Instructions:
- Late submissions will NOT be accepted. You are welcome to submit early.
- Maximum words per question: 650
- Please keep your answers concise and provide only the information requested. Points may be deducted for random rambling.
1. The SPU Economic Stabilization and Recovery Act of 2012 (defeated in class with 54% voting against it):
a) Cut foreign aid in half
b) Eliminate earmarks
c) Cut 250,000 government contractors
d) Cut aid to states by 5%
e) Reduce nuclear arsenal and space spending
f) Reduce the number of troops in Iraq and Afghanistan to 60,000 by 2015
g) Cap Medicare growth starting in 2013 (GDP growth + 1%)
h) Raise the Social Security Retirement Age to 70
i) Reduce social security benefits for those with high incomes
j) Tighten eligibility for disability
k) Carbon tax (on emissions)
l) Bank tax (based on size of bank and riskiness of holdings)
Considering the impacts of the policies on equity, efficiency, incentives, and long-run economic growth, discuss the aspects of this program you support and the aspects you do not support. (Be sure to explain your reasoning in the context of impacts on the above categories-unsupported statements will receive zero credit.) You may consult the budget puzzle website for descriptions of the policies.
2. Compare and contrast monetary and fiscal policy in the context of an economy experiencing a recessionary gap. What are the policy options of each and how does each policy work? What are the advantages and disadvantages of using either monetary or fiscal policy? After your general discussion, recommend a specific, detailed policy for addressing the current recessionary gap. Use an AD-AS diagram (draw and scan or create on your computer) to show the short run and long run effects of using the policy you chose.
3. Choose one (1) of the following and discuss. Indicate your choice clearly in your answer:
a) Debt reduction vs. stimulus for economic recovery during a recession: What are your recommendations to the current administration considering the state of the economy and the level of national debt? What are the implications of your recommended course of action? Use an AD-AS model (draw and scan or create on your computer) to illustrate the effects of such a policy during a recession. Cite readings and/or presentations to support your comments.
b) Keynes vs. Hayek: What are their perspectives on the role of government in the economy? Whose theories do you think are more useful in the current economic situation? What implications does the theory you chose have for individuals, communities, and the aggregate economy? Cite readings and/or presentations to support your comments.
4. Consider the propositions about economic behavior presented by Frank in The Darwin Economy. Through the lens of what you learned from reading this book, evaluate the policies enacted immediately following the financial crisis: the Housing and Economic Recovery Act of 2008, the Emergency Economic Stabilization Act of 2008, and the American Recovery and Reinvestment Act of 2009. Comment on the prospective effectiveness of these policies in the context of Frank's observations. Be specific, and discuss different parts of the policies separately when appropriate.