Questions:
1. Discuss the factors that led to deregulation of U.S. financial markets in the 1980s.
2. Explain how banks are financial intermediaries. What are reserves? What are excess reserves? Explain how the Fed can affect the quantity of excess reserves in the banking system.
3. What are the differences between M1 and M2?
4. What are the three functions of money, and why are they important?
5. How can the Fed affect the money supply by using the discount rate?
6. Explain how the short-run Phillip curve, the long-run Phillip curve, the short-run aggregate supply curve, the long-run aggregate supply curve, and the natural rate hypothesis are all related. How do active and passive views of these concepts differ?
7. Explain why the Fed can attempt to target either changes in the money supply or changes in interest rates, but not both.
8. How does monetary policy affect aggregate demand in the short run? How does monetary policy affect aggregate demand in the long run?
9. What is meant by the demand for money? Which way does the demand curve for money slope? Why?
10. Explain how an active policy differs for a passive policy.
11. What is foreign aid and what is the goal of foreign aid? Does foreign aid promote economic development? Explain briefly.
12. Describe developing countries and how they differ from industrial market economies. How can international trade aid development? In what ways does the international economy impose problems on developing countries?
13. Why can't all the balance of payment accounts be in surprise? What factors determine the demand for British pounds in foreign exchange markets? How are exchange rates determined under a flexible exchange rate system?
14. How can two countries both be better off as a result of trade? How can tariffs protect U.S. jobs? Do tariffs lead to a net increase in jobs? Explain. Who are the winners and losers from trade restrictions? Given that trade restrictions impose losses on an economy, why are trade restrictions so common?
15. How did the Bretton Woods system operate? What caused its collapse? Some think the current system of managed but floating rates is too unstable. What would generate the instability?