Monetary and Fiscal Policy

Fall 2010

Jeffrey Parker, Reed College

Assignment #3

Due at final exam on December 15

1. Prepare a short essay on the following question, to be submitted electronically prior to the final exam: Current fiscal policy must strike a balance between helping the economy escape from the lingering effects of the recent recession and reassuring credit markets that the federal debt will not grow out of control once the recovery takes hold. What policy recommendations would you give to Congress for the 5- to 10-year horizon (assuming that recovery is by then complete) to try to bring government borrowing under control? Your response should be relatively specific. Don't just say "raise taxes" or "lower spending," consider how you would treat major categories of expenditure and taxes individually.

2. Read the short paper below and be prepared to answer one or more questions about it on the final exam.

• Kamstra, Mark J. and Shiller, Robert J. (2010) "Trills Instead of T-Bills: It’s Time to Replace Part of Government Debt with Shares in GDP," The Economists' Voice: Vol. 7 : Iss. 3, Article 5.