Introduction to Macro Economics
1. An easy question for your first question of your first assignment. Easy in that you can’t get it wrong unless you do not answer it thoughtfully. Economics talks a lot about growth and wealth creation but we leave the definition of wealth very broad and wide open and even those who oppose capitalism want wealth and growth. What is your concept of wealth and growth? Define what success in your life will look like 50 years from now. What about the United States in 100 years?
2. A large quantity of research has indicated that safety features on automobiles have not resulted in any net lives saved. Fewer drivers and passengers are killed in auto accidents but more pedestrians and cyclists are killed.
a. Using the idea of how people respond to incentives offer an explanation for this observation.
b. This effect is called the Peltzman Effect after the economist who first observed it. My former professor Gordon Tullock had a solution to the Peltzman Effect, a large sharp spike in the center of the steering wheel. What would you expect to happen if the Tullock Solution became law?
3. In some circles there is much controversy over vaccinations. One argument those who favor vaccines use to try to persuade those who are against them to change their mind is “herd immunity” the idea that each individual getting vaccinated makes the entire population safer. Herd immunity are socialized benefits while a vaccination is personal cost. Putting aside personal beliefs about all of this, if you were designing a policy based on herd immunity reasoning what incentives would you put in place to convince the reluctant to get a vaccine?
4. Many products come with a money back guarantee or free lifetime replacements and so forth. Do you think these producers offer this because they expect to have honor these offers very often? What is the point of making such offers?
5. During the 2008 financial crises the Federal Reserve prevented banks from publicly reporting on how solvent they were (they did report to the Federal Reserve) and made every bank of a certain size take bailout money whether they were in trouble or not. Why do you think that was? Who benefitted and who lost out from this policy decision?
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