European Competition Law
When new European Union member countries join the EU they become subject to the European Union competition law – a law that regulates anticompetitive behavior and keeps markets within Europe more competitive. 1. What effect will this have on the new member county’s natural rate of unemployment? Provide a graph supporting your answer. 2. What effects will joining the EU have on the new member’s prices and output? Provide a graph to support your answer. 3. Do you expect higher or lower inflation after the country joins the EU? Explain your answer.
Investment Subsidies This problem considers the mortgage interest deduction – a U.S. tax incentive program to encourage residential home ownership (an investment subsidy). Provide an IS-LM graph that explains what might happen to the macroeconomy if the government eliminated this investment subsidy. Clearly label all curves, points and axes and explain any shifts that are occurring in your graph.
Greek Debt Crisis As a member of the Eurozone, Greece was/is unable to conduct it’s own monetary policy. Instead, Eurozone monetary policy is set by the European Central Bank in Frankfurt. Suppose that Greece is facing a recession and wants to boost output. 1. What type of government policy would you suggest to boost output? Provide an IS-LM graph with a clear explanation of what you are suggesting. 2. How would the government fund such a policy? 3. What are some of the longer term implications of Greece using this approach to stabilizing output?