The goal of this assignment is to go through many misconceptions that exist around us about inflation and interest rates- and how much the USA (or country of your choice) is a part of the global economy. The Fed is expected to raise interest rates again this wed (Nov 2nd) but a fairnumber of economists now think that the Fed needs to slow down! That these high interest rates are skewing exhange rates and putting pressure on global financial markets and other central banks. For eg: Euro-zone inflation climbs to 10.7% in October, well above expectations ( due to an EnergyCrisis mostly) - What do you think the FED should do? Refer to last module where you looked up whether the US economy was in refernce to potential GDP. Now add to that the knowledge from this module: The Mundell-Fleming model shows that fiscal policy does not influence national income under floating exchange rates. A fiscal expansion causes the currency to appreciate, reducing net exports and offsetting the usual expansionary impact on income. Fiscal policy does influence income under fixed exchange rates. The Mundell-Fleming model shows that monetary policy does not influence national income under fixed exchange rates. Any attempt to expand the money supply is futile because the money supply must adjust to ensure that the exchange rate stays at its announced level. Monetary policy does influence income under floating exchange rates. Struggling with the answer: Well, guess what? You are mostly not alone! The more I talk to my non-econ (or even non-macro) friends about global macro the more I learn that many very much care about say inflation in the USA yet, most have no clue what the current global situation is! Step 1: Read the lecture, take notes, watch associated videos, you know, the usual lecture stuff. Step 2: (5 points)Tell us about any misconception you had about interconnected of the global economy (inflation, interest rates, and exchange rates) in this module. If you didn't have any, then please share how and where you learned about it! (5 points) Step 3 (10 points) - Time to talk to your friends. Or a family member. Pick one lucky winner (someone without economics or business degree, please!) and ask them the following questions. Please be nice, if they say no, move on to another willing participant. People are mad enough about inflation nowadays, no need to make them upset about the world as well... A. Dear family member or dear friend, what do you think the current inflation rate is in the USA? A. Take a piece of paper (a big one, see example below), write most current inflation rate % on it. Show it to your dear friendA. Dear family member or dear friend, what do you think the current inflation rate is in the USA? A. Take a piece of paper (a big one, see example below), write most current inflation rate % on it. Show it to your dear friend or dear family member. B. Dear family member or dear friend, do you think inflation is currently high? Low? just right? C. Dear family member or dear friend, what do you think is the cause of this inflation? D. Dear family member or dear friend, what do you think how the rest of the economy if doing: unemployment, GDP, what matters to them? E. Dear family member or dear friend, the fed is going to increase interest rates- do you think they should do that? why/why not? Oh, if you "interviewed" someone in person, take a picture of your friend or family member holding that piece of paper with some of the answers on it. If you interviewed someone virtually, ask them to do that on their own. I know they would, they want you to get an extra points for this assignment. If your friend is shy, they can cover their face with that piece of paper. Not mandatory, but again, I'll add another 2 points to those that complete this part of the assignment! Step 4 (4 points) - Look up the answers to Step 3 (A) questions (google search) and answer Steps 3(B-D) as what do you think the answers should be. Step 5 (6 points) Answer Step 3 (E) based on what you learnt this module. Remember that policymakers are often concerned about the competitiveness of American industry (the ability of U.S. industries to sell their goods profitably in world markets). A change in the nominal exchange rate affects competitiveness specially in the short run, when prices are sticky. Step 5 (5 points) - If you find out that your dear family member or your dear friend has some misconceptions, correct them! Be the teacher! See how much fun it is! We learn more when we explain things to other people! Tell us about your experience! Tell us what you had to explain, how you did it, how did you feel about providing explanations? What have yo learned from this exercise? Want to be a professor yet? Be creative- you can make memes. write as if you are a journalist, you could do a video interview. :) I look forward to this! You are welcome to do this for a country other than the USA. Almost all countries are in the same delimma.:)