Professor N. Creez Mon:

Let me just comment, Seamore, on your point about federal spending and borrowing crowding out private consumer spending and business investment. This is where monetary policy comes in.

The Federal Reserve must continue to allow relatively free expansion of money and credit. If theFed makes more money available, there will be less pressure for interest rates to rise. We'll be ableto sustain the recovery in housing, autos, and other sectors. And businesses will be able to get loans for investments at affordable interest rates.

Continuing our economic growth by sustaining this recovery is the most important task we have before us. Increasing taxes now would only reduce total spending and thus threaten the recovery.

Professor Fred Critic:

Excuse me, Dr. Mon, but you forget that the expansion of the money supply we are currently witnessing is part of a long history of bungling by the monetary policy makers.

Our most recent recession was brought on by the Fed's jamming on the monetary brakes by anabrupt reduction in the increase in money supply in order to bring inflation under control. They overdid it, as they always do, and produced a recession.

Now, they're overdoing it in the other direction: stepping on the monetary accelerator andincreasing the monetary supply too rapidly. This will stimulate the economy all right, but in a year or two these actions will rekindle inflation. The Fed then will again jam on the monetary brakes and produce yet another recession. Everyone knows this.

Interest rates right now are higher than they should be because everyone expects more inflation later. Only moderate growth in the money supply can bring interest rates down in the long run.

The only way to get back on the long-term, stable economic growth path is to reduce money growth to a steady, predictable, noninflationary level.

Announcer-Ladies and gentlemen, that's all the time we have. Let's give ourdistinguished panel a round of applause.

4

Name:_________________________________ Part A:Please analyze each Professor's position to earn 1-point for each aspect so that the entire

analysis will earn a total of 20 points:

Professor Cutter Tax-

Major Point:

Time Period:

Assumptions:

Theoretical Support:

Values:

Professor Seamore Action-

Major Point:

Time Period:

Assumptions:

Theoretical Support:

Values:

5

Name:_________________________________ Part A:Please analyze each Professor's position to earn 1-point for each aspect so that the entire

analysis will earn a total of 20 points:

Professor N. Creez Mon-

Major Point:

Time Period:

Assumptions:

Theoretical Support:

Values:

Professor Fred Critic-

Major Point:

Time Period:

Assumptions:

Theoretical Support:

Values:

6

Name:_________________________________

Part B:The president has become discouraged with his current economic advisory team. He has searched the colleges and your name keeps coming up as one of the very best macroeconomic analysts in the country. After summoning you to the White House for a personal chat, you are convinced to take the offer and join the team.

Your challenge is to design a three-point macroeconomic program to improve the economy of the United States within the next two years. It will include the monetary and fiscal policies you hope to implement.

You will earn a total of 35 points in byfollowing the following format:Paragraph 1-General narrative (5 points)

Summarize the problems being faced by our economy that your policies will address. oIt is okay if the problems identified are hypothetical and do not currently exist in our

actual economy.Paragraph 2-1stpolicy (9 points)

Describe policy, identify as fiscal or monetary, explain why it was chosen (which problem it will help solve) and statistical results expected

Paragraph 3-2ndpolicy (9 points) Describe policy, identify as fiscal or monetary, explain why it was chosen (which problem it

will help solve) and statistical results expectedParagraph 4-3rdpolicy (9 points)

Describe policy, identify as fiscal or monetary, explain why it was chosen (which problem it will help solve) and statistical results expected

Paragraph 5-Conclusion (3 points)

Briefly summarize how your three-point plan will solve the problems mentioned in your opening paragraph.