Question

1. Professor Mankiw discusses a tradeoff in COVID-19 aid money. On one hand, the government can get money out into the hands of people quickly. Let’s call this policy A: everyone with a social security or number receives $1,000. On the other hand, the government can be much more targeted in giving the money to people who need it the most. Let’s call this policy B: everyone who can prove financial hardship gets $2,000. Mankiw proposes a policy that is basically a universal basic income for the duration of the pandemic. Let’s call this policy C. In policy C, each person is entitled to receive a set amount of money each month from the government. At the end of the year, all people file an income tax return. If your income did not decrease during 2020, the money that you received from the government during the crisis becomes a loan. If your income did decrease during 2020, you do not need to repay the money that you received from the government.
   1. How does policy C improve on policy A?
   2. How does policy C improve on policy B?
   3. What are some of the problems that might arise from policy C?

Answer 1

A. Policy C improves on policy A in such a way that makes sure that only those who really need the money in these hard times get it. Since people whose income doesnt decrease have to repay the money, it will result in only needy people keeping the money at the end.

B. Policy C imporves on policy B in two ways.

• It is much faster. It will take a long time for government to evaluate and people to prove that they actually need money. It is better if the money reaches the hands faster so that it can spent to push the economy.
• It will also reduce the rate of false claims from the people that they need the money. Its much harder to fake income tax filings.

C. Policy C also has some issues. These are-

• Effort in getting the loans back. it will require systems and procedures to correctly identify the loan takers and to get the money back.
• It becomes an unwanted loan- For whomever this is converted to the loan, they dont need it.
• It will depress spending later on- While the spending will increase now, it will get depressed alter on when people have to repay the loans. Its only delaying this depression.