Eco 440_PS1

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Feb 20, 2024

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Eco 440: Public Economics and Ethics Problem Set 1 (Gruber, Ch 1 EOC problems) Instructor: Christopher Cruz, PhD Due date: Jan 20, 2024, 11:59PM Name: Bradley Huizinga 1. Many states have language in their constitutions that requires the state to provide for an “adequate” level of education spending. What is the economic rationale for such a requirement? (Q1 in Gruber)  The reason for this is that an educated population benefits society in a greater was because individuals with education have better job prospects and a better living so crime and issues throughout society are lesser because of education so the government would want to invest in this. 2. How has the composition of federal, state, and local government spending changed since 1960? What social and economic factors might have contributed to this change in how governments spend their funds? (Q2 in Gruber)  Spending by the government has changed and increased by more than five times over the years. Increased fundings for Medicare and Medicaid, but also spending on wars like Vietnam. Another very large piece to this is the increased spending on the economy to make sure that it can help different Americans in the economy. There have been many different pieces and progressive things and wars that have caused spending to increase over the years. 3. How did the composition of the federal budget change in 2020, in comparison to 2019? What were the most notable changes, and what factors drove those changes? (Q3 in Gruber)  The most notable change that drove change throughout the way that the federal budget worked was the CARES Act which was created to fight against COVID-19 economically. This was very important to keep Americans safe and healthy against the pandemic and to help with the hardships that were coming with the pandemic. 4. Consider the arguments for and against the passage of a follow-up stimulus package to the CARES Act in response to the Covid-19 pandemic. Specifically, consider arguments for and against additional expanded unemployment benefits and business assistance like the Paycheck Protection Program. Do you think Speaker of the House Nancy Pelosi arguments were more about efficiency or redistribution? What about the arguments made by Senate Majority Leader Mitch McConnell? Is there an efficiency case for expanded unemployment benefits, the PPP, and other Covid-19 relief? (Q4 in Gruber)  I think that Pelosi wanted more redistribution. She is known for working hard to give out packages and unemployment pieces to people even if they do not want to work or are actively

trying to find a job. I think that efficiency is not what is being used here. With the constant spending, America is put into debt more and more and then problems keep arising because of all the money we spend no matter what it is on. 5. Why does redistribution cause efficiency losses? Why might society choose to redistribute resources from one group to another when doing so reduces the overall size of the economic pie? (Q6 in Gruber)  This causes losses because it can alter the incentives of those who receive the redistribution of the resources. Society sometimes wants to do these certain things because they believe that if one group has so much of something, it should not make a nig difference on if some of it is taken away and given to the poor.

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