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4. The USPS operates a network of more than 31,000 post offices. The majority of these post offices do not generate revenues sufficiently high in relation to costs to justify keeping them in operation. If the USPS were truly a private firm, many of these post offices would be closed.
Until recently, what has enabled the USPS to keep these post offices operating in spite of their meager rates of profitability has been the receipt of an implicit subsidy in the form of protection from competition. The USPS is the only institution in the United States authorized to make regular deliveries of "non-urgent letters" to mailboxes of households, businesses, and government offices. Thus, the USPS faces no threat of being undersold by competitors in its primary business of delivering non-urgent mail.
In spite of these government protections of the USPS, the annual volume of mail handled by the USPS has fallen from 213 billion items per year in 2006 to about 165 billion items per year today. As a consequence, postage revenues at USPS have plummeted even as its labor expenses have remained nearly unchanged. Since 2007, the USPS has experienced average annual losses from its operations exceeding $7 billion per year.
What allows the USPS to continue operating without employee layoffs in spite of annual losses exceeding $120,000 per USPS worker per year? The answer is the sponsorship of U.S. taxpayers. The federal government continues lending funds to the USPS to enable it to keep providing the same level of services with an unchanged workforce. Few observers anticipate that the USPS will ever repay the loans, which likely will become explicit subsidies to this government-sponsored institution.
a. Why would a non-government-sponsored firm have difficulty remaining in operation incurring $7 billion in losses per year?
b. Why might a government-sponsored firm such as the USPS be more willing than a non-government-sponsored firm to agree to non-layoff contracts for workers?
The CEO of Starbucks company wants to review the performance of the company in different countries during 2020. He knows that in 2020, the performance in all countries was affected by the COVID-19 pandemic. He also knows that different countries imposed various economic policies during the COVID-19 pandemic, and these differences in policy responses could explain some changes in the performance of the company across countries. He believes that it is possible for the world to face another pandemic in the future, and for this reason, he is keen to know in detail how different countries responded to the pandemic. In particular, he wants to know how the performance of the company across countries was affected by the economic policies and the possible implications of the imposed policies on the future economic conditions of the country. You have formed a consulting company and you signed a contract with Starbucks to pick the UNITED STATES and analyze the impact of the economic policies of the chosen countries on the performance of business including but not limited to Starbucks.
Project Main Task
Your team will consider the macroeconomic environment of the chosen country and examine the impacts of its economic policies during the COVID-19 pandemic on the performance of business including but not limited to Starbucks. In your report, you also need to include some insights into the implications of the imposed policies by the chosen country on the future economic conditions in that country.
Some Questions to Consider as you Approach Your Research
1. What was the state of the economy during 2020? What was the state of the economy before the pandemic? Collect time series data on nominal GDP, real GDP, per capita real GDP, unemployment rate, inflation rate, bank rates, supply of money, bond yields, exchange rate(s), and any other important macroeconomic data.
2. What kind of output gaps did the country face during 2020? Was it an inflationary or recessionary gap? How is it important for your analysis?
3. Does the central bank have a target for the inflation rate? If yes, what is the implication of the target for their economic policies?
4. Does the central bank have a target for the exchange rate? If yes, what is the implication of the target for their economic policies?
5. What kind of fiscal policies did the chosen country follow in 2020? What tools did the government use to impose fiscal policies during 2020? And how was it important for the business? Explain in detail the programs that the government used during 2020 and the implications of the policies for the economic conditions of the time.
6. What kind of monetary policies did the chosen country follow? What tools did central bank use to impose monetary policies? And how was it important for the business? Explain in detail the programs that the central bank used during 2020 and the implications of the policies for the economic conditions of the time.
7. Did the central bank use asset purchasing programs? What is the implication of the programs on government debt?
8. What is the implication of the fiscal and monetary policies for future inflation?
Define the concept of equilibrium in the simple expenditure model we developed in class. Now, explain what signal will be detected by analysts that the economy is not in equilibrium? Lastly, assume that we find that actual Y is greater than equilibrium Y, Ye. Explain the reaction by firms to this situation and what you expect to happen to the actual level of Y because of this corporate reaction.