Questions and Answers of Introductory Economics

Suppose that the West German government were to pursue expansionary fiscal policies. What impact would this have on the U.S. economy? What would happen if the Germans were to use monetary policy
How realistic is the assumption that real interest rates are equalized among major nations by international credit movements?What factors might contribute to residual interest rate differences?
How would contractionary monetary and fiscal policies work if the Japanese central bank were to intervene whenever the dollar depreciated? Under what conditions would the Japanese bank have to act?
Compare and contrast the impacts of contractionary monetary and fiscal policies under flexible and fixed exchange rates. Do the different policies work as well for contractionary policy as for the
Does it make any difference if other countries intervene into exchange markets?
What difference does the type of exchange rate system make?
Which is more effective, monetary or fiscal policies, when the international impacts are included?
How do international credit flows affect economic policy?
How would the action of l imited exchange intervention by national governments be viewed by the proponents of fixed and of flexible exchange rates.
Each side claims that speculators are destabi lizing under the alternate exchange rate system.What is the role of international exchange speculators in the market? Do their actions tend to promote or
With which side do you agree in this debate? Can you find flaws in either side's arguments?Should exchange rates be flexible or fixed?
Suppose that the exchange rate between the United States and Great Britain is $2.00 = £1 .Now suppose that the United States has inflation of 10 percent while the British have 20 percent inflation.
Suppose that a country has a balance-of-payments surplus.What impact does this have on the exchange rate?
Suppose that, in the situation in Question 1, the United States imposes a tariff on the German cars. What impact will this action have on the exchange rate?
What will be the likely affect on the exchange rate between the United States and West Germany if there is a sudden increase in the demand for Por�che cars in the United States? What will tend to
Can governments control the exchange rate?
What causes an exchange rate to change?
Why are foreign currencies supplied?
Why are foreign currencies demanded?
What impact does the existence of transportation costs have on the theory of comparative advantage?
Suppose that a tariff were imposed on imported shoes. Who would gain from this action?Who would lose? Is the gain worth the loss?
Suppose that a country had a continuing balance-of-trade deficit. What kinds of problems could this cause for the economy?
Suppose that a $1 0-per-car tariff were imposed on imported cars.Who would bear the burden of this additional tax-the consumer, the importer, or both? Explain.
Bill and Jill are two students who are considering trading services. If Bill works one hour, he can clean and gap four sparkplugs or he can type two pages of notes. If Jill works one hour, she can
Should we be concerned if the United States has a deficit in the balance of payments or balance of trade?
What are the balance of payments and balance of trade?
Are tariffs good or bad?
Who bears the burden of tariffs and quotas?
What are tariffs and quotas?
What determines a nation's imports and exports?
Evaluate the "probabilities" argument in favor of FRS independence.
How would a monetarist view the impact of a monetary policy that always accommodates fis cal actions? Would this be desirable or detrimental to the economy?
Can you think of other government agencies which have an independence similar to that of the FRS?
Would you favor Friedman's rules policy for money supply growth if you subscribed to the traditional view of the economy? Why or why not?
How does the monetarist view of fiscal policy differ from the traditional Keynesian view?Where does the key difference lie?
Answer the questions in Ques tion 1 in the case when the economy is experiencing high levels of inflation.
Suppose that the economy is experiencing high levels of unemployment. What would be the traditional Keynesian policy recommendation to deal with this problem? What would the monetarists suggest? If
Who is correct-the monetarists or the nonmonetarists?
What should be the proper role of monetary and fiscal policies?
How does the monetarist model of economic policy differ from traditional Keynesian theory?
Why do monetarists hold a different view of the economy?
Who are the monetarists?
Are government and Federal Reserve policies currently working together or working in opposite directions? How can you tell?
Suppose that the government wished to implement a tax cut.They will need to find additional funds to replace the revenues lost from taxes. What are the options? What are the effects on the economy?
What effect does the existence of a variable lag in monetary policy have on your answers to the preceding two questions?
What is the best policy if the goal of economic pol icy is to"cool off" aggregate demand?
What is the "best" policy for the government or the FRS to undertake if the economy is faced with the problem of unemployment?
Do monetary and fiscal policies always work together?
Does it make any difference how government spending programs are financed?
Are monetary and fiscal policies equally inflationary?
Which policy is better?
What is the difference between monetary and fiscal policies?
Evaluate the argument that low interest rates on deposits tend to guarantee consumers low interest rates on loans.
Should interest rates be paid on checking account balances? Are they in any way different from savings account balances? Explain.
Which side of this debate do you agree with? Can you find flaws in any of the arguments presented? Should interest rate regulations be done away with?
Suppose that the FRS undertakes a $10 billion open market pur- chase and that banks have a reserve requirement of 10 per- cent. What will happen to the money supply, credit supply, interest rates,
The FRS is nearly always work- ing to increase the money sup- ply. Why, then, are not interest rates constantly falling?
When would a business investor be interested in the real interest rate and when would he or she pay attention to the nominal rate of interest? Does it make a difference to our analysis?
Graphically show how interest rate ceilings in one segment of the credit market can cause dis- intermediation.
High interest rates induce hold- ers of stock certificates to sell those stocks and put funds in the credit market instead of the stock market. Low interest rates cause an opposite flow of funds.
How can the FRS act to increase or decrease aggregate demand?
How do changes in the interest rate affect aggregate demand?
How is the "inflation premium" built into interest rates?
What is disintermediation and what causes it?
How are interest rates set?
What factors affect the demand for credit?
What is the difference between the stock market and the credit market?
Suppose that the FRS buys $50 9.million in bonds on the open market. Trace the impact of this action on the banking system, the money supply, and the amount of loans in the economy. What will be the
Define the following terms:0 Required reserves 0 Excess reserves O Open market sale 0 Open market purchase 0 Discount rate
Modern banks are fractionalreserve banks. What does that mean? How can you possibly put your trust in a bank (and also put your money there)when they behave the way that a fractional-reserve bank
What is the prime interest rate today? Does this level of interest rate make sense in terms of the determinants of interest rates discussed in the text? Justify your answer.
Under what circumstances would a negative interest rate make sense? Is this likely to happen today?
Which would likely have the higher interest rate: a car loan in 1 965 or a house loan in 1 977? Explain.
Who or what "backs up" the money in your pocket? Does it make a difference to you? Explain.
Suppose that you are a Peace Corps worker in primitive New Guinea. The tribe that you are working with trades using the barter system. The tribe is prosperous and growing. Convince the chief of the
What role does the Federal Reserve System play in the economy?
How can banks "create" money?
How do modern banks work?
What factors determine the interest rate?
What is money?
Where do you stand on this issue? Should taxes be cut so that the economy can ride down the Laffer Curve? Explain your stand.
Have you ever had any dealings with the underground economy? What kinds of transactions are likely to exist in the underground? Would you ex pect more cash to be used (as opposed to checks or credit
How can we tell which part of the Laffer Curve we are on now? Is there any way to prove the matter one way or another?
Suppose that Congress has decided that it is desirable to increase aggregate supply by giving a tax break to people and firms who invest to raise the capacity of the economy. What impact would this
Suppose that it has been decided that aggregate demand should be increased, through some sort of fiscal policy, by$40 billion in total. This can be done either by purchasing new military aircraft,
Who owes the national debt? Is there any justification for the government going into debt when they can always raise the money they need by increasing taxes?
Should all taxes be progressive?Regressive? Proportional? What is your opinion of your state's tax system-is it progressive, regressive, or proportional? Is it about the same as those of neighboring
The corporate income tax is a tax on businesses. Do you think that it is progressive, regressive, or proportional? Defend your choice.
Suppose that the government increased Social Security benefits by $35 billion, and also raised Social Security taxes by $35 billion to pay for the increased benefits. What wou Id be the impact of
Suppose that the government cut both taxes and government spending by $25 billion. What would happen to the economy?
Suppose that the government increases taxes by $1 2 billion.What are the initial and eventual impacts of this action on aggregate demand? Would the eventual impact be different if the MPC were 90
Suppose that government spending increases by $17 billion. What will be the initial impact on income? What will be the eventual impact on aggregate demand? Would the total impact be different if the
How big of a problem is the national debt?
What is deficit spending?
Who pays the major taxes in our economy?
Are all taxes the same in their impact on the economy?
How effective are fiscal policies in solving our national economic problems?
How do government spending, taxation, and transfer payments policies affect the national economy?
Evaluate the argument that controls would reduce inflationary expectations.
Suppose that you have been appointed Wage and Price Czar.You must decide which wages and prices will be allowed to rise. How would you choose?Try to develop objective criteria for your actions.