Assignment task 1: Externalities and the Environment
Meyer describes the "Tragedy of the Commons." The IMF article explains how this type of problem is an example of an "externality." What is an externality? What might be a good government policy to solve the problem of the environmental externality that leads to high greenhouse gas emissions?
Moral Hazard and Adverse Selection
"Moral hazard" is a term often used in the context of peoples' behavior once they have insurance. Szuchman and Anderson explore the idea of moral hazard in personal relationships. How would you define moral hazard? Provide an example of a moral hazard that you have observed in your own community or workplace.
How does moral hazard differ from adverse selection? Provide an example to illustrate this concept.
Assignment task 2: Monetary Policy and Inflation
The Fed and Monetary Policy
Monetary policy is the action taken by the Federal Reserve to expand or contract the money supply and influence interest rates.
What are the current unemployment and inflation rates? How has the Fed redefined its targets for inflation and unemployment, and how do current conditions compare to those targets?
As the top advisor to the chair of the Federal Reserve, define contractionary and expansionary monetary policies and explain which you advise the Fed to pursue today-given the inflation and unemployment targets versus the current rates.
Inflation - Winners and Losers
We often hear of inflation characterized as a bad thing, but Meyer describes both winners and losers from inflation. Give an example of one way in which you would win from unexpected inflation and an example of one way in which you would lose from unexpected inflation.
Before answering these questions, review this Summary of New Fed Monetary Policies. You may consult other sources as well and include them in your bibliography.
Assignment task 3: Classical or Keynesian?
Classical v. Keynesian Approaches to Smoothing Business Cycles
Fiscal policies are the actions of Congress on spending and taxing. (Note this is different from monetary policy, which is the action taken by the Federal Reserve to change the money supply and interest rates.)
Explain and compare the Keynesian and classical points of view on whether or not to intervene during the business cycle (an expansion = positive real GDP growth; and a recession = negative real GDP growth).
Are we in recession today? Use today's real GDP growth rates to explain your answer.
As the President's chief economist, describe the Keynesian fiscal policy you think the administration should follow, given today's economic conditions. Support your point of view using principles of Keynesian economics, as described by Mayer in Chapter 16 of Everything Economics.
The attached summary (How our Government Supports its Citizens) outlines a number of government functions that contribute to a well-functioning society and economy.
List and explain two ways that in your everyday life there is a need for an effective government role in the economy.
What are two examples of government functions that help correct a market failure?
How our Government Supports its Citizens (this post is below, go through it before answering)
Post: How our Government Supports its Citizens
The government, while often criticized, plays a crucial role in supporting its citizens in various aspects of life. Here are some key ways in which the government acts as a friend to its people:
Public Services and Infrastructure
The government provides essential services that form the backbone of our daily lives:
- Maintains roads, bridges, and public transportation systems
- Operates public parks, libraries, and community centers
- Ensures clean water supply and waste management
These services, often taken for granted, are fundamental to our quality of life and economic functioning.
Safety and Security:
Protection of citizens is a primary government function:
- Law enforcement agencies maintain public order
- Fire departments respond to emergencies
- The military defends against external threats
- Food and drug safety regulations protect public health
Social Safety Net:
Government programs provide crucial support during challenging times:
- Social Security offers financial security for retirees and disabled individuals
- Medicare and Medicaid provide healthcare access for elderly and low-income citizens
- Unemployment benefits offer temporary assistance to those who lose their jobs
- Programs like SNAP (food stamps) help ensure access to nutritious food
Education:
The government plays a vital role in educating the population:
- Funds public schools, making education accessible to all children
- Provides student loans and grants to support higher education
- Invests in research and development at universities
Economic Stability:
Several government functions aim to maintain economic stability:
- The Federal Reserve works to prevent financial crises
- Small business loans and grants support entrepreneurship
- Consumer protection laws safeguard against fraud and unfair practices
Environmental Protection:
The government acts as a steward of the environment:
- Implements regulations to preserve natural resources
- Maintains national parks and wildlife refuges
- Funds research on climate change and environmental issues
Scientific Research and Innovation
Government funding drives progress in various fields:
- Supports medical research, leading to new treatments and cures
- Invests in technological advancements that benefit society
- Explores space through agencies like NASA, expanding our understanding of the universe
While the effectiveness of government actions can be debated, these functions demonstrate how the government aims to support and protect its citizens. By providing essential services, maintaining safety, offering social support, and investing in the future, the government acts as a friend to its people, working to improve their lives and well-being.