Answering Economics Questions

Requirement: read the text ( eBook) and answer the following questions , answer at least 40 words per questions

 

ebook link: facweb.northseattle.edu/thcook/dugout/book/master/macroebook.html

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Policy Options

1. What is fiscal policy and who creates it?
2. What is the target of expansionary fiscal policy?
3. How are the instruments used for expansionary fiscal policy?
4. How is expansionary fiscal policy supposed to impact the output market (i.e., measured by Real GDP)?
5. What is the target of restrictive fiscal policy?
6. Why is restrictive fiscal policy hardly ever attempted?
7. What are the automatic stabilizers and how do they work?
8. What is the target and timing of supply-side fiscal policy?
9. How does supply-side fiscal policy impact the output market?
10. When is it possible that cuts in tax rates will lead to greater tax receipts?
11. What limits fiscal policy from being effective?

Federal Budgets

1. How are budgets created?
2. What are the two primary elements of federal budgets?
3. What are surplus, deficit and balanced budgets?
4. What is the largest category of government spending?
5. How do unplanned deficits occur?
6. What is the difference between deficit and debt?
7. What is the current national debt?
8. What does it mean when the debt to GDP ratio rises?
9. What are the three most important problems with the national debt?

Financial Intermediaries

1. Why don’t savers and borrows create loanable funds markets without financial intermediaries?
2. Why do venture capitalists exist?
3. Why do investment bankers exist?
4. How do pension funds and mutual funds participate in loanable funds markets?
5. If firms were the only borrowers, what would be the potential sources of loanable funds according to the principles of circular flow?
6. Why do firms, government, households, and the rest of the world demand loanable funds?
7. How do firms, government, households, and the rest of the world supply loanable funds?

Stocks and Bonds

1. What are the rights and benefits of owning shares of common stock?
2. Considering the sale of stock, how does an IPO differ from sales of previously issued shares?
3. How do expectations affect the stock market?
4. What is a bear market, what is a bull market, and how are they measured?
5. Why do business firms and governments issue bonds?
6. How are bondholders different than stockholders?
7. How does the investment banker facilitate the issuance of bonds.
8. What are the elements of a bond?
9. How is the coupon determined?
10. How are bond yields determined?
11. What element of a bond changes upon trading of previously issued bonds?
12. Why would the demand for previously issued bonds increase?
13. Why are interest rates and bond yields the same?
14. Why does a bond price fall when the current interest rate rises?

Interest Rates & Loanable Funds Market

1. What types of bonds normally have the lowest yield?
2. Why is the real interest rate typically less than the nominal interest rate?
3. What is the purpose of modeling a generic aggregate loanable funds market?
4. Why does the supply of loanable funds show a positive relationship with the interest rate.
5. Why does the demand for loanable funds show a negative relationship with the interest rate.
6. Why does equilibrium tend to exist in the loanable funds market.

Balance of Payments

1. What are the two primary categories in the balance of payments?
2. Concerning exports and imports, which has positive and which has negative money flow?
3. What are the reasons for capital inflow?
4. What are the reasons for capital outflow?
5. How might the balance in the current account become greater?
6. How might the balance in the capital account become less?
7. Why would the overall balance of payments equal zero?

Foreign Exchange

1. Why is the trade of currencies necessary for trading goods/services and financial assets.
2. What is depreciation, and what is appreciation of a currency?
3. What causes the supply of dollars in a foreign exchange market?
4. Why is the equilibrium exchange rate consistent with a balance of payments?
5. What would happen if the exchange rate were temporarily above equilibrium?
6. How do greater interest rates (compared to the USA) in ROW affect the exchange rate?
7. How do greater incomes in ROW affect the exchange rate?
8. How do greater price levels (compared to the USA) in ROW affect the exchange rate?

 

Banking

1. What are required reserves, and what are excess reserves?
2. How does a T-account illustrate the situation of a bank after a deposit?
3. What happens to the money that is loaned by a bank?
4. How is money created from deposits within the banking system?
5. What is meant by fractional reserves?
6. What is the simple formula for the money multiplier?
7. What happens when the reserve ratio increases from .10 or 10% to .12 or 12%?
8. How does the FDIC provide stability in the banking system?

Federal Reserve Impacts

1. How is the Fed independent from political officials?
2. Who is the current chair of the Fed?
3. What is the major purpose of the Fed?
4. What are the three tools of the Fed with respect to monetary policy?
5. How does the Fed increase and decrease the money supply through open market operations?
6. How does the result of expansionary monetary policy affect firms who borrow?
7. How does the result of expansionary monetary policy affect households’ purchases of durable goods?
8. How does the short-run income/expenditure multiplier process work given the changes noted in the questions above?
9. How does the result of restrictive monetary policy affect firms who borrow?
10. How does the result of restrictive monetary policy affect households’ purchases of durable goods?
11. How does the short-run income/expenditure multiplier process work given the changes noted in the questions above?
12. What is velocity?
13. What are two formulas for exchange that approximates nominal GDP?
14. What is the quantity theory of money as applied to the long-run?
15. How fast would the money supply need to grow in the long-run in order to witness inflation of 5%?

Fed Funds Market

1. Why does the fed funds market exist?
2. Why does the supply curve slope vertically for fed funds?
3. How does open market operations impact the fed funds market?
4. How does the supply curve shift relative to demand in the fed funds market during expansionary monetary policy?
5. What is the indicator of expansionary monetary policy?
6. How does the supply curve shift relative to demand in the fed funds market during restrictive monetary policy?
7. What is the indicator of restrictive monetary policy?

Output Market

1. How are resources connected to aggregate supply?
2. What categories of expenditures are part of aggregate demand?
3. How are price level and output measured?
4. Why is the aggregate supply curve horizontal in one place, yet vertical in another?
5. How can short-run aggregate supply extend beyond long-run potential output?
6. What are reasons explaining how a rise in the price level causes the quantity of aggregate demand to fall?
7. What is the state of the aggregate activity when inventories are being depleted?

Short-run

1. What are the five sectors that interact in the macro economy?
2. What are the four macro markets appropriate to the advance study of the economy?
3. How are short-run phases in the business cycle illustrated with aggregate supply and demand?
4. How do expansions in the economy start and what happens subsequently?
5. What happens to output, unemployment and inflation during an aggregate demand based expansion?
6. How do recessions in the economy start and what happens subsequently?
7. What happens to output, unemployment and inflation during an aggregate demand based recession?
8. What is a supply-side shock?
9. What curve shifts and how does it shift to indicate stagflation?
10. What happens to output, unemployment and inflation when there is stagflation?

Long-run with Labor Market

1. What is meant by the long-run in comparison to the short-run?
2. What counters a short-run shift of aggregate demand in the long-run?
3. How do you describe the process of expansion in the economy?
4. What has happened when there is a short-run equilibrium beyond potential output?
5. What is demand-pull inflation?
6. Why does the labor supply curve shift backwards as a result of demand-pull inflation?
7. Why does the aggregate supply curve shift backwards when the labor market reacts?
8. What is the long-run result of an expansion that went beyond potential in the short-run?
9. Summarize how the economy eventually rests at its long-run potential output.

Advanced Analysis of Monetary Policy

1. What is the difference between discretionary and rules based monetary policy?
2. What is the potential impact of expansionary monetary policy in the short-run and the long-run?
3. Under what conditions would the Fed instigate expansionary monetary policy?
4. How does expansionary monetary policy affect autonomous and induced spending?
5. What is the ideal solution in the long-run from expansionary monetary policy?
6. What happens in the short-run if expansionary monetary policy is too aggressive?
7. What happens in the long-run if expansionary monetary policy is too aggressive?
8. How would the Fed react when stagflation is a threat?
9. What is the fool in the shower problem?
10. Does monetary policy have a long inside or long outside lag?

 

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