CALIFORNIA STATE UNIVERSITY, SACRAMENTO
Department of Economics
Prof. A. R. Gutowsky
Economics 1A
PROBLEM SET 5
Chapter 15
1. What is the quantity theory of money?
(A) What is velocity?
(B) What are the determinants of velocity?
2. What is the debate all about on the use of stabilization policy?
3. Should the FED control the money supply or the rate of interest? Explain the nature of
this controversy.
4. Should the government intervene? What is this debate all about?
(A) What is the rule versus discretion debate
all about?
Chapter 16
1. Should the budget be balanced?
2. What is the relationship between budget deficits and the national debt?
(A) What is a structural deficit/surplus?
3. Evaluate the agreements about the burden of the national debt.
4. What is crowding in? Crowding out?
5. What is the "true" burden of the national debt?
6. What is the debate all about that focuses on the "policy mix?"
7. What is the difference between mandatory and non-mandatory (discretionary) spending ?
8. What is the difference between means-tested programs and non-means-tested government
programs?
9. What is the difference between on-budget and off-budget items?
10. How did the budgetary picture become so favorable? (See CBO)?
11. Why does the Federal government have to pay interest on the national debt?
Chapter 17
1. Why do economists and politicians disagree?
2. What is the dilemma of demand management?
Chapter 19
1. What is an exchange rate?
2. What is the difference between appreciation and depreciation?
(A) How do these terms relate to the trade
deficit?
(1)
What is a trade deficit? Trade surplus?
3. What are the determinants of exchange rates in a free market?
(A) What is a dirty float?
(B) What is a clean float?
4. What is purchasing power parity (PPP)?
(A) Discuss PPP as a long-run theory of
exchange rate determination.
5. How do changes in economic activity influence the exchange rate?
(A) What will happen to the exchange rate if
the US goes into a recession? Experiences fast growth?
The ROW
(Rest of the World) experiences a recession? Fast growth?
6. How do changes in the interest rate affect the exchange rate?
(A) The US increases interest rates, what will
happen to the exchange rate (i.e., the $)?
7. What is the relationship between fixed exchange rates and the balance of payments?
(A) What is the balance of payments?
(1)
What is the current account?
(2)
What is the capital account?
8. What is the gold standard?
9. What is Bretton Woods?
10. What is the adjustment mechanism under fixed exchange rates?
(1)
Why do countries attempt to maintain fixed exchange rates?
11. What is meant by the current "nonsystem?"
12. What is the IMF?
13. What is the "Euro?"
Chapter 20
1. What are the determinants of net exports?
(A) What are the effects of a change in the
exchange rate?
(1)
How does a change in the exchange rate affect the AD schedule?
(2)
How does a change in the exchange rate affect the AS schedule?
2. How does a change in the interest rate affect the exchange rate?
(A) How does a tight monetary policy affect the
exchange rate?
(1)
What are capital flows?
A.
Why are international capital flows sometimes labeled hot money?
B.
ROW interest rates increases, what will happen to capital flows and $ exchange rate?
3. Explain how fiscal policy works in an open economy.
(A) How will an expansionary fiscal policy
affect the $ exchange rate?
(B) How will a restrictive fiscal policy affect
the $ exchange rate?
4. Repeat question (3) for an expansionary monetary policy. Restrictive monetary policy.
5. What is the link between budget deficits and the trade deficit?
(A) What is the link between budget surpluses
and the trade deficit?
6. Is the trade deficit a problem?
(A) What are the possible cures to the US trade
deficit?