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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 Question #1 . 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+ Benefits Costs/Risks 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 ↑ tax revenues or An ↑ tax rate => ↓ tax revenues When are Tax Rates too high? Tax Rates increase too much GDP ↓ GDP LRAS1 Price Level ------ SRAS1 E1 ----- P1 Tax Revenue ↓ Q1 AD1 Real GDP 6 #1 Analysis . 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+ Benefits Costs/Risks Question #2 . 1) Discuss some possible solutions to increase the current rate of GDP growth. Benefits LRAS1 Price Level ------ E1 ----- P1 Q1 AD1 Real GDP SRAS1 Costs/Risks GDP GDP GDP What creates real economic growth? LRAS1 Price Level ------ E1 ----- P1 Q1 AD1 Real GDP SRAS1 #2 Ideas? . 1) Discuss some possible solutions to increase the current rate of GDP growth. LRAS1 Price Level ------ E1 ----- P1 Q1 AD1 Real GDP SRAS1 Ideas Costs/Risks Question #3 . 3) Discuss some long term solutions to the Federal Government’s rising national debt. Solutions Risk Growth of Entitlements 1964 1984 27% 30% 33% 2004* 20% 33% 46% 21% 7% 13% 14% 21% 9% Defense Social Security Net interest All other spending *Current services estimate. Source: Budget of the United States Government, FY 2005, Office of Management and Budget. 7% 19% Medicare & Medicaid A Demographic “Perfect Storm” Growth of Entitlements 2011 Entitlement Spending & Interest on Debt 2040? Entitlement Spending & Interest on Debt 50% of Gov’t Budget 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. Solutions Risk Question #4 . 3) Discuss whether the Federal Reserve should keep interest rates at zero Interest Rate MS1 MS2 AS1 Inflation Affects AD i1 2 --------- i ------------------ MD Qty of $ AD2 AD1 Real GDP 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 MS Wealth Unchanged Keynes vs. Hayek Part 2 Animal Spirits versus Malinvestment • http://www.youtube.com/watch?v=GTQnarzmTOc 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 Economic Situation GDP growth = -1.0%, Unemployment = 10.0% Little to no inflation Solution: Interest Rate Loose Monetary Policy MS1 GDP MS2 LRAS1 Price Level Affects AD i1 --------MD Qty of $ ------ E1 ----- i2 ------------------ P1 Q1 AD1 Real GDP SRAS1
