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. Why did you select the tools that you selected and why did you not select the
alternative? Do this for the fiscal policy tool and the monetary policy tool.
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.
c. Thoroughly and completely explain how your solution would work to solve the
problem of inflation, and indicate the impact your solution would have on the
key economic variables.
i. Present this using the chain of events format with up or down arrows to
indicate the direction of impact on each variable.
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:
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. Why did you select the tools that you selected, and why did you not select the
alternative?
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.
c. Thoroughly and completely explain how your solution would work to solve the
problem of inflation, and indicate the impact your solution would have on the
key economic variables.
i. Present this using the chain of events format with up or down arrows to
indicate the direction of impact on each variable.
3. Please list the 4 key supply side growth factors and discuss their viability in a slow
growth / no growth future.
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?
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.****
a. Present your solution to the problem – write it down.
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.
2. This will lead you to a general solution to the problem.
3. Determine what will be required to make the solution happen,
typically it is money.
4. Think of ways to use your fiscal and monetary policy tools to get
the needed money.
5. 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 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.
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.
d. Thoroughly and completely explain how your solution would work to solve the
problem, and indicate the impact your solution would have on the key economic
variables using up or down arrows. Please present your answer using a chain of
events format.
5. Creative problem solving scenario #2: 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 think through which approach you want to use – get more
workers or improve the quality of the workers you already have, to
accomplish the goal of significantly increasing the GDP growth
rate.
2. This will lead you to a general solution to the problem.
3. Determine what will be required to make the solution happen,
typically it is money.
4. Think of ways to use your fiscal and monetary policy tools to get
the needed money.
5. 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 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.
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.
d. Thoroughly and completely explain how your solution would work to solve the
problem, and indicate the impact your solution would have on the key economic
variables using up or down arrows. Please present your answer using a chain of
events format.
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 discuss the possible implications of these countries actually defaulting
on their debt.
b. Please discuss two solutions to solving their problem along with the impact of
the solutions on key economic variables.
7. Currently the U.S. national debt is over $17 Trillion. Many people feel the high level
of the national debt is a very bad thing and it should be paid off.
a. List and explain 3 advantages and 3 disadvantages of eliminating the national
debt?
i. Think about what the country could do if we did not have the national
debt.
ii. What would we be saving if we had no debt?
iii. Think about the disadvantages of paying the thing off. Where would the
money come from? How would we get it? What would it cost just to get
the money? What would we lose if we paid it off?
b. What approach would you use to accomplish the elimination of the national
debt?
i. What are the different ways to get the money to pay it off, and what
might be the impacts of those approaches?
ii. Once you had the money, how would you go about paying off the debt?
iii. What might be the impacts of paying it off?
c. Why did you select the approach that you selected and not the alternatives?
i. Talk about what was so great about the approach you picked and what
was not so great about the approaches you did not pick.
d. Thoroughly and completely explain how your approach would work to
eliminate the national debt, and explain the impact your solution would have on
the key economic variables?
i. Implement your approach and use the what-happens-next approach to
capture the detail of how your solution might work.
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. Please thoroughly and completely explain how money is created and destroyed.
i. Please use the slides and audio for this.
b. Please thoroughly and completely explain how the Federal Reserve would use
the 3 tools of monetary policy to address the problem of recession, including
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.
c. Please thoroughly and completely explain how the Federal Reserve would use
the 3 tools of monetary policy to address the problem of inflation, including 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 inflation. Use the what-happens-next approach
to ensure that you are being as specific as possible.
10. List and thoroughly explain 5 of the functions of the Federal Reserve System.
a. Use the slides, audio, and the Federal Reserve website for this.
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