to another. In this case, a better, more efficient organization of the work flow could increase production, with no increase in resources. Third, the allocation of resources between the two production activities (that is, guns and butter) might not be optimal. For example, if gun factories are built on the best pasture land when they could just as well be built on poorer land, the ability of the economy to graze cows and produce butter would be hampered. When an economy is imagined to be on the PPF, and thus producing efficiently, the only way to produce more of one good is to produce less of the other. If an economy is inside the PPF, on the other hand, it is producing inefficiently, and improvements in the employment of resources, the application of available technology and social organization, or allocation of resources among production activities could allow it to move toward the frontier (that is, to produce more of both goods). efficiency: the use of resources in a way that does not involve any waste. Inputs are used in such a way that they yield the highest possible value of output, or a given output is produced using the lowest possible value of inputs. The bowed-out shape of the curve comes from the fact that some resources are likely to be more suited for production of one good than for the other. We can see, for example, that the society only has to give up 60 units of butter production to get the first eight guns. Workers, for example, can be pulled out of butter production and set to work on relatively plentiful supplies of the materials most suited for guns, such as easily tapped veins of iron ore and minerals for gunpowder. Gun manufacturing plants can—if allocation decisions are made wisely—be built on land unsuitable for pasture. The last single gun, on the other hand, gained by moving from point B up to where the PPF hits the vertical axis, comes at the cost of 60 units of butter! Pulling the remaining workers and land out of butter production, and directing the workers toward increasingly less accessible veins of mineral ores, or to the now-crowded gun assembly lines, dramatically decreases butter production while adding little to the production of guns. Of course, we could put on the axis many other pairs of outputs, besides guns and butter, and still illustrate these concepts. We could look at coke and pizza, cars and bicycles, or health care and highways. This classic example, however, is a good one. In the real world, such guns/butter or militarization/peacetime tradeoffs can be crucially important. (See the accompanying Economics in the Real World box.) What precise combination of outputs, such as guns and butter, or health care and highways, should society choose to produce? The PPF does not answer this question. The curve shows the range of efficient possibilities, but does not tell us which one of these combinations of outputs is best. To determine this, we would have to know more about a society’s requirements and priorities. Is civilian satisfaction a high priority? Then the society would lean toward production of butter. Does the society fear attack by a foreign power? Perhaps then it would choose a point more toward the guns axis. For good social decision making, this production question would have to be considered right alongside questions of resource maintenance, distribution, and consumption, since all have effects on well-being. In a society with free speech and democratic discussion, there is wide room for disagreement about what the best mix of goods might be. The PPF provides a mental image for thinking about scarcity, tradeoffs, and efficiency but does not, itself, tell us how to choose among the possibilities it illustrates. Economics in the Real World: The Opportunity Costs of Military Expenditures What do military buildups and wars really cost? One way to look at this is to consider what else could have been bought with the money spent on armaments. World military expenditures in 2006 totaled $1,204 billion, or 2.5 percent of world GDP. This represents a 37 percent increase, in real terms, over the previous ten years. The United States is by far the biggest spender, accounting on its own for 46 percent of the global total. The United Kingdom, France, China, and Japan are the next biggest military spenders. Smaller and poorer countries spend less, but some of the poorest countries—including Eritrea and Burundi—spend more on the military than they do on public services such as health and education. Where do such countries get their weapons? The United States and Russia are the leading suppliers of military goods to international markets Meanwhile, about ten million children every year—over 27,000 every day—die before they reach the age of five, most of them from malnutrition and poverty. The Millenium Development Goals set out by the United Nations aspire to cutting the rates of extreme poverty in half, and improving health, literacy, gender equity, and environmental sustainability in the poorest areas of the world. All this comes at a cost, of course. The amount of money that would be needed to achieve these goals has been estimated to be between $121 and $189 billion per year, from now until 2015—that is, about 10–15 percent of what is currently spent on arms. This amount of funding has not been forthcoming, however, and indications are that a number of the goals will not be met. As former U.S. president Dwight D. Eisenhower said back in 1953, “Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed.” Sources: Stockholm International Peace Research Institute, SIPRI Yearbook 2007 (Stockholm, 2007); United Nations Development Project, Human Development Report 2007/2008 (New York, 2007); The Millenium Project, Investing in Development: A Practical Plan to Achieve the Millennium Development Goals (New York, 2005). 2.3 Tradeoffs Over Time We have said that a PPF reflects possible production combinations given the stock of currently available resources, and using the current state of technology. These ideas deserve more investigation. If we remember that achieving well-being involves questions of how and for whom, then the question becomes complex. For example, we generally want to conserve resources so that we can produce goods not only right now but later in our lives. And we have an obligation to future generations to include them in our considerations of for whom. Some production activities are also resource-maintenance activities, of course, and the flow of output from these adds to the stock of resources available for the future. Investments in plant and equipment can provide productive capacity not just for a few months, but often for years. Production of goods and services that protect the environment, or that encourage the formation of new forms of knowledge and social organization, also lead to an improved resource base. Technological progress can lead to long-run improvements in productive capacity. New technologies can create new, more efficient methods for converting resources into outputs—or even create kinds of products never before imagined. To the extent that production is of this sort, production can add to the production possibilities for the future. The PPF may expand over time, out and to the right, making previously unobtainable points obtainable, as shown in Figure 6. technological progress: the development of new products and new, more efficient, methods of productions Figure 6. An Expanded Production Possibilities Frontier When the PPF moves “out” (away from the origin) our choices are still constrained but, overall, it becomes possible to get more of both things, as compared to the “lower” PPF. Some productive activities contribute an ongoing flow of outputs without drawing down the stock of capital resources. Sustainable production activities, such as some agricultural and forestry processes when they are suitably planned and carried out, may not add to the resource base, but neither do they deplete it. But many other productive activities lead to resource depletion or degradation. The intensive use of fossil fuels is now depleting petroleum reserves, degrading air quality, and contributing to global climate change. Production processes that destroy important watersheds and wildlife habitats are also resource-depleting. Mind-numbing drudgery, or work in dangerous circumstances, can degrade human resources by leaving people exhausted or in bad mental or physical health. These kinds of productive activities are at odds with resource maintenance. Taking a longer-term view, then, it is clear that getting the absolute most production, right now, out of the available resources is not an intelligent social goal. Decisions such as guns vs. butter need to be accompanied by another decision about now vs. later. What needs to be currently produced, what needs to be maintained, and what investments are needed to increase future productivity? Figure 7 shows a production/maintenance frontier, which illustrates the tradeoff between resource-depleting kinds of production and resource-maintenance activities (the latter including both conservation and investment). Point A illustrates a societal decision to engage in considerable resource-depleting production in the present year, while putting little emphasis on maintenance for the future. Point B illustrates a decision to engage in a higher level of maintenance this year and in a lower level of resource-depleting production. Figure 7. Society’s Production/Maintenance Frontier We choose not only what to produce, but how to produce it; some production methods are more resource-depleting than others. The consequences of choosing between points A and B are illustrated in Figure 8, where once again we portray a two-output (such as guns vs. butter) PPF. Now, however, the depiction is of some time in the future, following the current choice between A and B. As Figure 8 shows, a decision to maintain more for the future, by choosing point B in Figure 7, leads to a larger set of production possibilities in future years. A decision to engage in considerable resource depletion, by choosing point A in Figure 7, leads to the smaller future PPF shown in Figure 8. Of course, some will argue that advances in technology (which we have included as a resource-maintaining type of production) will always push out the PPF (as in Figure 6) more than resource depletion will pull it in (as in Figure 8). But this is no more than an assertion of belief. If this belief turns out not to be warranted, then acting on the basis of it may lead to large-scale, unfortunate, and irreversible consequences. Figure 8. Possible Future PPFs Present-day decisions about how to produce will affect future possibilities concerning what can be produced. Discussion Questions 1. Suppose that your time for studying can be allocated to either studying for this course or studying for another course. Your two “outputs” are your grade in each course. Draw a production possibilities curve for these two outputs. Would the curve be shaped like the PPF in Figure 5? Discuss. 2. Consider the following activities. Which ones do you think would expand society’s PPF in the future? Which ones would shrink it? (There may be room for disagreement on some.) a. increasing education spending b. increasing the production of sport utility vehicles c. building a nuclear power plant d. restoring wetlands e. building a new interstate highway f. expanding Internet capacity