Chapter 27 Exercises

These exercises ask you to apply the chapter's frameworks to real fiscal, regulatory, and analytical work. Each exercise specifies a deliverable; instructors may grade in writing, presentation, or discussion form.

Exercise 1 — Read a CBO economic projection

The Congressional Budget Office publishes The Budget and Economic Outlook annually, plus updates. Pull the most recent edition (cbo.gov, "Reports").

Tasks.

1. Find CBO's projection for federal revenue, outlays, and the deficit for the next fiscal year. State each as a dollar figure and as a percentage of GDP.
2. Identify CBO's macroeconomic baseline assumptions: the GDP growth rate, unemployment rate, and inflation rate they assume.
3. Find the section on alternative scenarios — usually titled "Sensitivity to Alternative Economic Assumptions." Identify three scenarios CBO models and the deficit consequences of each.
4. CBO typically distinguishes between current-law baseline (what happens if Congress does nothing) and alternative scenarios (what happens under specific policy changes, e.g., extending expiring provisions). Identify one alternative scenario that has the largest deficit impact, and explain why.

Deliverable. A 600–800-word memo, written in the voice of a junior committee staffer briefing a member who has not read the CBO report.

Exercise 2 — Tax-incidence analysis from the Tax Policy Center

The Tax Policy Center (a joint project of the Urban Institute and the Brookings Institution) publishes detailed distributional analyses of tax legislation: which income groups pay more or less under a proposed change.

Tasks.

1. Go to taxpolicycenter.org and find a distributional analysis of either the 2017 TCJA or a proposed extension of TCJA's expiring provisions.
2. Locate the table that shows the after-tax-income change by income quintile (or decile).
3. Identify which income groups gain the most in dollar terms; which gain the most as a percentage of after-tax income; which lose, if any.
4. Find the assumptions section. What does TPC assume about the incidence of the corporate income tax? (This matters: TPC and JCT make different assumptions about whether corporate-tax burdens fall on shareholders, workers, or consumers, and the choice substantially changes the distributional picture.)

Deliverable. A 500–700-word analysis written for a hypothetical newspaper readership, presenting the data with no editorial framing — just describing what the data show and acknowledging the assumption choices.

Exercise 3 — Trace one regulatory rule's cost-benefit analysis

Federal agencies publish Regulatory Impact Analyses for major rules. These are searchable through reginfo.gov and through the Federal Register.

Tasks.

1. Choose a major rule from the past five years that interests you. Recommended candidates: any EPA Clean Air Act rule, any DOL overtime-rule revision, any FTC non-compete rule, any DOT vehicle-fuel-economy rule.
2. Find the Regulatory Impact Analysis (or "Economic Analysis" — agencies use different titles).
3. Identify (a) the estimated annual costs, (b) the estimated annual benefits, (c) the population affected, (d) the methodological choices that drive the largest variation in the estimates (typically: discount rate, value of statistical life, baseline assumptions about counterfactual behavior).
4. Find one external critique of the analysis — from an industry coalition, a public-interest organization, the Mercatus Center, or a think tank.

Deliverable. A 700–900-word analysis identifying (1) the agency's estimate, (2) the critique's estimate, (3) the specific assumption that explains the gap. This is the most important exercise for understanding how cost-benefit analysis actually operates as a policy tool.

Exercise 4 — Steel-man both Chicago and neo-Brandeisian antitrust

Pick one antitrust case from 2018–2025 — recommended: AT&T/Time Warner, Microsoft/Activision, or the Amazon FTC case (filed September 2023, ongoing).

Tasks.

1. Read a summary of the case from a neutral source (Lawfare, Volokh Conspiracy on the right, ProMarket on the left, or a law review case note).
2. Write a steel-man of the Chicago School position on this case: the consumer-welfare argument for or against the merger or against enforcement. Cite Bork (The Antitrust Paradox) or a Chicago-influenced legal scholar.
3. Write a steel-man of the neo-Brandeisian position on the same case: the broader-harm argument. Cite Khan (Amazon's Antitrust Paradox), Wu (The Curse of Bigness), or another neo-Brandeisian source.
4. Identify the specific empirical claims on which the two positions disagree, and the specific values on which they disagree.

Deliverable. A 1,000–1,200-word document: 400 words for each steel-man, 200 words on the empirical and value disagreements. The grading criterion is whether a Chicago-school adherent would recognize their position in your steel-man and whether a neo-Brandeisian would recognize theirs.

Exercise 5 — Democracy Audit: economic policy in your district

This continues the running Democracy Audit project from earlier chapters.

Tasks.

1. Identify your House representative and both senators.
2. Pull their voting records on the following pieces of major economic legislation. (GovTrack and Congress.gov are the tools.) - 2017 Tax Cuts and Jobs Act (PL 115-97) - 2020 CARES Act (PL 116-136) - 2021 Bipartisan Infrastructure Law (PL 117-58) - 2022 CHIPS and Science Act (PL 117-167) - 2022 Inflation Reduction Act (PL 117-169)
3. For each vote, summarize: (a) whether your representative voted yes or no, (b) the breakdown of the rest of your state's delegation, (c) the partisan vote pattern in the chamber.
4. For your representative specifically, identify one explanation they have offered publicly for at least two of these votes (press release, floor speech, town hall, social media).
5. Summarize: how representative are these votes of what a median voter in your district would likely have preferred? (You will need to consult district-level polling, which is harder to find than national polling — try MIT Election Lab, the Cooperative Election Study, or local newspaper coverage.)

Deliverable. A 1,000-word memo with the table of votes, the explanations, and your assessment. Cite all sources.

Exercise 6 — Industrial-policy decision

You are an economic policy advisor to a Senate office. The senator must decide whether to support a hypothetical bill providing $20 billion in subsidies for U.S. lithium-battery manufacturing, with conditions: domestic content requirements, prevailing-wage rules, and a 10-year clawback if the subsidized facility is sold to a foreign owner.

Tasks.

1. Identify three arguments in favor of the bill (drawn from Mazzucato, Rodrik, or other industrial-policy advocates).
2. Identify three arguments against (drawn from Hayek, Cowen, or other industrial-policy skeptics).
3. Write a recommendation memo for the senator, taking one of the following positions: support, oppose, or support with specific amendments.

Deliverable. A 500–700-word memo with a clear recommendation, substantive reasoning, and acknowledgment of the strongest counterargument to your recommendation.

Exercise 7 — Read a Federal Reserve FOMC statement

The Federal Open Market Committee meets eight times a year and releases a statement after each meeting (federalreserve.gov, "Monetary Policy" → "FOMC Statements").

Tasks.

1. Pull the most recent FOMC statement and the immediately preceding one.
2. Compare the language. Identify (a) the federal funds rate decision in each, (b) the language about inflation outlook, (c) the language about labor-market outlook, (d) any new or revised guidance.
3. Find the Summary of Economic Projections (released quarterly). Identify the median FOMC participant's projection for the federal funds rate at the end of the current year and the next year.
4. Identify one academic or financial-market commentator on the most recent decision. What would they have wanted the Fed to do instead, and why?

Deliverable. A 500–700-word memo summarizing what the Fed is doing, what the dissenters are arguing, and your own assessment of the case for the dissenting view.

Exercise 8 — Estate-tax simulation

The estate tax is small in revenue but large in political salience. Run a simple thought experiment.

Tasks.

1. Look up the current estate-tax exemption (about $13.6 million for individuals in 2024). Verify the current rate (40% above the threshold).
2. Find the IRS Statistics of Income Bulletin section on estate tax filings — specifically the number of taxable returns each year and the total revenue.
3. Suppose Congress lowered the exemption to $5 million (its pre-TCJA level). Using publicly available Joint Committee on Taxation revenue estimates, what additional revenue would this raise per year?
4. Identify two arguments on each side of this change — for raising the exemption (or eliminating the tax) and for lowering it.

Deliverable. A 500–700-word analysis. Avoid words like "death tax" or "dynastic wealth"; describe the policy with neutral language.

Submission and grading note. Exercises 4 and 5 are the most important for the chapter's central learning objective. Exercise 4 trains the steel-manning discipline that the Balance Guide identifies as the textbook's central pedagogical commitment. Exercise 5 grounds the abstractions in the reader's own representative-constituent relationship. Instructors who must cut, cut others first.

Optional extension exercises

These exercises go beyond standard course requirements. Instructors may use them for honors sections, capstone work, or as discussion-section prompts.

Extension A — Compare two CEA reports

The Council of Economic Advisers publishes the Economic Report of the President annually. Each report reflects the administration's economic philosophy.

Tasks.

1. Pull two reports from administrations of opposing parties — for example, the 2020 Trump-administration report and the 2024 Biden-administration report.
2. Find the chapters dealing with one common topic — say, labor markets, taxation, or trade.
3. Identify three specific places where the two reports treat the same data or the same policy question differently.
4. For each difference, identify which is empirical disagreement (different interpretation of the same data), which is methodological disagreement (different choice of model or assumption), and which is normative disagreement (same data, different value judgment).

Deliverable. A 700–900-word memo. The grading criterion is whether you correctly classify each disagreement.

Extension B — Steel-man the libertarian flank

The libertarian / market-fundamentalist flank position is rarely presented charitably in mainstream economic policy discussions. This exercise asks you to do so.

Tasks.

1. Read at least two Cato Institute or Mercatus Center briefs on a current economic policy topic (occupational licensing, FDA reform, immigration economics, agricultural subsidies, or zoning are all good candidates).
2. Identify the strongest version of the libertarian argument: why this policy intervention exists, what costs it imposes, what the libertarian alternative would look like, and what the libertarian thinks would happen if the alternative were adopted.
3. Identify the strongest mainstream-conservative response (someone like Glenn Hubbard or Edward Glaeser, who would not endorse the libertarian position fully) and the strongest progressive response.
4. Form your own assessment: which of the three positions you find most persuasive on this topic, and why.

Deliverable. A 1,000–1,200-word essay with the three steel-mans (300 words each) and a closing assessment (100–300 words). The grading criterion is whether each of the three positions is recognizable to its adherents — the libertarian critic should not feel caricatured, the mainstream conservative should not feel collapsed into the libertarian, and the progressive should not feel straw-manned.

Extension C — Steel-man the social-democratic flank

The mirror exercise to Extension B. The progressive / social-democratic flank position holds that mainstream progressivism concedes too much to market institutions that have failed.

Tasks.

1. Read at least two Roosevelt Institute briefs, Jacobin essays, or Levy Economics Institute working papers on a current economic policy topic (Medicare for All, federal jobs guarantee, sectoral collective bargaining, public banking, wealth taxation, free public college are good candidates).
2. Identify the strongest version of the social-democratic argument: why current arrangements are inadequate, what costs they impose, what the social-democratic alternative would look like, and what its advocates expect would happen if adopted.
3. Identify the strongest mainstream-progressive response (someone like Stiglitz or Boushey, who would not endorse the social-democratic position fully) and the strongest mainstream-conservative response.
4. Form your own assessment.

Deliverable. Same format as Extension B.

Extension D — Trace the political coalition behind a major piece of economic legislation

Major legislation passes when a coalition of interests aligns around a specific bill. Pick one of: 2017 TCJA, 2022 IRA, 2022 CHIPS Act, 2008 TARP.

Tasks.

1. Identify the floor vote in the House and Senate.
2. Identify the principal organized interests that supported the bill: industry coalitions, trade associations, labor unions, advocacy organizations, think tanks. Use OpenSecrets, the Center for Responsive Politics archive, and contemporary press coverage.
3. Identify the principal organized interests that opposed the bill.
4. Trace at least one specific provision in the final bill back to a specific organized interest's lobbying or advocacy. (This will require reading committee testimony, news coverage, or post-enactment retrospectives.)

Deliverable. A 700–900-word analytical memo identifying the coalitional structure of the bill. This exercise extends Chapter 7's interest-group framework into Chapter 27's substantive policy domain.