1):Some years back policy makers in the Kingdom of Bahrain were faced with rising inflation caused by the fall in the value of the US dollar relative to other currencies. The Kingdom's currency unit, the Bahraini dinar (BD), is pegged to the dollar, so when the dollar goes down in value the BD goes down as well. A weaker dollar/dinar means that anything and everything Bahrainis buy from overseas cost them more dinars.The dramatic fall in the dollar/dinar essentially made all Bahrainis poorer. To soften the effect of the peg the government agreed at the time to give each low-income Bahraini household (but not non-Bahraini residents, who represent 52.7% of the Kingdom's population and 70%-plus of its workforce) BD50 (equal to $133) monthly to make it easier to buy what food they needed. We can't forget, however, that inflation can be caused by putting too much money into the economy and that a rise in prices of necessities can hurt consumers, especially those with low incomes. The fall in the currency could be compounded with price increases due to the injection of more money. This is quite a bind.

The economics:In the lecture on the economic way of thinking we considered the basic assumptions of behavior that underlie the discipline (incentives, self-interest, efficiency); the description of cost-benefit analysis at the micro level, including marginalism and opportunity cost; the application of these assumptions in the lesson taught to us by Henry Hazlitt; and the need investigate with disinterestedness. I now want you to put this way of thinking to use.

Your tasks: Given this background I am appointing you as a project manager whose task is to provide an outline of your plan to determine whether or not this policy makes sense. Explain to me how you would go about determining if it makes sense; don't tell me whether it makes sense or not. In particular:

a)What role, if any, could marginalism, opportunity cost, and disinterestedness play in your analysis of whether or not a policy makes sense or not? Explain.

b)What do you assume regarding the economic behavior (see above) of those affected, both citizens and non-citizens?Why might these assumptions matter?

c)Should we address the effects over different timeframes? If so, why?

d)Should we address the effects on different people? If so why?.

e)What questions would you ask of the policy makers and why?

What data might you need, in general, to analyze the proposed policy?