Background: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 in terms of what their money would buy.To soften the effect of the peg the government agreed at the time to give each low-income Bahraini household (butnotnon-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 and other necessities.We can't forget, however, that inflation can be caused by putting too much money into the economy and that a rise in the general price 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.

Provide

an outlined plan to determine whether or not this policy makes

sense.In particular:

a)What

role, if any, will marginalism, incentives, cost benefit, and disinterestedness

play in the questions asked and the inferences made in determining whether or

not a policy makes sense? What do you assume regarding the economic behavior of

those receiving the money?Why might these assumptions matter?

b)Should we address the effects

over different timeframes? If so, why does time matter if the problem is likely

short lived?

c)What

importance, if any, should you apply to the policy stipulation that different

groups are treated differently?In short, do non-citizens matter, and if

so, why?

d)What questions would you ask

of those who drafted the policy for the government, and why?

e)What

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