1. What is the demand for money? What are the types of Money Demand? Explain further utilizing the determinants of Money Demand. How does the demand for money depend on the nominal interest rate? On the price level? On income? Explain in terms of the costs and benefits of holding money?
2. Given moderate inflation (double digits), what combination, if any of monetary and / or fiscal policy would you recommend and why?
3. What are the three major tools/ instruments of monetary policy and who/what is affected by them—and how? How do the Fed’s Monetary Policy Targeting Rues function in the policy objective of stabilizing growth?
4. In an inflationary fiscal cycle, explain the effects a COLA increase would have on transfer payments, AS, AD, prices, employment, and real GDP.
5. If the Federal Reserve banks mailed everyone (all 300 million of us) a new $ 100 bill, what would happen to prices, output and income? By how much (if determinable) would the money supply change if the Reserve Ratio us 10 percent?
6. Interest rates change. Yet interest rates on credit card balances remain high relative to other rates, often averaging more than 18 percent. Several bills in congress and in some states have been introduced that would impose a nationwide ceiling on credit card interest rates. Why do we have high interest rates on credit cards when other rates are so much lower?
7. The “Fiscal Cliff” is approaching. It is composed of at least these three components: expiration of the Bush tax cuts; the “sequestration” (across the board cuts in all Federal Gov. spending); and in January, the need to raise the Treasury Bonds Debt Ceiling. As we have discussed and you are aware—the country is polarized politically. Most economists and non-partisan policy analysts seem to agree that going off the Cliff would be disastrous for the economy. Hundreds of thousands of jobs will bne lost in January, taxes will go up for everyone, and the country possibly will slide back into an even deeper recession than the 2007-2010 event. Subjectively, do you think the politicians will carve out a lasting agreement, let the economy go over the Cliff, or “kick the can: down the road” for a few months. Use economic and political reasoning for your answer. I’m not interested in your political views--just your possible economic rationale for a political solution.