2. Davidson describes two fundamentally different economic philosophies that both impact the debt crisis that the US faces. What are these philosophies? Do you agree with one more than the other?

Davidson describes two philosophies that are represented each by the Republican Party and by the Democratic Party.

Republicans believe, according to Davidson, that the economy works best when the state keeps its hands off it. Republicans view a free market economy without government intervention as essentially a perfect machine that can coordinate the interests of vastly different goups of people (this is the concept of the invisible hand, developed by Adam Smith).

The Democrats, on the other hand, while seeing Capitalism as the most efficient economic system, believe that the capitalist economy needs to be regulated by the state, because otherwise, a free market generates undesirable effects like externalities and economic inequality.

answer; the correct answer to the above statement is (true);