Macroeconomics 2301
Potential questions and study guide for
Exam 3
Any 6 of these questions will be on the exam.
1. Addressing inflation using Fiscal and Monetary Policy tools. Scenario - The US
economy is currently experiencing high rates of inflation. You have Fiscal and
Monetary policy tools available to address this problem:
a. To attack the problem of inflation you must select one Monetary Policy tool and one
Fiscal Policy tool. Write down the name of your Fiscal Policy tool and your
Monetary Policy tool.
i. Think the options through and write down your choices.
b. Please explain why you selected the tools that you selected and why you did not
select the other choices?
i. Specifically, explain what is so good about the tool you selected and
what is not so good about the tools you did not select? Do this for
both the Monetary Policy tool and the Fiscal Policy tool. The key
here is to use some decision criteria in making your choice.
c. Thoroughly and completely explain how your solution would work to solve the
problem of inflation, and indicate the impact your solution would have on at least 5
key economic variables. Be specific.
i. Present this using the chain of events format with up or down
arrows to indicate the direction of impact on each variable. I need
to see the detail.
2. Addressing recession using Fiscal and Monetary Policy tools. Scenario - The US
economy is currently experiencing recession. You have Fiscal and Monetary policy
tools available to address this problem:
a. To attack the problem of recession, you must select at least one Monetary Policy tool
and one Fiscal Policy tool. Write down the name of your Fiscal Policy tool and your
Monetary Policy tool.
i. Think the options through and write down your choices. b. Please explain why you selected the tools that you selected and why you did not
select the other choices?
i. Specifically, explain what is so good about the tool you selected and
what is not so good about the tools you did not select? Do this for
both the Monetary Policy tool and the Fiscal Policy tool. The key
here is to use some decision criteria in making your choice.
c. Thoroughly and completely explain how your solution would work to solve the
problem of recession, and indicate the impact your solution would have on the key
economic variables. Be specific.
i. Present this using the chain of events format with up or down
arrows to indicate the direction of impact on each variable. I need
to see the detail.
3. Please list the 4 key supply side growth factors we discussed, and discuss their
viability in a slow growth / no growth future.
a. The slides should provide you with what you need here.
b. The issue of viability – if the economy is growing slowly or not at all, do we have any
chance of achieving success with each of the 4 growth factors? What will likely
cause us problems? What approaches could we use to increase our odds of success?
You need to think carefully on this one.
4. Creative problem solving scenario #1: The rate of growth in the US economy is
currently 0.5% annually. Your mission is to increase our growth rate to at least 4%
annually, without setting off unacceptable levels of inflation. You have the tools of
fiscal and monetary policy available.
****Focus on increasing the quantity and / or quality of natural resources as a
means to stimulate economic growth.****
a. Present your solution to the problem – write it down.
1.
2.
3.
4.
5. i. Strategy for creating your solution:
First identify a specific natural resource and think through how having more of it or
a better quality of it could lead to significantly increasing the GDP growth rate.
This will lead you to a general solution to the problem.
Determine what will be required to make the solution happen, typically it is money.
Think of ways to use your fiscal and monetary policy tools to get the needed money.
To attack the problem you must select at least one Monetary Policy tool and one
Fiscal Policy tool. b. Write down the names of the one fiscal policy tool and the one monetary policy tools
you picked.
i. Remember – for this question you need one Fiscal Policy tool and
one Monetary Policy tool.
c. Explain why you picked the tools that you picked and why you did not select the
other choices.
i. Specifically explain, what is good about the tool you selected and
what is not so good about the tools you did not select? Do this for
both the monetary and fiscal policy tool that you selected. The key
here is to use some decision criteria in making your choice.
d. Thoroughly and completely explain how your solution would work to solve the
problem, and indicate the impact your solution would have on the key economic
variables using up or down arrows. Please present your answer using a chain of
events format. Be specific. I need to see the detail.
5. Creative problem solving scenario #2: The rate of growth in the US economy is
currently 0.5% annually. Your mission is to increase our growth rate to at least 4%
annually, without setting off unacceptable levels of inflation. You have the tools of
fiscal and monetary policy available.
****Focus on increasing the quantity and / or quality of human capital as a
means
to stimulate economic growth.****
a. Present your solution to the problem – write it down.
1.
2.
3.
4.
5. i. Strategy for creating your solution:
First think through which approach you want to use – get more workers or improve
the quality of the workers you already have, to accomplish the goal of significantly
increasing the GDP growth rate.
This will lead you to a general solution to the problem.
Determine what will be required to make the solution happen, typically it is money.
Think of ways to use your fiscal and monetary policy tools to get the needed money.
To attack the problem you must select at least one Monetary Policy tool and one
Fiscal Policy tool. b. Write down the name(s) of the one fiscal policy tool and the one monetary policy
tool that you picked. i. Remember – for this question you need one Fiscal Policy tool and
one Monetary Policy tool.
c. Explain why you picked the tools that you picked, and why you did not select the
other choices.
i. Specifically explain, what is good about the tool you selected and
what is not so good about the tools you did not select? Do this for
both the monetary and fiscal policy tool that you selected. The key
here is to use some decision criteria in making your choice.
d. Thoroughly and completely explain how your solution would work to solve the
problem, and indicate the impact your solution would have on the key economic
variables using up or down arrows. Please present your answer using a chain of
events format. Be specific.
6. Over the past few years, several countries have been in danger of defaulting on their
national debt.
Strategy: use your favorite search engine to identify countries that have
already faced this problem. Do a bit of research to support your answers to
parts (a) and (b).
a. Pick one country and please discuss what might happen to the economy of that
country if it actually defaulted on their debt.
b. Please discuss two solutions to solving the default problem along with the impact the
solutions might have on at least 5 key economic variables.
7. Currently the U.S. national debt is over $20 Trillion. Many people feel the high level
of the national debt is a very bad thing and it should be paid off.
a. List and explain 3 advantages and 3 disadvantages of eliminating the national debt?
i. Think about what the country could do if we did not have the
national debt.
ii. What would we be saving if we had no debt? iii. Think about the
disadvantages of paying the thing off. Where would the money come
from? How would we get it? What would it cost just to get the
money? What would we lose if we paid it off?
b. What approach would you use to accomplish the elimination of the national debt?
i. What are the different ways to get the money to pay it off, and what
might be the impacts of those approaches? ii. Once you had the money, how would you go about paying off the
debt?
iii. What might be the impacts of paying it off?
c. Why did you select the approach that you selected and not the alternatives?
i. Talk about what was so great about the approach you picked and
what was not so great about the approaches you did not pick.
d. Thoroughly and completely explain how your approach would work to eliminate the
national debt, and explain the impact your solution would have on at least 5 key
economic variables?
i. Implement your approach and use the what-happens-next approach
to capture the detail of how your solution might work.
8. Please explain the difference between the transaction demand for money and the
asset demand for money, and how they work together to determine the total demand
for money.
a. The slides and audio should help with this, as well as other sources of information.
9. The Federal Reserve is responsible for managing the U.S. money supply.
a. List and thoroughly explain 5 of the functions of the Federal Reserve System. Be
specific.
i. Use the slides, audio, and the Federal Reserve website for this.
b. Please thoroughly and completely explain how money is created and destroyed.
i. Please use the slides and audio for this.
c. Please thoroughly and completely explain how the Federal Reserve would use the 3
tools of monetary policy to address the problem of recession, including the impact of
those tools on the key economic variables. Specifically I want you to explain how
each of the 3 tools would work using the chain of events approach.
i. Take each of the 3 monetary policy tools and show how each would
work to address the problem of recession. Use the whathappensnext approach to ensure that you are being as specific as
possible.
d. Please thoroughly and completely explain how the Federal Reserve would use the 3
tools of monetary policy to address the problem of inflation, including the impact of
those tools on the key economic variables. Specifically I want you to explain how
each of the 3 tools would work using the chain of events approach. i. Take each of the 3 monetary policy tools and show how each would
work to address the problem of inflation. Use the what-happensnext approach to ensure that you are being as specific as possible.
10.Please select a bill currently in congress and provide an economic impact analysis.
Congress.gov is a good place to start. Please be thorough in your analysis. Try to
think about how the impacts of this legislation will work its way through our
economy and how it will impact people, businesses, the environment, etc. What
groups of people will be impacted and how? What industries will be impacted
and how? Etc. Be as thorough as possible. We need to be able to complete this
type of analysis for the crazy stuff congress does, before the bills get passed so
that we can either support them or get them stopped.

 

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