Business Finance - Economics Writing assignment
Writing Assignments
Please select two of the following options and answer each of the questions related to that option. Your responses should be thorough and well supported. You are encouraged to use our textbook and the supplemental online book for this class, which is called Popular Economyths.
A good, well-reasoned, detailed answer should be at least 2 pages ( total ) in length of each option (and please do NOT rewrite the questions). You need to answer each of the questions for the option you select.
OPTION 1 – The Minimum Wage
Since 2009, the national minimum wage has been $7.25 per hour for most occupations in the private sector. Many of those who support an increase in the minimum wage believe this is one way the government could possibly reduce poverty, while its opponents believe that it creates unemployment and hurts low-skilled workers. The following items address the idea of raising the minimum wage from the current federal minimum of $7.25 per hour.
1) Describe who the suppliers and demanders are in the labor market. Is a government-mandated minimum wage a price floor or ceiling? Discuss the effect of raising the minimum wage from a supply and demand standpoint, making sure to address the concept of surplus or shortage, and specify what that shortage or surplus is most commonly called in economic terms.
2) Raising the minimum wage will also affect the labor costs of businesses. What is going to happen to the prices these businesses charge for their products? And who is going to be most affected by these price changes, those with low incomes or those with high incomes?
3) Discuss any potential changes in the incentives for low-skilled workers - those who keep their jobs and their hours - to increase their human capital when the minimum wage increases. What about those who lose their jobs or never get hired? Discuss the incentives for employers to substitute capital inputs (technology and automation) for labor.
4) What might be an unintended impact on government spending on entitlements such as welfare, food stamps, and unemployment compensation because of the changes in the minimum wage and its impact on unemployment and underemployment?
5) Do advocates of a minimum wage law believe that workers should be paid based on their output (i.e., performance) or on their level of need? What do opponents of the minimum wage law believe workers’ wages should be based on? Which one is sustainable and why?
For the sake of comparison, how should students be graded in class, based on their performance or level of need?
6) Advocates of a minimum wage often believe that employers would “exploit” or “take advantage” of their workers if there were no minimum wage. How would you know if employers are “taking advantage” of their workers if there were no minimum wage? What simple thing could the employee do if they believed they were being exploited?
7) What percentage of American workers get paid above minimum wage? In general, why do such workers get paid more than the government-mandated minimum wage if employers are supposedly so greedy?
8) Compare and contrast some of the information contained in the three videos:
Obama: "Raise Minimum Wage to $9 an Hour" - SOTU 2013
A $15 minimum wage would hurt those it's meant to help - YouTube
We the Internet TV: Pledge for $15
Describe the main points of each video. Which one or two videos do you agree with more from an economic perspective and why? Be specific!
9) Based on your previous responses, do you believe that the minimum wage should be raised, lowered, remain as it currently is, or be altogether eliminated? If you think there should be a minimum wage, how would you arrive at the specific wage? You need to give a thorough reason for your answer.
10) Who should get to decide how much a worker gets paid, the worker and their employer or a politician? WHY? Make sure your answer here aligns with your previous answers.
11). True or false: Each person sets their own “minimum wage” when they choose which jobs they apply to. Explain your answer.
OPTION 2 - Taxes
It has been said that nothing in life is guaranteed except for death and taxes. The next questions ask about the three tax structures as well as rate rates.
A lot of students say that some people pay “more (or less) in taxes” than others, but they often confuse tax rates (in percentages) with the amount of tax paid (in dollars). Be sure to answer questions in this option with references to the differences between taxes paid in dollars versus percentages.
1) Please state whether you prefer a progressive, regressive, or flat (proportional) tax system and WHY. Is your preference more in accordance with the concept of equality of opportunity (which is equal treatment) or equality of outcome (which is unequal treatment)? BE SPECIFIC. Which tax system incentivizes taxpayers to earn more money and which structure disincentivizes taxpayers to work harder and earn more money.
2) Please write about marginal tax rates and whether you believe they need to be changed in general. More specifically,
A) If you believe in a flat tax rate system, should income tax rates be raised or lowered?
B) If, however, you think a progressive tax rate is best:
i) should taxes on low-income earners be raised or lowered?
ii) should taxes on average-income earners be raised or lowered?
iii) should taxes on high-income earners be raised or lowered?
C) If, however, you think a regressive tax rate is best:
i) should taxes on low-income earners be raised or lowered?
ii) should taxes on average-income earners be raised or lowered?
iii) should taxes on high-income earners be raised or lowered?
Regardless of which you choose (A, B, or C) be sure to give your reasons WHY you feel the way that you do.
3) Please explain HOW the tax rate changes (the increase or decrease you advocated for in Questions #2 above) will affect EACH of the following:
a) economic growth: job creation, investment, incentives to work more, and tax avoidance
b) the budget: the difference between tax revenue and government spending
c) economic "fairness"
Your answer needs to have a discussion related to the Laffer Curve, especially with respect to the budget (and to government revenue in particular). In addition, please give your definition of economic “fairness” and WHY you believe that.
4) Please watch the following two videos:
Robert Reich: Why Taxes Have to be Raised on the Rich
Describe the main points of each video in detail. Which video do you agree with more? Please describe WHY. Which video recommends treating people equally and which one does not?
5) Please read the following articles and graphs:
What You Don’t Know About the Top One Percent
Tax Foundation: Effective tax rates per income category
Income tax share by income category
Describe the main points of each article or graph in detail.
Based upon these articles and graphs: By income percentile group, who doesn't pay their "fair share" of taxes and who pays more than their "fair share" in your opinion? How do you arrive at that opinion?
6) Some people think that it is okay for the government to take more money away from richer people because “they can afford it.” Many times, higher-income people have worked harder or were more disciplined. Why is it “fair” to punish with higher tax rates those who worked harder or saved more of their income? Don’t lower-income people have the same opportunities to earn as much as higher-income people?
OPTION 3 – Capitalism and Socialism
There are two major economic theories – Classical and Keynesian. Classical theory is closely aligned with what is popularly known as capitalism, while Keynesian theory forms much of the foundation for socialism.
1) Obviously, both supply (production) and demand (money or purchasing power) are necessary in a functioning market. However, there is disagreement regarding which one “comes first.” Do you believe supply or demand “fuels” the economy and WHY? Why is the other theory incorrect in your view? BE SPECIFIC HERE
2) Please discuss the differences between the two major economic philosophies, Socialism and Capitalism. Be sure to mention:
a) the differences in their ultimate goals
b) the differences in their means of attaining those goals, i.e., their fiscal policies (tax rates and government spending)
c) the differences in their attitudes toward the ability of government to direct the economy successfully
d) the differences in their attitudes toward the ability of voluntary transactions between private individuals to direct the economy successfully
e) the differences in their attitudes towards profits
3) Collectivism is the idea that the most important thing about a person is their group identity, such as their income, race, gender, sexuality, etc. Cultural Marxists and advocates of critical race theory (CRT) suggest that some identity groups are oppressed and that others are oppressors. Many modern-day socialists can be described as collectivists and cultural Marxists. See the online book Popular Economyths for more details. Please explain how many socialists currently advocate for socialist policies based upon collectivist and cultural Marxist ideas. What are some of the good and/or bad consequences of trying to base economic policies upon such ideas?
4) Capitalism is based largely on the idea of individualism and liberty, or freedom. Individualists see the person and all their unique characteristics rather than their identification in certain groups. Capitalists also view human freedom as a high priority where individuals can be largely responsible for determining their own success and choosing how to best live their lives. Please explain how capitalists incorporate the ideas of individualism and liberty into their ideas concerning the role of government in the economy. What are some of the good and/or bad consequences of trying to base economic policies upon such ideas?
5) Please watch the following:
Very Good Video About Socialism that Bernie Sanders Should Just Steal
Describe the main points of each video in detail.
Which video do you agree with more? Which type of economy may lead to people with “better” characteristics? Please describe WHY.
6) Compare and contrast nations that have been largely capitalistic with those that have been more socialistic. Give an example of each and discuss some of the differences between the quality of life in those nations, particularly with respect to GDP per capita, economic freedom, medical care, the number of people who have been killed by their government, and the number of people who have been pulled out of poverty over time.
Note: Popular culture notwithstanding, these Scandinavian nations are NOT socialist countries but rather high-taxed market economies. For example, in 2015 Danish Prime Minister Lars Rasmussen explicitly corrected the myth that his nation was socialist by noting, "I know that some people in the U.S. associate the Nordic model with some sort of socialism. Therefore, I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”
OPTION 4 – Income Determinants
Please write about the determinants of income in America. Some information can be found in the textbook for this class and more details are also presented in Popular Economyths. In particular, please discuss:
1) What are the most important determinants of a person’s income?
2) WHY are each of those determinants so important?
3) Which racial or ethnic group earns the most money and which groups earn the least? Which groups obtain the highest levels of education and which groups obtain the least? Which groups have the lowest illegitimacy rates and which have the highest? What impact does fatherlessness have on poverty and crime?
4) Some people say that there is a “gender pay gap” between men and women in which women are paid approximately $0.78 for every $1.00 earned by men. Where do they get that statistic and is that the best way to compare earnings between man and women? Why or why not? EXPLAIN
5) Some people believe that an “equal pay law” would result in men and women earning the same incomes. Others believe that such a law would instead have harmful unintended consequences for women. What would be the real-world consequences of an “equal pay law”?
6) Watch the following two videos:
Obama: We Will Close the Wage Gap
Describe the main points of each video. Which video makes the most economic sense and presents the most evidence to support its claim? Explain in detail.
7) Watch the following two videos:
What Is White Privilege? Here's What People On The Street Have To Say
Whitesplaining white privilege!
Which video best represent reality? WHY? Is there any proof of “white privilege” given in the videos? And if so, how convincing is that “proof?” That is, is it based upon anecdotes (more subjective) or empirical evidence (more objective)?
Which video best incorporates the income determinants discussed in Questions #2 and #3 above?
8) In conclusion, what can individuals do to have the best chances of financial success?
OPTION 5 – College: Who Should Pay For It?
Student loan debt in the United States is the second largest source of debt after mortgages. Some people believe that college education in the United States ought to be “free” and many also want to “cancel” existing student loan debt. Others see such proposals as unfair, counterproductive, and unaffordable. Please answer the following questions regarding these ideas:
1) How much total student loan debt exists in the United States? How does this number compare to mortgage debt and credit card debt? How much does each borrower owe on average and how much does each graduate owe on average?
2) Watch the following videos:
Crushed By College Debt? Here's Why!
Why Is Higher Education So Expensive? - Learn Liberty
What are some of the reasons college tuition has risen faster than prices in general over the past few decades according to each of the three videos?
3) List the 5 highest-paying college majors and the 5 lowest-paying. Why do you think the highest-paying majors pay so much more?
4) Watch the following videos and use them to help you answer the following questions:
Is College Worth It? VLOG Brothers
Is college a “rip off” or not? Do colleges exploit their students by charging such high tuition? Be sure to discuss the importance of college major in your answer.
5) Is getting a college education a right or a privilege in the United States? How did you arrive at your conclusion? BE SPECIFIC.
If you say that it is a right, where is that right (government guarantee) written down? If you believe it is a privilege, what are some of the ways that a student can afford to get a college education? Does any student in America not have “access” to financial aid to attend college, such as scholarships, grants, or loans, at the very least?
6) Some people claim that college should be “tuition-free” for students. Since nothing is free, who would really pay for this? Is it fair or “equitable” that other people should have to pay for students to attend college? Why or why not?
7) Likewise, many of the same people want to “cancel” existing student debt for those who owed money on their student loans. Can the federal government currently afford to pay off everyone’s student loan? Since there is no such thing as “cancelling” debt, who would really pay for this? Is that “fair” that other people should have to pay off the student debt of others? Why or why not?
8) Suppose the government (via taxpayers) paid off the debt of every student who owed money on their student loans. What would that do to the incentives of future students to try to limit the amount of money they spend or borrow for college? In other words, would it make students more or less financially responsible with regards to their choice of which college they attend, their major, the amount of time they spend in college, and the amount of effort they put into their college education? Would it make future students more or less “entitled” to other people’s money?
9) Suppose the government (via taxpayers) paid off the debt of every student who owed money on their student loans, although former students who had borrowed money and had already repaid their loans would not be “reimbursed” for repaying their loans. Is that “fair” for those people who complied with their legal obligations and had repaid their loans? Why should those who have yet to repay their loans get other people’s money while those who already repaid theirs do not?
10) How large is mortgage debt and credit card debt in the United States? Should those debts be “cancelled” like some people want to “cancel” student loan debt? Why or why not?
OPTION 6 – The “Green New Deal”
Some people believe that human activity is causing the climate of the world to change and that such effects could be very negative. Many of these people would support a “Green New Deal” that would enormously expand the power of the federal government to reduce greenhouse gas emissions. Others believe that such legislation would be astronomically high, would stifle economic growth, have counterproductive effects, and would not significantly reduce “climate change.” The text of the legislation can be found here.
1) Watch the two following videos:
Climate Change 101 with Bill Nye | National Geographic
The In-depth Story Behind a Climate Fraud
Describe the main points of each video. The impetus behind the “green new deal” is that climate change is a) happening, b) man-made, c) harmful, d) is fixable by man. Is there really 97% agreement among climate scientists about each of these four criteria? How do you know?
2) Watch the following videos regarding the legislation:
What's the Deal with the Green New Deal?
Pulse - Why Alexandria Ocasio-Cortez's Green New Deal is Disastrous
How do these three videos impact your feelings about this piece of legislation? Which video made the stronger case? WHY?
3) Based on the above videos, how good have climate change predictions been over the past several decades? How many countries or even cities have been inundated or washed away by rising sea levels as predicted in the 1980s and 1990s?
4) How does this influence your opinion about the predictions that any “Green New Deal” legislation would be based upon?
5) Suppose the “Green New Deal” was signed into law and implemented. How much would it cost? (You will need to research it online) Is that cost economically sustainable? How would it impact vehicles and airplanes in the United States? Which groups of people would benefit the most and which groups would be more hurt?
6) Who are the primary supporters of a “Green New Deal” legislation, capitalists or socialists? Why do you think this is the case if the legislation is supposedly primarily about the climate and not the economy?
OPTION 7 – The Effects of Government Intervention Related to COVID-19
1.How did government-imposed lockdowns during the 2020 COVID-19 outbreak infringe upon individual economic freedoms, such as the right to operate businesses or engage in voluntary transactions, and what were the macroeconomic consequences of these restrictions on small businesses and employment?
2. How did the massive fiscal stimulus packages, such as the CARES Act, distort market signals and resource allocation, and what were the long-term economic implications of increased government debt on future generations?
3.How did enhanced unemployment benefits during the 2020 COVID-19 outbreak discourage labor force participation, and what evidence suggests that these policies prolonged economic recovery by creating disincentives for returning to work?
4.Why might a decentralized approach, allowing individuals and local governments to make decisions based on local conditions, have been more effective than centralized federal mandates during the COVID-19 outbreak, and how could this have preserved personal freedoms while supporting economic stability?
5.How did government-mandated school closures during 2020 disrupt educational outcomes, particularly for low-income students, and what were the social and economic costs of limiting parental and student autonomy in choosing in-person or remote learning?
6.How did the Federal Reserve’s expansionary monetary policies, such as quantitative easing and near-zero interest rates in 2020, contribute to inflationary pressures, and why might a conservative viewpoint argue that these interventions undermined economic freedom by eroding purchasing power?
7.How did government regulations, such as mandatory business closures or capacity limits, hinder the ability of markets to adapt and recover during the COVID-19 crisis, and what role could individual decision-making have played in achieving more efficient outcomes?
8.How did government restrictions on social gatherings and personal movement during 2020 impact mental health, community cohesion, and individual liberties, and what were the broader social costs of prioritizing public health over personal freedom?
9.How can the economic concept of opportunity cost be applied to evaluate the trade-offs between government interventions (e.g., lockdowns, mask mandates) and the preservation of personal freedoms during the 2020 COVID-19 outbreak, and what were the measurable economic and social losses?
10.How did the reliance on debt-financed government spending during the 2020 COVID-19 outbreak burden future economic growth, and what are the implications for individual economic freedom when higher taxes or inflation result from such policies?
OPTION 8 – Race- and Sex-Based Preferences
Some people argue that colleges and employers should give preferences to women and racial/ethnic minorities due to discrimination in the past (and maybe even now, as well). Others disagree and believe that such preferences unfairly hurt not only men and white people directly, but also indirectly hurt women and minorities.
1) Recently, California became the first state to pass a law requiring a gender quota for corporate boards. California SB 826 requires boards to have a minimum number of females. Please watch the following two videos:
CNBC: How a California law is changing boardrooms all over the country
Anastasia Explains: Race and Gender Quotas
Does this law help or hurt females? Explain in detail
Does this law help or hurt males? Explain in detail
2) Please watch the following two videos:
Pink tax: Why do women pay more for goods and services?
The Daily Show's Pink Tax Segment: DEBUNKED
Which video makes more economic sense? Utilizing economic principles, is the “pink tax” real? Explain in detail
3) Watch the following videos regarding the concepts of “diversity, equity, and inclusion” (DEI) and “meritocracy.”
Why Diversity Is More Important Than Meritocracy: Quotas, Talent, Wall Street | Sallie Krawcheck
Campus Reform: Students Support Diversity Quotas...Until It Comes to Football
Which concept is based on a person’s identity/immutable characteristics such as gender and race? Which concept is based on a person’s performance, experience, or skills?
4) Who benefits and who is harmed when governments or private businesses make hiring decisions based on “DEI”?
5) Who benefits and who is harmed when governments or private businesses make hiring decisions based on “meritocracy”?
6) Which concept, DEI or meritocracy, is most economically sustainable or feasible?
7) Which concept is most conducive to capitalism and which is most conducive to socialism?
8) Which of the above concepts would you like to be graded on in academia? In sports? In applying for a job? WHY? Explain in detail
OPTION 9 – The US national debt
As of late 2021, the US government had roughly $29 trillion of debt ( real-time debt clock). Please discuss some of the implications of this debt by answering the questions below:
1) To whom, exactly, does the US government owe that money?
2) How can the government continue to spend money it does not have? List the small number of options it has at its disposal.
3) Why do you think it is so easy for the Congress and president to continually spend more than the government brings in via tax revenue? In other words, why do we have deficits so often?
4) Look at the debt as a percentage of GDP from https://fred.stlouisfed.org/. Explain what has happened to the debt as a percentage of GDP since the 1970s.
5) Watch the following videos:
Al Jazeera: Why the US Can't Go Broke
Stossel: Bankrupting America and Stossel: Money, money, money
What are the main points of each video? Does the Al Jazeera make more economic sense or the Stossel videos? Which view corresponds with socialism and which with capitalism? Which one presents the most sustainable prescription for the economy? Explain in detail
6) What is the problem with doing each of the following to shrink the national debt? Discuss each thoroughly.
a) Defaulting
b) Raising tax rates
c) “printing” more money
7) Of course, drastically cutting spending could also gradually reduce the debt. Why are politicians so reluctant to do that? Can the US pay for even one recent year’s deficit by confiscating all of the money from the wealthiest Americans? Why or why not?
OPTION 10 – The Economy under Trump and under Biden
Economic metrics can provide an objective indication of economic performance over time. President Trump’s administration (January 2017 – January 2021) followed a mostly Classical approach to fiscal policy and was in office during a once-in-a-lifetime virus that resulted in local governments locking down their respective economies in March 2020. Joe Biden’s administration (January 2021 – January 2025) entered office during the recovery from the lockdown recession and has pursued a hardline Keynesian approach. The online book Popular Economyths may help answer some of these questions.
1) What major policies did Donald Trump implement that may have affected the macroeconomy? Obviously, the recession caused by the lockdowns resulting from the virus starting in March 2020 should not be considered since it is considered a rare, once-in-a-lifetime occurrence and not the fault of the president.
2) What major policies has Joe Biden implemented that may have affected the macroeconomy?
3) Look at some of the major economic indicators since January 2017 from FRED, the St. Louis Federal Reserve’s Economic Database. (Note: obviously the lockdown recession from March to May 2020 had enormous economic consequences, so you must take that into consideration)
Compare the Trump administration with the Biden administration regarding each of the following economic metrics:
i) GDP
ii) Real median income (takes inflation into account)
iii) Unemployment rate
iv) Labor force participation rate
v) Inflation rate
vi) Debt as a percentage of GDP
vii) Stock market performance (this can be researched on many other sites but not FRED)
4) Most people ignore the influence of the Federal Reserve’s monetary policies on the national economy. Describe the federal funds interest rate as controlled by the Federal Reserve since 2017, as well as open-market operations.
5) Based on the objective economic indicators mentioned above, which presidential administration’s policies seem to have produced a stronger economy? This needs to be done in great detail.
6) President Trump’s second term began in January 2025. What major economic policies has he implemented so far, with or without Congress passing legislation, and what has been their effect on the US economy so far?
OPTION 11 – The War on Poverty
In 1965, President Johnson establish the “Great Society” in an effort to fight the “War on Poverty”, which has become the longest running and most expensive war in US history.
1.How did the expansion of welfare programs during the War on Poverty, such as Aid to Families with Dependent Children (AFDC), limit individual economic freedom by creating dependency on government assistance, and what were the macroeconomic implications of reduced labor force participation?
2.From a conservative viewpoint, how did War on Poverty programs inadvertently discourage work and personal initiative through high implicit tax rates on earned income, and what evidence suggests these policies slowed economic mobility for low-income individuals?
3.How did the significant increase in federal spending on War on Poverty initiatives contribute to higher national debt and inflation, and what were the long-term economic consequences for individual taxpayers and economic freedom?
4.How did government interventions, such as price controls or subsidies in housing and food programs, distort market signals during the War on Poverty, and what were the resulting inefficiencies in resource allocation and economic growth?
5.From a perspective valuing personal responsibility, how did War on Poverty programs contribute to a culture of dependency, and what were the social consequences, such as family structure changes or reduced community self-reliance, in affected populations?
6.How did War on Poverty initiatives, such as funding for public education in low-income areas, affect educational outcomes, and why might a conservative perspective argue that these programs limited parental choice and local control, potentially undermining educational quality?
7.How did minimum wage increases tied to War on Poverty efforts impact employment opportunities for low-skill workers, and what evidence supports the conservative argument that such interventions reduced job creation and economic freedom in disadvantaged communities?
8.Why might a decentralized approach, emphasizing individual and community-based solutions to poverty, have been more effective than centralized federal programs during the War on Poverty, and how could this have preserved personal freedoms while promoting economic self-sufficiency?
9.From a conservative viewpoint, how did the redistribution of wealth through War on Poverty programs affect incentives for entrepreneurship and investment, and what were the broader macroeconomic consequences for economic growth and prosperity?
10.Using the economic concept of opportunity cost, how can we evaluate the trade-offs between War on Poverty interventions and the preservation of personal freedom, and what were the measurable economic, social, and educational costs of prioritizing government-led solutions over market-driven or individual efforts?
OPTION 12 – The Federal Reserve and Economic Crises
1. Milton Friedman argued in A Monetary History of the United States (1963) that the Federal Reserve’s tight monetary policy in 1929–1933 exacerbated the Great Depression by contracting the money supply by over 30%. Using a supply-demand model for money, illustrate how the Fed’s increase in interest rates and failure to act as a lender of last resort affected bank lending and consumer spending. Critically evaluate whether the Fed’s actions were the primary cause of the Depression’s severity, or if other factors (e.g., Smoot-Hawley tariffs) played a larger role.
2.During the 1970s, the U.S. experienced stagflation, with inflation peaking at 13.5% in 1980 (BLS) and unemployment at 7.5% (BLS). Some argue the Fed’s loose monetary policy in the late 1960s and early 1970s, combined with oil price shocks, fueled this crisis. Using the aggregate demand-aggregate supply (AD-AS) framework, analyze how the Fed’s low interest rates increased money supply and drove inflation. Critically assess whether the Fed could have prevented stagflation by adopting a monetarist approach, as Friedman advocated, and discuss the microeconomic impact on firms’ pricing decisions.
3. The Great Recession (2007–2009) was preceded by the Fed’s low interest rates (1–2% from 2001–2004), which critics argue fueled a housing bubble by encouraging excessive borrowing. Using a supply-demand model for housing, show how low interest rates shifted demand for mortgages and drove up home prices. Critically evaluate whether the Fed’s failure to tighten monetary policy earlier was a primary cause of the bubble, or if regulatory failures (e.g., lax mortgage standards) were more significant, referencing Friedman’s views on monetary mismanagement.
4. Inflation in the U.S. reached 9.1% in June 2022 (BLS), driven partly by the Fed’s expansionary policies during 2020–2021, including near-zero interest rates and $4 trillion in quantitative easing (Federal Reserve data). Using a supply-demand model for money, illustrate how increased money supply raised aggregate demand, contributing to inflation. Critically assess whether the Fed’s delay in raising rates (not starting until March 2022) was a key driver of inflation, and evaluate progressive claims of “corporate greed” versus monetary policy as the cause, citing Thomas Sowell’s emphasis on market signals.
5. Friedrich Hayek warned that central bank interventions distort price signals, leading to malinvestment. Compare the Fed’s role in the Great Depression (tight policy), 1970s stagflation (loose policy), and 2020s inflation (delayed tightening). Using a microeconomic lens, analyze how each policy affected a specific market (e.g., banking in the 1930s, labor in the 1970s, consumer goods in the 2020s). Critically evaluate which Fed action had the most severe microeconomic consequences, and propose an alternative policy based on Hayek’s free market principles.
6. The Fed’s policies during the Great Recession (low rates, bailouts) and 2020s inflation (quantitative easing) aimed to stabilize markets but led to distortions like asset bubbles and price spikes. Using a supply-demand framework, analyze how low interest rates in 2001–2004 increased demand for housing and how 2020–2021 policies raised consumer goods prices. Critically assess whether the Fed’s interventions created more harm than good, referencing Sowell’s critique of government overreach and historical outcomes like the 1930s banking collapse.
OPTION 13 – Inflation and “Corporate Greed” and “Price Gouging”
1) Some people argue that inflation in recent years has been caused by “corporate greed”. Please watch the following videos:
You Are Being Lied to About Inflation | Robert Reich
Is greed causing shrinkflation?
Please assess the strengths and weaknesses of the economic arguments in both videos.
2) Some progressives argue that inflation in 2022–2024 was partly driven by "corporate greed," with firms raising prices to exploit consumers (e.g., grocery price hikes of 11.4% in 2022, per BLS). They propose price ceilings to curb "price gouging." Using a supply-demand model, illustrate the effects of a price ceiling on groceries set below the equilibrium price. Critically evaluate whether price ceilings address inflation or exacerbate shortages, referencing the 1970s U.S. gasoline price controls that led to shortages and long lines.
3) During Venezuela’s economic crisis (2010s), price ceilings on basic goods like food and medicine were implemented to combat alleged price gouging, leading to widespread shortages and black markets. Analyze the impact of these price ceilings using a supply-demand framework, showing how they affected producers and consumers. Critically assess whether price ceilings can effectively address inflation attributed to "corporate greed," drawing on Milton Friedman’s argument that price controls distort market signals.
4) In 2023, some U.S. policymakers proposed price caps on insulin to counter claims of pharmaceutical price gouging, citing price increases of 15–20% annually (CMS data). Using a supply-demand graph, demonstrate the effects of an insulin price ceiling below equilibrium. Critically evaluate the claim that corporate greed drives inflation in this context, and discuss the potential for shortages or reduced innovation, referencing Nixon’s 1971 price controls that led to reduced supply of controlled goods.
5) Friedrich Hayek warned that government interventions like price ceilings disrupt spontaneous market order. Consider a 2025 proposal to cap rent prices in major U.S. cities (e.g., 5% below equilibrium) to address housing inflation blamed on "greedy landlords." Using a supply-demand model, analyze the impact on housing supply and consumer access. Critically assess whether price ceilings solve inflation or create inefficiencies, citing San Francisco’s rent control, which reduced rental supply by 15% (NBER, 2019).
6) Progressives often cite "price gouging" during crises (e.g., post-hurricane price spikes for water in 2024) as justification for price ceilings. Using a supply-demand framework, show how a price ceiling on bottled water during a disaster affects quantity supplied and demanded. Critically evaluate whether high prices reflect "greed" or market responses to scarcity, and discuss the consequences of price controls, referencing Florida’s 2004 hurricane-related price caps that led to water shortages.
7) Thomas Sowell argues that price controls misallocate resources by distorting price signals. Suppose a 2025 policy caps energy prices to counter inflation attributed to "greedy" oil companies, following a 7% energy price rise in 2024 (EIA data). Using a supply-demand model, analyze the short-term and long-term effects on energy markets. Critically assess whether price ceilings address inflation’s root causes or create new problems, referencing the 1973 U.S. oil price controls that triggered fuel shortages and rationing.