Economics Homework

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Although the most recent recession ended several years ago, economic and employment growth remain slow and the economy is not yet at its potential. What policies would you recommend to improve economic outcomes in the short run and the long run?

Think about possible sources of aggregate demand growth, and possible policy responses (fiscal, monetary, or structural). What would you recommend to move the economy more quickly toward its potential? Build your recommendations around economically justified reasoning; don't worry about what would sell politically.

Your analysis should be explicitly grounded in current economic conditions and an appropriate macro model, such as the Keynesian multiplier (acceptable) or Aggregate Demand-Inflation (preferred) models, and you should explain how the policy would work in the context of that model. Describe the transmission mechanism by which your recommended policies would work: trace the causal chain from a specific policy to what's first affected, to secondary impacts, to how we end up with a change in equilibrium output. (If you think other macro indicators are also salient, discuss them as well.)

Be specific with your recommendations. If you are recommending (for example) a change in government spending, specify how much, and for what.

In addition to aggregate demand and the short run, extend your essay to also consider the longer-run implications of your policy recommendations. How would they affect the determinants of potential output, or inflation? Are these impacts relevant to your analysis and recommendations?

Write a clear and well-organized essay of approximately 3 pages with sound economic reasoning and other evidence to support your recommendations. Use appropriate and relevant economic models as the foundation for your analysis, and to explain how your recommendations would affect the economy. Although graphs are not required, if included they may be hand drawn and on a separate page. Pay attention to the correctness of your writing, and include complete citations for any sources you've used.