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What happens to the government surplus when the economy goes into a recession? What happens to the full-employment surplus when economy goes into a recession?
Does money growth cause inflation, or does inflation cause money growth? Discuss. How does your answer depend on the behavior of the Fed?
What are the consequences for the money supply of the increased demand for cash?
What happens to reserve demand and the supply of reserves? If instead the Fed keeps the supply of reserves constant, what happens to the funds rate?
Using a supply and demand diagram of the federal funds market, show how an increase in reserve requirements would affect the equilibrium federal funds rate.
Why does the Fed increase the supply of reserves when prices rise if it is targeting the federal funds rate?
Why will the Fed need to increase or to decrease the supply of reserves? Will it need to engage in an open market purchase or a sale to accomplish this?
Why is capital shortage alone not the most important factor? How do some of the factors interact with each other?
List some important ways in which LDCs differ from more-developed countries. How have different developing countries fared over recent decades?
The government is considering using expansionary fiscal or monetary policy to help. Which type of policy will result in a higher level of net exports?
If monetary policy is used to stimulate the economy and return it to full employment, what happens to the real interest rate, investment, and future output?
If the United States raises its interest rate and Canada does not, will the Canadian dollar appreciate. What will happen to the value of the Canadian dollar?
If firms import a lot of raw materials, what impact would a depreciation in the dollar have on the inflation adjustment (IA) curve?
As we move up and to the left on a given ADI curve, what happens to the value of the domestic currency and net exports?
What is the relationship between the interest rate and the exchange rate? What is the relationship between the exchange rate and net exports?
Why does the change in the exchange rate act to increase the reduction in imports or does it partially offset the initial reduction in imports? Explain.
If the government wanted to reduce the trade deficit by altering the exchange rate, what sort of monetary policy should it employ? Explain.
How does your analysis change if the exchange rate had fallen to 1 euro per dollar? How much would $10,000 be in euros?
Why can a country run an independent monetary policy to achieve domestic economic policy goals if it is committed to maintaining a fixed exchange rate?
What problems result from government attempts to stabilize the exchange rate at a level that is not the equilibrium level?
What are the costs of exchange rate instability? How might the government attempt to reduce instability in exchange rates?
Why are expectations concerning changes in the exchange rate important? How do relative rates of inflation affect those expectations?
If the European Central Bank raises interest rates in Europe while the Fed leaves U.S. Why would you expect the dollar to appreciate or to depreciate?
How might this fact affect the balance between the use of monetary and fiscal policy for short-run stabilization?
If fiscal policy is used to stimulate the economy and return it to full employment, what happens to the real interest rate, investment, and future output?