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~ Final Exam Review Questions ~
[ Draft Version ]
1) The Wall Street Journal reported that "Recent Financial Market Turmoil Puts Crimp on Capital Spending" . After reading this article, answer the following questions:  First: Would it be correct to conclude that the GDP will decrease by the same amount as a decrease in Investment Expenditures and that there is no need to consider the ‘multiplier effect' in this case? Explain and illustrate with the AE & AO Model. Second: List the 'determinants' of Investment Expenditures emphasized in the article. Relevant charts of Investment Expenditures can be accessed at the: "Briefing Room" , and "Economagic" .

2) The video "The Fed Today" informed us that the Federal Reserve was created only for the purpose of regulating and supervising the banking system to prevent bank failures. T/F, Explain. Optional: A visit to the Board of Governors of the Federal Reserve and The Federal Reserve Banks   web sites may be instructive.

3) Why would The Federal Reserve conduct an "Easy" Money and a "Lower" Interest Rate type of Monetary Policy at this time? Be specific, note the latest economic performance indicators (unemployment, GDP growth rate, etc...).  Explain how the Fed's "expansionary" policy would affect the economy? Illustratewith the "AD& AS" Model. Optional: An excellent source of info on the Federal Reserve System is the "FOMC At A Glance" . Relevant charts can be accessed at "Economagic" , and the "Briefing Room" .

4) According to Burton Malkiel- "Wall Street Moves Main Street" , there are 'three paths' through which stock prices influence the real economy. T/F, Explain.

5)  Recall our class discussion of the "Stock Market & Interest Rates" and explain how changes in interest rates can influence the value of a corporation's stock price. In other words, explain how Alan Greenspan and "The Fed" can affect the Stock Market? Review the "Value of the Firm" Model .

6) What is the meaning of the"Natural Rate" of Unemployment ? What is the importance of the "Natural rate" to the current ‘debate' over the appropriate Monetary policy?  Explain. Read "Concept of a 'Natural Rate' of Unemployment Is Grossly Inflated". Optional reading: "Fear of Full Employment", and "Inflation".

7)  During a recession, Fiscal Policy in the form of discretionary policy can be used to supplement the built-in stabilizers and alter the level of aggregate expenditure in order to achieve potential output- a full employment level of GDP. Briefly explain and illustrate with the "AD & AS Model" the likely effect on the Price Level and the GDP of the above policy. In addition, briefly explain and illustrate with the "Loanable Funds Model", the implications for interest rates and the volume of credit. Optional: An 'online' interview on the "Economic Stimulus Package". More info on Fiscal Policy: 1) Office of Management and Budget; 2) Budget Simulation ; 3) The Bureau of Public Debt .

8) Marx's Model of Capitalism  (M - C....P....C'- M') informs us about the 'origins of crisis' and the 'nature of the business cycle'. Also, his (as well as Adam Smith's) thoughts may help us understand the issue of 'Alienation' (recall 'Charlie' in "Modern Times") and its affect on 'productivity' and 'well-being' of workers. Review the "Three Economists". Optional: You may find the article "Manifesto Destiny: The Enduring Sexiness of Karl Marx" interesting.

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