The Importance of Institutions and Causes of Long Run Performance

Business Economics - Assignment Questions

The Importance of Institutions and Causes of Long Run Performance

Question 1: How can governments influence the long run rate at which the economy grows?

Question 2: ... or do governments have little power to affect long run performance?

Fiscal policy: Managing Aggregate Demand Question 1: Keynesian economics is often viewed as justifying increases in deficit spending by the

government to stimulate real economic activity. How does this proposal relate to Keynes own writing

reproduced in the case?

Question 2: What role do confidence and psychology play in Keynes understanding of the economy

and the role of government?

Question 3: Why is Keynes so concerned with uncertainty?

Question 4: Explain intuitively the mechanism by which an increase in government spending can lead

to more output.

Question 5: Is it reasonable to assume that firms will supply more output when consumers and the

government demand to purchase it?

Question 6: Read the following from the Washington Post, 1 August 2003:

The economy continued to lose jobs during the 2nd quarter, as the jobless rate

rose to a nine-year high of 6.4 percent in June. But the Labor Department

reported yesterday that the number of people filing initial claims for

unemployment benefits declined again last week, a possible signal that the

lackluster U.S. labor market is beginning to improve, analysts said. The

government's July employment figures will be released today.

Democrats have increasingly complained that President Bush's economic policies,

which have centered on income tax cuts for individuals and businesses, have

done little to help the more than 9 million unemployed workers.

The Bush administration welcomed the economic reports yesterday.

"Today's announcement . . . indicates that our economy is clearly moving in the

right direction," Commerce Secretary Donald L. Evans said in a statement. "The

president's tax cut is beginning to work its way into the economy, and the stock

market continues to reflect the confidence that investors have in the short-term

economic outlook. Today's report also shows increased business investment

during this past spring and provides some welcome news to Americans looking for

work this summer and fall."

Is the above article consistent with the predictions of the Keynesian theory?

The Central Bank and Inflation

Question: Read the following from the Washington Post, June 27, 2003:

"Some Federal Reserve officials believed in early May that they might need to cut interest

rates again to spur stronger U.S. economic growth but decided to wait because the recently

ended war in Iraq had clouded the economic picture. At the same time, some officials made

clear at their May 6 policymaking meeting that they would not wait indefinitely for the

clouds to clear before lowering rates again in response to falling inflation rates and sluggish

economic growth, according to minutes of the meeting released yesterday."

What does the above article suggest that the Federal is trying to achieve?

The Blair Wealth Project: Antecedents and Prospects

Question 1: What were the causes of Britain's "stop-go" economy? Did Mrs. Thatcher address them

successfully?

Question 2: What is the difference – if any – between "stop-go" in the 1950s and '60s and what

Gordon Brown, New Labour's Chancellor of the Exchequer (i.e., Finance Minister) has called "twenty

years of Tory boom and bust" under Mrs. Thatcher and her Conservative successors?

Question 3: Do you believe that the policies implemented by Blair's New Labour government will finally

abolish macroeconomic instability in the U.K.? What role – if any – would adoption of the Euro play in

containing such instability?

Inequality and the 'American Model' Question 1: Which is of greater concern: poverty of inequality? Should we be concerned with rising

inequality in the United States?

Question 2: How should business respond to inequality? Does it create business opportunities?

Question 3: What are the causes of inequality in the United States?

Question 4: What policy responses are appropriate? Can the United States learn from the experience

of other countries discussed in this course? If so, what lessons should it draw?

Economic Reform in New Zealand 1984-95: The Pursuit of Efficiency

Question: How would you compare the NZ reforms of the 1980s to the Thatcher reforms in the UK that

occurred around the same time?

Mexico: The Tequila Crisis 1994-1995

Question 1: What is your answer to the question posed by the Banco de Mexico officials on page 1 of

the case: ‘How could extensive and well-executed fiscal, supply-side and trade reforms end up in such a

dismal situation’?

Question 2: What best explains the collapse of the Mexican currency: psychological factors

(expectations and confidence) or fundamental factors (economic phenomena such as current account

and fiscal deficits)?

Question 3: Should Mexico be “bailed out” by the international community? How does your answer to

this question relate to your position on questions 1 and 2 above?

Question 4: Is Paul Krugman’s analogy between the Mexican crisis and the “irrational exuberance”

usually associated with tulipmania a good one?

Sub-prime Meltdown: American Housing and Global Financial Turmoil

Question 1: Who was to blame for the Sub-Prime Crisis in the US and the Global Financial

Turmoil experienced in 2008?

Question 2: What can Policy Makers do to prevent another meltdown like the one suffered in

2008?