Describe the game and its solution

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Reference no: EM133440478

Case Study: In the past year, as inflation in the US reached 40-year highs, more than 50 million American households have received an "inflation relief" payment from their state government in the form of a tax refund or a check. The stated goal of these is to help residents with the higher cost of groceries, rising energy prices and other hardships. (If needed, assume less inflation is preferrable to more inflation). As many as 21 states approved relief payments in 2022, with some still making payments to residents in early 2023. These policies are popular, too: a poll last fall found 63% of Americans in favor of new stimulus checks to combat inflation.

Questions:

a) Represent in normal form the game played by any two states deciding whether to enact 'inflation relief' payments or not. Describe the game and its solution (or solutions).

b) If states adopt these "inflation relief" checks and thus add to overall demand, are we all better off or can these policies be counterproductive? Even if state policymakers understand this, do they face an incentive to enact these policies, and does this incentive depend on what other states are doing? Explain

Reference no: EM133440478

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