Socratic Seminar

Seminar Guidelines:

1) 150 points• Grade based on performance and preparation

2) Bring Notes & Come Prepared• Each student must have notes—have data for support• Notes will be collected

3) If absent during seminar:• 3-4 Paper will be the “make-up” assignment

Benefits Costs/Risks

.

1) Discuss whether President Obama should Make the income tax more progressive

Tax Rate

Single

10% $0 – $8,350

15% $8,351– $33,950

25% $33,951 – $82,250

28% $82,251 – $171,550

33% $171,551 – $372,950

35% $372,951+

Question #1

Why Raise Taxes?

1) To lower deficit--

2) Redistribute Income => Rich to Poor

3) To increase Gov’t spending

Tax Rate

Single

10% $0 – $8,350

15% $8,351– $33,950

25% $33,951 – $82,250

28%$82,251 – $171,550

33%$171,551 –

$372,950

35% $372,951+

Raising Taxes on the “Rich”?

Tax Rate

Single

10% $0 – $8,350

15% $8,351– $33,950

25% $33,951 – $82,250

28% $82,251 – $171,550

33% $171,551 – $372,950

35% $372,951+

The Laffer Curve

Potential Impact of Tax increase:

An ↑ tax rate => ↑ tax revenues

or

An ↑ tax rate => ↓ tax revenues

Tax

6

When are Tax Rates too high?

Tax Rates increase too much

GDP ↓

GDP

Tax Revenue ↓

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

-----------P1

Q1

E1

Benefits Costs/Risks

.

1) Discuss whether President Obama should Make the income tax more progressive

Tax Rate

Single

10% $0 – $8,350

15% $8,351– $33,950

25% $33,951 – $82,250

28% $82,251 – $171,550

33% $171,551 – $372,950

35% $372,951+

#1 Analysis

Question #2

Benefits Costs/Risks

.

1) Discuss some possible solutions to increase the current rate of GDP growth.

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

-----------

P1

Q1

E1

GDP GDP GDP

What creates real economic growth?

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

-----------P1

Q1

E1

#2 Ideas?

Ideas Costs/Risks

.

1) Discuss some possible solutions to increase the current rate of GDP growth.

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

-----------

P1

Q1

E1

Question #3 .

3) Discuss some long term solutions to the Federal Government’s rising national debt.

RiskSolutions

Growth of Entitlements

*Current services estimate.

Source: Budget of the United States Government, FY 2005, Office of Management and Budget.

Defense Social Security

Net interest

Medicare & Medicaid

All other spending

1964 1984 2004*

9% 19%

A Demographic “Perfect Storm”

Growth of Entitlements

2011Entitlement Spending &

Interest on Debt

50% of Gov’t Budget

2040?Entitlement Spending &

Interest on Debt

Over 70% of Gov’t Budget

Rep. Ryan versus President Obama proposed changes

#3 Analysis .

3) Discuss some long term solutions to the Federal Government’s rising national debt.

RiskSolutions

Question #4

.

3) Discuss whether the Federal Reserve should keep interest rates at zero

Affects ADAffects AD

Inflation

RealGDP

Inflation

RealGDP

AD1AD1

AS1AS1MS2

------------------i2

MS2MS2

------------------i2 ------------------i2 MD

InterestRate

Qty of $

MS1

---------i1

MD

InterestRate

Qty of $

MS1

---------i1

MS1MS1

---------i1 ---------i1

AD2AD2

Who “wins” with zero percent interest rates?

5.25%

0.0%

Money not Wealth

• An increase in money supply does not lead to more wealth

MSWealth

Unchanged

Keynes vs. Hayek Part 2

• http://www.youtube.com/watch?v=GTQnarzmTOc

Animal Spiritsversus

Malinvestment

Friedrich Hayek

Economist from School of Austrian Economics

Believed in:• Free Markets, • Limited central bank action • artificially low interest rates lead to Malinvestment

Friedrich Hayek 1899 - 1992

Quantitative Easing

• What is quantitative easing—link below• http://en.wikipedia.org/wiki/Quantitative_easing

Solution: Loose Monetary Policy

Affects AD

Economic Situation GDP growth = -1.0%, Unemployment = 10.0%Little to no inflation

MS2

------------------i2 MD

InterestRate

Qty of $

MS1

---------i1

GDPGDP

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

-----------

P1

Q1

E1