Meyer describes the “Tragedy of the Commons.” The IMF article explains how this type of problem is an example of an “externality.”

Part 1

Discussion Questions:

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?

2. 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.

Part 2 Dis of 5

Monetary Policy and Inflation

Discussion Questions:

1. 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.

2. 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.

Part 3 of Discussion 7

Graded Discussion Week 7

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.)

1. 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).
2. Are we in recession today? Use today’s real GDP growth rates to explain your answer.
3. 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.
4. 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 .docx(this document is attach, go through it before answering)

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