Prof. Bryan Caplan

Econ 918

Spring, 1998

HW#2 (due in class, week 13)

(Please type your answers to all questions, including any mathematics. Each answer should be approximately 1-1.5 pages in length, double-spaced).

1. What is the most cogent way - if any - to unify public choice theory and the time consistency literature?

2. Bordo and Kydland ("The Gold Standard as a Rule") seem to view the escape clause of the gold standard one of its strengths. I have argued, in contrast, that the escape clause was the gold standard's main weakness. Why was it possible for some governments (e.g. Britain) to refrain from exploiting this weakness for over a century? And did the escape clause in the gold standard increase or decrease its total duration?

3. What parts of the current monetary system of the U.S. could be privatized with the least cost and clearest benefits? What parts would have the highest costs and least obvious benefits? Would your answer differ for the current monetary system of Russia?

4&5. Answer TWO of the four problems on banking and credit market imperfections (from Bernanke).