ECO 502 Essay 1 Spring 2015

ECO 502 – Selected Topics in Macro
Spring 2015
Essay Assignment 1
Dr. Michael S. Miller

Answer both questions:

1) Economic data and the signals they contain are central to business conditions analysis. Economists focus on direct signals and indirect or causal signals. Explain first, with examples (not examples taken from the text or lecture), the difference between a direct and an indirect signal. To illustrate the point further consider the very important macro indicator in many countries called Retail Sales, which captures household expenditures on physical goods as well as food services. In addition to the overall index, the database includes information on all categories of goods contained in the overall index. In a 1.5 to 2 page essay speculate on the various direct and indirect macroeconomic signals that may be contained in a three-month analysis of retail sales data. Please feel free to be creative – speculate on what kind of correlations you find between retail sales and other aspects of the economy, maybe aspects of the economy that affect your personal or professional life. (If you would like to look at the data associated with this indicator, take a look at FRED, http://research.stlouisfed.org/fred2/categories/6. However, presenting data is not necessary for this essay)

2) In the initial lectures on the economic way of thinking we considered the description of cost-benefit analysis in macroeconomics offered by Henry Hazlitt. Some years back policy makers in the Kingdom of Bahrain were faced with rising inflation caused by the fall in the international value of the US dollar. You know from your economics class that inflation over time can be caused by putting too much money into the economy and that a sudden rise in prices of necessities can hurt consumers, especially low-income citizens. The government agreed at the time to give each low-income Bahraini household (but not non-Bahraini residents, who represent 52.7% of the Kingdom’s population as of the 2010 census) BD50 (fifty Bahraini Dinars, equal to $133) monthly to make it easier to buy what food they needed. First, please explain in your own words Hazlitt’s lesson, and second, explain how the lesson would assist an analyst in organizing an evaluation this policy. You should also draw upon any other relevant ideas contained in the economic way of thinking to explain how someone should approach the analysis of this policy. (1.5 to 2.0 pages)