Economics

Paper.
Objective paper:
The participant is able to describe a actual macro topic. In order to do so, the participant can formulate a (central) research question with related sub questions and relate these into micro economic solutions.
Criteria:
•Size approx. 9 pages (content).
•Formulate a research question + sub questions.
•Use external literature research (Harvard-Guidelines) to underpin research.

•Use at least 4 external sources.

Background:
The Troika (European Commission, ECB and IMF) has financially supported a number of European countries, including Ireland, Spain and Greece. The offered loans were used to strengthen the financial position of the countries and prevent them to go (technical) bankrupt. These were not free loans. In return for receiving this financial assistance, the countries with the deficits had to comply with the terms and reform their economy.
Based on the findings of the Troika it periodically determined if the countries make sufficient progress and whether there is need for continuation of financial support.
In the meantime (June 2014) the economic environment is significantly improved: Spain and Ireland are standing on their own two feet again. Greece at first has made a modest progress. In autumn 2014 the Troika announced that Greece needed an additional (third) loan. Due to political instability new elections were needed. This was won by the left wing party Syriza. In order to keep their promise to the voters, a long and fruitless period of negotiations with the Troika, broke the fragile economic recovery.

Assignments:
A1. Sketch briefly the starting situation of the crisis.
A2. Sketch briefly the starting situation for the three countries, which led to the inevitable need for financial support.
The Troika has demanded country by country to execute a number of specific measures in order to reform the economies. Resolves the following situations to micro-economic market models.

B1. Ireland: in Ireland, the VAT goes up to 23%. Illustrate by graph this effect.

B2. Greece: in Greece the transport licenses are abolished. The price of a license amounted to € 100.000, – Now those are abolished, anyone can be a truck driver. Illustrate by graph the function of a licensing system.

B3. Spain: in Spain is a general pay cut of 10% proposed. Illustrate by graph the functioning of such a pay cut.
The Netherlands also cannot escape reforms. With the liberalization of the housing market -by limiting the mortgage interest deduction- a first step is taken. Assume that the current deductible interest amounts €10.000, – per year per household. The deduction will drop to € 5.000, – per year per household. A million households use the mortgage interest deduction.
C1. Explain what will happen and illustrate by graph this limitation.
Due to the economic crisis, the housing prices dropped by 20% (compared to July 2008). Many new bought houses have a property value lower than the price paid for. In order to stimulate the housing market, the Gov’t has introduced a temporary tax free donation scheme. According to this measure, parents could in the fiscal of 2014, donate a tax-free amount up to € 100.000, to their children. The amount could only be used for housing renovation or to lower the mortgage. The donation scheme was popular. Halfway the fiscal 50,000 households have already used it.

C2. Is according to the economic principle this donation scheme fair? Explain your answer?

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