1.A. What is the empirical correlation between per capita income and the share of Government in the economy? Is there a causal relationship between the two variables? Why or why not?
B. List six broad areas of modern government involvement that have important economic consequences. Briefly discuss each one of the areas that is on your list. (Please note that we discussed more than ten broad areas of key government involvement that concern the economy.)
2.A. In the Midwestern United States, where winds tend to blow from west to east, states tend to approve new polluting industries more easily near their eastern borders than in other parts of the state. Explain this tendency using the theory of externalities. Is this is a socially optimal outcome. Why or why not? If not, is there anything that could be done to improve upon this outcome?
B. What are some of the measures that could be taken to reduce the future consequences of climate change? Consider one measure and analyze it in more depth, taking into account of both the economics and politics that the adoption of such a measure would entail.
3. A. The U.S. Great Recession was preceded by a large increase in the price of housing. Explain Mian and Sufi’s economic logic (what they call the levered losses framework) that first led to the housing bubble and subsequently to the Great Recession. In particular, describe how greater leverage might lead to greater reductions in consumption. Along the way define the terms leverage and foreclosure externality.
B. What were some of the policies that had been followed up to the Great Recession that could be held responsible for the housing bubble and other problems that necessitated the bailout of the financial sector? Have all the problems been remedied? If not, why not?
4.A. Over the past century the so-called Welfare state has greatly expanded in rich countries, although it has been recently retrenching in most countries. Briefly describe different areas of social spending and social insurance. Why do you think this expansion has occurred?
B. What are the political and economic ramifications of investing a large part of the Social Security trust fund in the stock market, as has been recently proposed?
5. Discuss why property rights in land (and property rights more generally) are not easy to establish. How can modern states facilitate the creation and enforcement of property rights in land? How can property rights facilitate the reasonable functioning of markets, again with special reference to land and real-estate asserts?
6. A. Consider a chemical factory located next to a river. In the absence of any laws and regulations about discharge into the river, the downstream residents would bear the (external) costs of such discharge. Is this a socially optimal arrangement? Using basic tolls of economics determine whether a profit-maximizing factory would produce more or less than is socially optimal.
B. Describe and briefly analyze three different mechanisms or policies that could be used to remedy this externally problem.
7. A. How roughly speaking, does U.S spending on health care compare to other rich countries? How do U.S health outcomes compare to the same countries?
B. What are the main ingredients of the Affordable Care Act (ACA, also known as Obamacare)? Which of these ingredients, if any, do you think are either politically or economically problematic? Do you think recent proposals that have circulated will remedy the problems?
