ECON2301 DCCC Inflation Using Fiscal and Monetary Policy Tools Questions I have also added to it a file showing how to answer the questions. Macroeconomics

ECON2301 DCCC Inflation Using Fiscal and Monetary Policy Tools Questions I have also added to it a file showing how to answer the questions. Macroeconomics 2301
Potential questions and study guide for
Exam 3
Any 6 of these questions will be on the exam.
1. Addressing inflation using Fiscal and Monetary Policy tools.
Scenario – The US economy is currently experiencing high rates of inflation. You
have Fiscal and Monetary policy tools available to address this problem:
a. To attack the problem of inflation you must select one Monetary Policy
tool and one Fiscal Policy tool. Write down the name of your Fiscal Policy
tool and your Monetary Policy tool.
i. Think the options through and write down your choices.
b. Please explain why you selected the tools that you selected and why you did
not select the other choices? Do this for both monetary and fiscal policy
tools!
i. Specifically, explain what is so good about the tool you selected and what is not so
good about the tools you did not select? Do this for both the Monetary Policy tool
and the Fiscal Policy tool. The key here is to use some decision criteria in making
your choice.
c. Thoroughly and completely explain how your solution (both the monetary
and the fiscal policy tool) would work to solve the problem of inflation, and
indicate the impact your solution would have on at least 5 key economic
variables. Be specific.
i. Present this using the chain of events format with up or down arrows to indicate the
direction of impact on each variable. I need to see the detail.
2. Addressing recession using Fiscal and Monetary Policy tools.
Scenario – The US economy is currently experiencing recession. You have Fiscal
and Monetary policy tools available to address this problem:
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otherwise noted.
a. To attack the problem of recession, you must select at least one Monetary
Policy tool and one Fiscal Policy tool. Write down the name of your Fiscal
Policy tool and your Monetary Policy tool.
i. Think the options through and write down your choices.
b. Please explain why you selected the tools that you selected and why you did
not select the other choices? Do this for both monetary and fiscal policy
tools!
i.
Specifically, explain what is so good about the tool you selected and what is not so
good about the tools you did not select? Do this for both the Monetary Policy tool
and the Fiscal Policy tool. The key here is to use some decision criteria in making
your choice.
c. Thoroughly and completely explain how your solution (both monetary and
fiscal policy tools) would work to solve the problem of recession, and
indicate the impact your solution would have on the key economic
variables. Be specific.
i. Present this using the chain of events format with up or down arrows to indicate the
direction of impact on each variable. I need to see the detail.
3. Please list the 4 key supply side growth factors we discussed, and discuss their
viability in terms of getting our economy growing again, given that today our
economy is not growing.
a. The slides should provide you with what you need here.
b. The issue of viability – if the economy is growing slowly or not at all, do we have any chance
of achieving success with each of the 4 growth factors? What will likely cause us problems?
What approaches could we use to increase our odds of success? You need to think carefully
on this one.
4. Creative problem solving
Scenario #1:
The rate of growth in the US economy is currently 0.5% annually. Your mission
is to increase our growth rate to at least 4% annually, without setting off
unacceptable levels of inflation. You have the tools of fiscal and monetary policy
available.
****Focus on increasing the quantity and / or quality of natural resources as a
means to stimulate economic growth.****
Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless
otherwise noted.
a. Present your solution to the problem – write it down first.
i. Strategy for creating your solution:
1. First identify a specific natural resource and think through how having more
of it or a better quality of it could lead to significantly increasing the GDP
growth rate. Might have to try this with a few resources to find one that
works.
2. This will lead you to a general solution to the problem.
3. Write it down! The explanation of the solution should take at least one good
paragraph!
4. Determine what will be required to make the solution happen, typically it is
money.
5. Think of ways to use your fiscal and monetary policy tools to get the needed
money. To attack the problem you must select at least one Monetary Policy
tool and one Fiscal Policy tool.
b. Write down the names of the one fiscal policy tool and the one monetary
policy tools you picked.
i. Remember – for this question you need one Fiscal Policy tool and one Monetary
Policy tool.
c. Explain why you picked the tools that you picked and why you did not
select the other choices.
i. Specifically explain, what is good about the tool you selected and what is not so good
about the tools you did not select? Do this for both the monetary and fiscal policy
tool that you selected. The key here is to use some decision criteria in making your
choice.
d. Thoroughly and completely explain how your solution would work to solve
the problem. You must include and explain the use of your monetary and
fiscal policy tools and indicate the impact your solution would have on the
key economic variables. Please present your answer using a chain of events
format. Be specific. I need to see the detail.
5. Creative problem solving.
Scenario #2:
Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless
otherwise noted.
The rate of growth in the US economy is currently 0.5% annually. Your mission
is to increase our growth rate to at least 4% annually, without setting off
unacceptable levels of inflation. You have the tools of fiscal and monetary policy
available.
****Focus on increasing the quantity and / or quality of human capital as a means
to stimulate economic growth.****
a. Present your solution to the problem – write it down.
i. Strategy for creating your solution:
1. First choose to focus on increasing the quantity of human capital or the quality
of human capital to significantly increasing the GDP growth rate.
2. This will lead you to a general solution to the problem.
3. Write it down! The explanation of the solution should take at least one good
paragraph!
4. Determine what will be required to make the solution happen, typically it is
money.
5. Think of ways to use your fiscal and monetary policy tools to get the needed
money. To attack the problem you must select at least one Monetary Policy
tool and one Fiscal Policy tool.
b. Write down the name(s) of the one fiscal policy tool and the one monetary
policy tool that you picked.
i. Remember – for this question you need one Fiscal Policy tool and one Monetary
Policy tool.
c. Explain why you picked the tools that you picked, and why you did not
select the other choices.
i. Specifically explain, what is good about the tool you selected and what is not so good
about the tools you did not select? Do this for both the monetary and fiscal policy
tool that you selected. The key here is to use some decision criteria in making your
choice.
d. Thoroughly and completely explain how your solution would work to solve
the problem. You must include and explain the use of your monetary and
fiscal policy tools and indicate the impact your solution would have on the
key economic variables. Please present your answer using a chain of events
format. Be specific. I need to see the detail.
Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless
otherwise noted.
6. Over the past few years, several countries have been in danger of defaulting on
their national debt.
Strategy: use your favorite search engine to identify countries that have already faced this
problem. Do a bit of research to support your answers to parts (a) and (b).
a. Please pick one country and discuss what might happen to the economy of
that country if it actually defaulted on their debt. You would of course
want to explain what defaulting on the national debt means.
b. Please discuss two solutions to solving the default problem along with the
impact the solutions might have on at least 5 key economic variables.
7. Currently the U.S. national debt is over $20 Trillion. Many people feel the high
level of the national debt is a very bad thing and it should be paid off.
a. Advantages of paying off the national debt.
i. Explain what would be involved in paying off the national debt.
ii. List and explain in detail, 3 advantages of paying off the national
debt.
b. Disadvantages of paying off the national debt?
i. List and explain in detail, 3 disadvantages of paying off the national
debt.
c. List and explain 3 approaches to getting the money to eliminate the
national debt. Include the impacts each approach would have on the U.S.
economy.
d. State which approach you would use to get the money. Why did you select
the approach that you selected and not the alternatives?
e. Thoroughly and completely explain how your approach would work to
eliminate the national debt, and explain the impact your solution would
have on at least 5 key economic variables?
i. Implement your approach and use the what-happens-next approach to capture the
detail of how your solution might work.
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otherwise noted.
8. Please explain the difference between the transaction demand for money and the
asset demand for money, and how they work together to determine the total
demand for money.
a. The slides and audio should help with this, as well as other sources of information.
9. The Federal Reserve is responsible for managing the U.S. money supply.
a. List and thoroughly explain 5 of the functions of the Federal Reserve
System. Be specific.
i. Use the slides, audio, and the Federal Reserve website for this.
b. Please thoroughly and completely explain how money is created and
destroyed.
i. Please use the slides and audio for this.
c. Please thoroughly and completely explain how the 3 tools of monetary
policy would work to address the problem of recession. Include the impact
of those tools on the key economic variables. Specifically, I want you to
explain how each of the 3 tools would work using the chain of events
approach.
i. Take each of the 3 monetary policy tools and show how each would work to address
the problem of recession. Use the what-happens-next approach to ensure that you are
being as specific as possible.
d. Please thoroughly and completely explain how the 3 tools of monetary
policy would work to address the problem of inflation. Include the impact
of those tools on the key economic variables. Specifically, I want you to
explain how each of the 3 tools would work using the chain of events
approach.
10. Please select a bill currently in congress and provide an economic impact
analysis.
a. Provide a summary of the Bill, including the objective of the Bill.
b. In your analysis of the Bill
i. Explain who will be helped and how.
ii. Explain who will be hurt and how.
iii. Explain where the money will come from to fund the Bill.
iv. Explain how the money will be spent.
v. Explain the Economic impact of the Bill on the U.S. Economy.
Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless
otherwise noted.
vi. Explain how the Bill will impact the 1% and the 99%.
Congress.gov is a good place to start. Please be thorough in your analysis. Try to think about how
the impacts of this legislation will work its way through our economy and how it will impact people,
businesses, the environment, etc. What groups of people will be impacted and how? What industries
will be impacted and how? Etc. Be as thorough as possible. We need to be able to complete this
type of analysis for the crazy stuff congress does, before the bills get passed so that we can either
support them or get them stopped.
Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless
otherwise noted.
Here is an example of a question along with a possible answer.
Please note the format. Please do not write your answers in the standard
block paragraph format!
This is by no means the perfect answer. It could certainly be better. But, I
wanted to give you a sense of what I am looking for in an answer.
Question:
Please thoroughly and completely explain the law of demand.
Answer:
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Definition of the law of demand
o Demand is a schedule or curve that shows the various amounts of a
product that consumers are willing and able to purchase at each of a series
of possible prices during a specified period of time.
The law of demand tells us that there is an inverse relationship between price and
quantity demanded. This is supported by the following three concepts:
Diminishing marginal utility which means consumption of successive units of a
particular product will yield less and less marginal utility.
o Marginal utility – the change in utility that results from a one-unit change
in the consumption of a good or service.
o The income effect – which means that a lower price increases the
purchasing power of the buyers money income allowing the buyer to
purchase more of the product than before.
o The substitution effect – which means that at a lower price buyers are
motivated to substitute what is now a less expensive product for similar
products that are now relatively more expensive.
The law of demand is graphically represented as a downward sloping curve.
An increase in demand is expressed graphically as a shift of the demand curve to
the right while a decrease in demand is expressed as a shift of the demand curve
to the left.
An increase or decrease in quantity demanded is represented as a movement alone
a given demand curve and is caused by an increase or decrease of the price of the
product.
A demand curve will shift as a result of a change in one of the determinants of
demand which are:
 Buyer tastes – a change in tastes can cause buyers to demand more, or less of
a product
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Number of buyers – an increase in the number of buyers will result in an
increase in the demand for a product
Income –
a. If income increases and the demand for a good increases, that good is
called a normal good.
b. If income increases and the demand for a good decreases, that good is
called an inferior good
Expectations – expectations of buyers will impact demand. If the buyer
expects the price of the product to increase, this would likely cause a decrease
in demand for the product.
Prices of related goods –
a. If the price of a good increases, we would expect the demand for the
substitute good to increase.
b. If the price of a good increases, we would expect the demand for its
complement to decrease.
Price of non-related goods – a price change for one good would have no
impact on the demand for the other good.

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