The Great Inflation Problems During the 1970s and early 1980s.

Choose ONE of the following topics for your essay

1. The US federal government has run deficits for the majority of recent history. There have been proposals in the past for requiring government’s to balance their budget, such as proposals for a balanced budget amendment or similar policy rules. What are the benefits of a balanced government budget? What are the potential problems? How do different schools of macroeconomic thought view this situation? You could also look at state-level analysis, as most US states do have some sort of balanced budget rule. A similar topic is the European Union’s Stability and Growth Pact (SGP) for eurozone nations, which requires them to maintain a budget deficit of less than 3% of GDP, except during times of economic turmoil (which has been ignored by some members and also be aware the SGP has been changed over time; the current version is different than the original). You could explain the purpose and goals of this act, the benefits and costs of fulfilling these requirements, and the problems that have occurred in under the SGP.

2. The Bretton Woods system provided a system of fixed exchange rates from the end of WWII until the early 1970s. Write an essay discussing some aspect of the international experience of under Bretton Woods. What are the benefits/costs of fixed exchange rates? How did the system operate? What difficulties were encountered that led to its eventual abandonment?

3. After the breakdown of Bretton Woods, some European nations decided to form their own system of fixed exchange rates called the Exchange Rate Mechanism (ERM) (which was a part of the European Monetary System, EMS). What were the motivations for its creation? How did it operate? Which nations had the most influence? What difficulties were encountered? There are many interesting essays that you can write on this situation, such as the exit of Britain from the ERM in 1992 or the role of West Germany in this system.

4. During the 1970s and early 1980s, many industrialized nations had massive inflation problems. There are many possible explanations: monetary policy, the breakdown of the Bretton Woods system, the oil embargoes launched by OPEC nations, or fiscal policy actions (excessive government deficits). These factors could affect aggregate demand or aggregate supply and thus create inflation. Possible essays in this area could focus on the supply shocks created by the oil embargoes, the breakdown of Bretton Woods and the resulting exchange rate volatility/monetary policy volatility in these nations, government budget problems. An effective essay could be an analysis of various attempts by governments to reduce inflation during the 1980s, or explaining why West Germany had such superior inflation performance relative to most other economies.

5. The Great Depression of the 1930s was a time of monumental change in many nations. Key industries such as manufacturing and agriculture were in massive slumps. Unemployment reached record heights. There are two approaches that you can take to this essay. You can analyse some of the causes of the Great Depression (it would be best to pick a few related ones since if you attempt to cover them all then you will not have a very in-depth discussion of any). Alternately, you can look at some of the economic policies used by governments to deal with the Depression. You can do this for any particular (more or less) capitalist nation, such as the US. Be cautious with this topic—there are many low-level history-type sources out there, most of which are dubiously accurate (e.g. falsely claiming Hoover was laissez-faire, etc.) and lack proper economic analysis. You could also analyse the policies taken by nations that explicitly abandoned capitalism for fascism or communism, although you should be warned that such an essay will require you to do some outside reading about non-capitalist economic theory. One particular topic along those lines would be to study Mussolini’s corporatist policies and how they influenced US policy and economic thought in the 1930s.

6. In the 1950s and 60s unemployment rates in Western Europe were substantially lower than unemployment rates in the US. By the 1980s the situation had reversed in many of these nations. Economists have done considerable research to explain this phenomenon. What factors caused high European unemployment? What is the effect of this unemployment on these nations? What policies have been tried/could be tried to reduce unemployment? (Hint: Charles Bean has a very good survey article on European Unemployment, which you can search for on JSTOR).

7. Central Banking and Monetary Policy: You can write an essay analysing the policies taken by the Fed or another central bank in a specific situation, such as during the Great Depression, the stock market crash of 1987, the East Asian financial crisis, etc. There is much debate about what central banks should be doing to deal with the current financial market instability—you could write a very good essay comparing the events of today with the actions taken by central banks in response to previous financial market problems. You should investigate the actual policies that were taken, their effects, and any problems that were encountered.

8. The Austrian model developed by Mises, Hayek and others has proven to have some value in predicting the recent economic situation. Write an essay on some aspect of Austrian theory. One example would be to investigate the Austrian explanation of the 1930s depression and discuss its application to today. Another example would be to compare the ideas of Hayek and Keynes (who had a spirited correspondence with each other) on the macroeconomy. The best source on Austrian theory is mises.org, which has many full-text books and articles available for free.

9. There have been numerous instances of hyperinflation through modern history, such as what is presently occurring in Zimbabwe. Perhaps the most famous example of hyperinflation is what occurred in 1920s Germany, although other nations as diverse as Turkey and much of South America have also experienced massive inflation problems. What factors caused these hyperinflationary episodes? What economic theories can be used to explain hyperinflation? What were the consequences of these inflationary periods on the economies of these nations?

10. An analysis of economic growth could provide an effective essay topic. You could analyse the causes of economic growth and then apply them to a particular nation (e.g. explaining the causes of US growth in the post-Civil War period, the growth in Japan after WWII or China since the 1980s, for example), or you could compare the economic performance of different countries today, e.g. explaining different productivity levels internationally. Many of these topics cross over into aspects of development economics, which is fine as long as you concentrate on macroeconomic issues.

 

 

 

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