During the Great Recession, like any other economic downturns, as unemployment rises, aggregate income declines causing a major decline in tax collections. On the other hand, with the rise in unemployment, spending on safety net programs rise. So, to stabilize the national economy, government appears to have only two options (neither good) either to put in place severe austerity measures (cut spending) or increase borrowing. Of course, it is very difficult to defend cuts in the federal government programs and especially the programs geared to sustain the minimum of the standard of living for the âpoor.â But increase in borrowing has major adverse impacts on the national economy.
Write an essay analyzing
· Different theoretical views on national debt,
· Long-run costs of high national debt,
· Costs of eliminating the budget deficit solely through (1) personal tax increases, and/or (2) through spending cut by decreasing in transfer payments (i.e., Social Security, Medicare and Medicaid) and in discretionary spending (such as defense and education budgets).
Sample Solution
this type of auction (one stage sealed bid) where there is high level of asymmetry and uncertainty, the optimal bidding strategy I would go with is the BID SHADING STRATEGY. BID SHADING In an auction, bid shading describes the practice of a bidder placing a bid that is below what they believe a good is worth. Bid shading is used for one of two purposes. In a common value auction with high asymmetric information, bid shading is used to compensate for the winnerâs curse. In such auctions, the good is worth the same amount to all bidders, but bidders donât know the actual value of the commodity therefore they must independently estimate the price. Since all bidders value the good equally, the winner will generally be the bidder whose estimate of the value is largest. But if we assume that the bidders estimate the value accurately, then the highest bidder is most â likely to overestimate the goodâs value and might end up paying more than it is worth. In other words, winning the auction carries bad news about a bidderâs value estimate. An understanding bidder will anticipate this, and reduce their bid accordingly. Bid shading is also used in First-price Auctions, where the winning bidder pays the amount of his bid. If a participant bids an amount equal to their value for the good, they would gain nothing by winning the auction, since they are indifferent between the money and the good. Bidders will optimize their expected value by accepting lower odds of winning in return for a higher payoff if they win. In a first-price common value auction, a savvy bidder should shade for both of the above purposes>
this type of auction (one stage sealed bid) where there is high level of asymmetry and uncertainty, the optimal bidding strategy I would go with is the BID SHADING STRATEGY. BID SHADING In an auction, bid shading describes the practice of a bidder placing a bid that is below what they believe a good is worth. Bid shading is used for one of two purposes. In a common value auction with high asymmetric information, bid shading is used to compensate for the winnerâs curse. In such auctions, the good is worth the same amount to all bidders, but bidders donât know the actual value of the commodity therefore they must independently estimate the price. Since all bidders value the good equally, the winner will generally be the bidder whose estimate of the value is largest. But if we assume that the bidders estimate the value accurately, then the highest bidder is most â likely to overestimate the goodâs value and might end up paying more than it is worth. In other words, winning the auction carries bad news about a bidderâs value estimate. An understanding bidder will anticipate this, and reduce their bid accordingly. Bid shading is also used in First-price Auctions, where the winning bidder pays the amount of his bid. If a participant bids an amount equal to their value for the good, they would gain nothing by winning the auction, since they are indifferent between the money and the good. Bidders will optimize their expected value by accepting lower odds of winning in return for a higher payoff if they win. In a first-price common value auction, a savvy bidder should shade for both of the above purposes>
