Assignment #2

CHAPTER 4 & 5: THE MONETARY SYSTEM & INFLATION 1.

Suppose a country has a money demand function ( M / P )d ? kY , where k > 0 is a constant parameter. The money supply (M) grows by 12% per year, and real

income (Y) grows by 4% per year. a. What is the average inflation rate? (Hint: express the quantity equation in percentagechange form) b. How would inflation be

different if real income growth were higher? Explain. c. How do you interpret the parameter k? What is its relationship to the velocity of money? d. Suppose instead

of a constant money demand function, the velocity of money in this economy was growing steadily due to a financial innovation. How would that affect the

inflation rate? Explain. 2. Suppose that the money demand function takes the form ( M / P) d ? Y / (5i ) . a. If output grows at rate g, at what rate will the demand for

real balances grow (assuming constant nominal interest rate)? b. Use the quantity equation and the money demand function to derive an expression of the velocity

of money in terms of the nominal interest rate, i. c. If inflation and nominal interest rates are constant, at what rate, if any, will velocity grow? 3. In each of the

following scenarios, explain and categorize the cost of inflation. a. Because inflation has risen, the L.L. Bean Company decides to issue a new catalog quarterly

rather than annually. b. Grandma buys an annuity for $100,000 from an insurance company, which promises to pay her $10,000 a year for the rest of her life. After

buying it, she was surprised that high inflation triples the price level over the next few years. c. Maria lives in an economy with hyperinflation. Each day after being

paid, she runs to the store as quickly as possible so she can spend her money before it loses value. d. Warren lives in an economy with an inflation rate of 10% per

year. Over the past year, he earned a return of $50,000 on his million dollar portfolio of stocks and bonds. Because his tax rate is 20%, he paid $10,000 to the

government.

4. Define the terms real variable and nominal variable. Give examples of each. What does monetary neutrality mean? What is the classical dichotomy?

CHAPTER 7: UNEMPLOYMENT 1. Describe the difference between frictional and structural unemployment. What causes each type of unemployment? 2. Consider an

economy with the following Cobb-Douglas production function: Y ? K 1/3 L2/3 . The economy has 1,000 units of capital and a labor force of 1,000 workers.

a. Derive the equation describing labor demand in this economy as a function of the real wage and the capital stock. (hint: use the equilibrium condition W/P=MPL

and solve for labor demand, L, after obtaining an expression for the marginal product of labor b. If the real wage can adjust to equilibrate labor supply and labor

demand, what is the equilibrium real wage? In this equilibrium, what are employment, output, and the total amount earned by workers? c. Now suppose that

Congress, concerned about the welfare of the working class, passes a law requiring firms to pay workers a real wage of one unit of output. How does this wage

compare to the equilibrium wage? d. Congress cannot dictate how many workers firms hire at the mandated wage. Given this fact, what are the effects of this law?

Specifically, what happens to total employment, output, and the total amount earned by workers? e. Will Congress succeed in its goal of helping the working class?

Explain.

3. Researchers at Purdue have collected data on the number of undergraduate Purdue students either involved in a relationship or uninvolved. Among involved

students, 10% experience a breakup of their relationship each month. Among uninvolved students, 5% enter into a relationship every month. Illustrate the flow of

students between the two states (involved and uninvolved) using a diagram. What is the steady-state fraction of residents who are uninvolved?

CHAPTER 8: ECONOMIC GROWTH 1. Country A and country B both have the production function Y ? F ( K , L) ? K 1/2 L1/2 . a. Does this production function have

constant returns to scale? Explain. b. What is the per-worker production function y ? f ( k ) ? c. Assume that neither country experiences population growth nor

technological progress and that 5% of capital depreciates each year. Assume further that country A saves 10% of output each year and country B saves 20% of

output each year. Using your answer from part (b) and the steady-state condition that investment equals depreciation, find the

steady-state level of capital per worker for each country. Then find the steady-state levels of income per worker and consumption per worker. d. Suppose that both

countries start off with a capital stock per worker of 2. What are the levels of income per worker and consumption per worker? Remembering that the change in the

capital stock is investment minus depreciation, use a calculator or spreadsheet to show how the capital stock per worker will evolve over time in both countries.

For each year 1 to 3, calculate income per worker and consumption per worker. How many years will it be before the consumption in country B is higher than the

consumption in country A? Country A Year k 1 2 2 3

Written assignments # 2 and 3: The biggest part of any policy development is understanding the problem in society that needs to be addressed. Therefore, two of these papers first focus on conducting a problem analysis and then follow up with a review of the policy that was developed to address the problem. Students must choose problems and related policies that were not the focus in assignment/paper # 1, and likewise, assignment/paper # 3 must not replicate the policies/problems addressed in paper # 2.

Problem and Policy Review
Public policies set the framework for governance throughout the world. Understanding the impact and consequences of these policies is an important part of understanding public administration. As we read and discuss in Pal’s book, “policy analysis is a process of multidisciplinary inquiry designed to create, critically assess, and communicate information that is useful in understanding and improving policies” (Dunn, 2008, P. 1 as quoted in Pal, 2013, p. 15). The purpose of the PA 680 policy reviews is to analyze a federal, state, or local policy that is currently in action.

The analysis of your problem and policy should include, but is not limited to, the following questions. Use them as guidelines to the content of your paper.

1. Introduction to the policy and the problem it is trying to solve. Additionally, you need to discuss the methodology you will use to develop this analysis in this section.
2. Analysis of the problem. This includes:
• What is the problem in society that is being addressed by this policy?
• This problem must be relevant to life in the Inland Empire or the southern California region we live in.
• What are the costs of the problem or policy, (financial, societal, or both)?
• What is the origin or source to this problem?
• Is it a problem that can be solved? Without limits or under reasonable/likely conditions?
• Should it be solved by government or is it better solved through the private or non-profit sectors?
• Make sure you provide data and indicators to make your case.
3. Detailed description of the policy. This includes:
• What are the policy goals?
• Which level of government developed the policy? Which level is implementing the solution? Are these two different? If so, why?
• Major stakeholders involved. What was the initial intent of the policy? Who is expected to benefit from the policy?
• Is there another group that is actually impacted (positively or negatively?) by the policy? Who (person, agency, organization?) worked to get the policy put into place and why? Who developed the policy?
• Are there any international actors or influences in the development of this policy?
• Are there any possible international impacts from this policy?
4. Discussion of the policy implementation.
• What are the instruments being used?
• Who is implementing the policy?
• What is the role of bureaucracy?
• What are the costs to implement this program? How many people are served?
5. Results of the policy
• How effective has the policy been?
• What are the limitations to the policy? Are the limitations greater than the successes or vice versa?
• What would be better direction for the policy? What corrections would you suggest be made to make the policy more effective?
6. Conclusions

Assignment # 2: Due in the “turn-it-in” dropbox by 11:59 AM, May 18 and as an original post attachment in the applicable online discussion board.

Required Texts and Reading Material:
These books are on reserve at CSUSB’s library.

Heineman, R.A., Bluhm, W.T., Peterson, S.A., & Kearny, E.N. (2001). The World of the Policy Analyst. 3rd ed. New York: Chatham House Publishers, Seven Bridges Press, LLC.

Pal, L.A. (2013). Beyond Policy Analysis: Public Issue Management in Turbulent Times. 5th ed. Toronto, Ontario, Canada: Nelson.

The following article in PDF is attached in the course content section of Blackboard:

Rittel, W.J. & Webber, M.M. (1973). Dilemmas in a General Theory of Planning. Policy Sciences, 4 155-169.

FYI
Introduction
The development and administration of public policies at the federal, state, and local levels are the basis of government decisionmaking. Public policy is defined as “a policy made on behalf of a public by means of a public law or regulation that is put into effect by public administration” (Shafritz, 2004). This course will explore the act of making policy in the United States at all of the different levels of government (federal, state, and local) and for domestic and foreign issues. As part of this process, current and past policies will be analyzed and issues such as public corruption and ethics will be explored.

Course Purpose and Scope
Description from student catalog: “An integrative course examining the analytical, behavioral and sys¬tems sciences approaches to public administrative systems with emphasis upon the development of evaluative skills in applied deci¬sion-making.”

This course serves as a graduate-level introduction to the public policy process, with a focus on the context of the United States. Throughout the course, students will examine theories, concepts, and models of public policy making, giving attention to both official and unofficial actors in the policy process. Students will consider how citizens’ and other actors’ voices are heard, not heard, and/or actively silenced in the context of American policies related to morality, social equity, immigration, energy and the environment, drugs, social and corporate welfare, and terrorism. Students will end the course by examining specific examples of policy implementation and policy failure.

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