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Principles of economics(Mankiw) question on equity & inflation/unemployment relation

  1. Jan 8, 2012 #1
    Hey!

    This is not a homework question, I'm merely studying this textbook out of pleasure!

    I'm trying to understand some bits of the theory in chapter 1 of this book.

    What is equity exactly?

    From the definition given in page 5:
    equity
    the property of distributing economic
    prosperity fairly among the members
    of society

    I'm not sure what he means by "fairly"
    I can think of two things
    1) Everyone gets as equal an amount of society's resources as possible (something like socialism)
    2) Everyone gets an amount of society's resources proportional to the value he/she produces (meritocracy)

    (that is if "distributing economic prosperity" means distributing the scarce resources available to society)

    also look at exercise 12, p17 where maybe this ambiguity becomes more prevalent.

    12. Discuss each of the following statements from the
    standpoints of equity and efficiency.
    a. “Everyone in society should be guaranteed the best
    health care possible.”
    b. “When workers are laid off, they should be able to
    collect unemployment benefits until they find a
    new job.”

    Under the first meaning of fairness, I believe both policies promote equity, while under the second, both polices promote neither equity nor efficiency (because they imply that people who choose never to work again after being laid off (therefore producing nothing) should have the best health care and should collect tickets, even if they never actually try to find a job!)

    Also, the textbook describes in this 1st chapter that inflation correlates with unemployment. When inflation goes down, unemployment goes up. A theory on why this happens is presented which implies that lowering inflation causes unemployment to go up. My question here is whether those are also the case (merely out of curiosity)
    / : goes up
    \ : goes down
    --> : causes
    1) inflation / --> unemployment \
    2) unemployment \ --> inflation /
    3) unemployment / -->inflation \
    4) there is some other underlining cause affecting both unemployment and inflation without needing one causing the other.

    Thanks! Sorry but I'm clueless in economics!
     
  2. jcsd
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