Assignment 1: Required Assignment 2—The Case For, or Against, New Orleans

Sometimes one’s choices may involve catastrophic decisions and bear great risk and yet there can be no clear answer. For example, if a person gets a divorce, shutters a plant, sells a losing investment, or closes their business, will he or she be better off? The following case incorporates nearly all of the material you have covered this far and presents an example of one such choice where nearly all of the alternatives have a significant downside risk.

Review the following information from the article “A Cost-Benefit Analysis of the New Orleans Flood Protection System” by Stéphane Hallegatte (2005):

• Hallegatte, an environmentalist, assigns a probability (p) of a Katrina-like hurricane of 1/130 in his cost-benefit analysis for flood protection. However, the levees that protect New Orleans also put other regions at greater risk. You may assume the frequency of other floods is greater than Katrina-like events (Vastag & Rein, 2011).
• The new levees that were built in response to Katrina cost approximately fourteen billion dollars (in 2010). This is in addition to the direct costs of Katrina (eighty-one billion dollars in 2005).
• 50 percent of New Orleans is at or below sea level.
• A 100-year event means that there is a 63 percent chance that such an event will occur within a 100-year period.
• The following are the interested (anchored and/or biased) constituencies:
• Residents of New Orleans—both those that can move and those who cannot move
• Residents of the surrounding floodplains at risk from New Orleans levees
• The Mayor of New Orleans
• The federal government—specifically taxpayers and the Federal Emergency Management Agency (FEMA)

Assume that the availability heuristics make people more risk averse (populations drop, at least in the short term). Consider how this would affect the local economy.

You are an analyst at FEMA and are in charge of developing a recommendation for both the state and the local governments on whether or not to redevelop New Orleans.

Write a report with your recommendation. Address the following in your report:

Part A

• Analyze the economics of New Orleans in light of the above parameters and develop your own Cost-Benefit Analysis (CBA) for rebuilding.
• Evaluate the value of the CBA for each constituency and integrate these estimates into a scenario model and/or decision tree. Analyze the results.
• Clearly each of these constituencies may both overlap and be prey to a variety of group dynamics internally. For one of these options, discuss the decision pitfalls to which they may be susceptible and make a recommendation on how to alleviate these pressures.
• Starting with your CBA, estimate the relevant expected utility for the interested constituencies.

Note: You need not have absolute amounts but your relevant utilities should be proportional to one another.
Hint: If you assume that your total CBA for New Orleans is fixed for each constituency (do not forget the overlaps), then each constituency will have a piece of the utility pie.

Part B

• Make a case for or against rebuilding the city of New Orleans. This should be an executive summary; be concise and brief. Include exhibits.
• Whether you are for or against, discuss how social heuristics could be used to your advantage, both ethically and unethically, in making your case. You may choose to fill the role of one of the constituents, if you prefer.

Write an 8–12-page report in Word format. Apply APA standards to citation of sources. Use proper spelling and grammar throughout, and keep the text legible and balanced with visuals. Use the following file naming convention: LastnameFirstInitial_M5_A1.doc.

By Saturday, April 25, 2015, deliver your assignment to the M5: Assignment 1 Dropbox.

Final Paper: Expansionary Economic Policy

Prior to beginning the final assignment, review the following chapters:

Chapter 7: Classical Macroeconomics and the Keynesian Challenge
Chapter 9: Taxes, Government Spending, and Fiscal Policy
Chapter 12: Banking and The Federal Reserve System
Chapter 14: Monetary Policy In Theory And Practice

Focus of the Final Paper

In an effort to move the economy out of a recession, the federal government would engage in expansionary economic policies. Respond to the following points in your paper on the actions the government would take to address expansionary fiscal and monetary policies:

Expansionary Fiscal Policy:

Explain the actions the federal government would take while engaging in expansionary fiscal policy in terms of the following:

• The necessary change in taxes and government spending,
• The effect on aggregate demand, GDP, and employment.

Expansionary Monetary Policy:

The three tools the Federal Reserve Bank (The Fed) uses when conducting monetary policy are the required reserve ratio, the discount rate, and open market operations.

Explain the actions of the Fed in regard to the three tools.

• When the required reserve ratio is increased or decreased
• When the discount rate is increased or decreased
• Buying or selling government securities when conducting expansionary monetary policy

Explain how these actions would affect the money supply, interest rates, spending, aggregate demand, GDP, and employment.

Writing the Final Paper

The Final Paper:

1. Must be eight to ten double-spaced pages in length and formatted according to APA style as outlined in your approved styled guide.
2. Must include a title page that includes:
   1. Title of paper
   2. Student’s name
   3. Course name and number
   4. Instructor’s name
   5. Date submitted
3. Must include an introductory paragraph with a succinct thesis statement.
4. Must address the topic of the paper with critical thought.
5. Must conclude with a restatement of the thesis and a conclusion paragraph.
6. Must use at least four scholarly resources, including the textbook.   Two sources must come from the Ashford Library.
7. Must use APA style as outlined in your approved style guide to document all sources.
8. Must include, on the final page, a reference List that is completed according to APA style as outlined in your approved style guide.

The finance department of a large corporation has evaluated a possible capital project using the NPV method, the Payback Method, and the IRR method.  The analysts are puzzled, since the NPV indicated rejection, but the IRR and Payback methods both indicated acceptance. Explain why this conflicting situation might occur and what conclusions the analyst should accept, indicating the shortcomings and the advantages of each method.  Assuming the data is correct, which method will most likely provide the most accurate decisions and why?