TAKE-HOME PORTION OF THE MACRO-ECONOMICS EXAM IS BELOW...
Welcome back to "Part II" of the Federal Reserve Board Federal Open-Market Committee Meeting
This group meets eight times a year. The FOMC discusses current and near-term economic and financial conditions, prior to making a decision to raise, lower or keep short-term interest rates the same. Here is the official "Press Release" issued on January 31st. The federal funds rate (the one you will consider changing) is currently targeted at 4.5%. (When I did this last year in April, the rate was 2.75.) Those of you wanting more historical data should look at changes in the federal funds rate over time.
Agenda for the Simulation: The resources that you might need are below...
We did do some of this last time, but we'll pick it up where we left off on Friday...
* Chairman Bernanke calls the meeting to order.
* Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your two minutes of fame, try to cover these...)
* provide an overview of current economic conditions in your district
* discuss the prospects for economic conditions for the near future
* identify any economic issues of special concern at the present time
* recommend whether short-term interest rates should be raised, lowered or kept the same.
* Chairman and Board of Governors offer recommendations regarding the direction for short-term interest rates
* Discussion of issues of controversy
* Each member of the Board of Governors and the Bank presidents cast a vote regarding the direction for interest rates, with the decision going to the majority.
"The Federal Reserve Districts and Banks" - Clicking on the area of the map you represent will take you to that district's home page. There you can find information relating to your region.
Board of Governors of the Federal Reserve- Here is their home page.
"The FRB Beige Book" - This collection of information is compiled 8 times a year for use at the FOMC meetings. We'll use the January 18th data. (The next real meeting for them is in March.) This link will take you to the overall summary. In addition, the links on the left will take you to "your" district. There, you can find a one "page" overview of recent developments in your district.
TAKE-HOME PORTION OF THE MACRO-ECONOMICS EXAM
The take-home portion is worth 30 points, and it will be due on Wednesday, March 22nd. The questions are below. Of course, I'd love to get them before break, but that's up to you.
Problems: (10 points)
1. Components of GDP: (4 points) - Determine if each of the items listed below should be included in GDP and under which component or components: Consumption, Investment, Government, Exports or Imports.
1. A cell phone produced and sold in the US by a Japanese company
2. MPA tuition
3. Social Security payments
4. Best Buy stock purchased from Best Buy
5. The purchase of a plane ticket to Shanghai on Air China
6. The purchase of a US Treasury Bond by an individual
7. A new factory
8. The sale of a previously occupied house
9. A bottle of French wine, sold in the US
10. A television produced, but not sold.
11. A dinner at a restaurant
12. A computer produced in the US and sold in Canada
2. Calculating GDP: (3 points) - Given the following data (in billions of current dollars), calculate the current level of gross domestic product.
Consumption spending $6,000
Social security payments 1,400
Income tax receipts 1,700
Business purchases of new factories and equipment and changes in inventories 2,500
Federal government spending on goods and services 1,700
Construction of new homes 400
State and local spending on goods and services 1,500
3. Federal Reserve "Tools" and Effects: (3 points) - For each Fed "action," explain its effect on the money supply. Will the listed action increase or decrease the money supply? Fill in 3a through 3f.
Open Market Operations
3a. The Federal Reserve buys securities
3b. The Federal Reserve sells securities
3c. Raising the discount rate
3d. Lowering the discount rate
3e. Raising the reserve requirement
3f. Lowering the reserve requirement
Short answer: (20 points - 5 points each) You need to do four of the following "short answer" questions. Choose any four that you would like from the list. Answers should be between 300 - 500 words or so. You can either print them out or submit them electronically to me as an e-mail attachement.
A. You are asked to present an Emmy Award for the category of "The Most Influential Economist". The three nominees, lucky for us, are Adam Smith, Karl Marx, and John Maynard Keynes. Tell me who you think should win the award. More importantly, provide justification for your choice. (This is a carry-over from last year when we also read Explaining Economics. It's certainly one you could easily research, but we didn't really "teach" these guys this time around.)
B. Martians have landed on the earth, and they want to better understand the American economy. You are allowed to teach them about the two (and only two) economic measures or indicators that you believe reveal the most about the economy. Which two would you choose to explain? Why?
C. Assume that the United States needs a new "chief economist". You have been tapped for the job. At your Senate confirmation hearing, you are asked if your macroeconomic "view" relies more heavily on the "demand" approach or the "supply" side. What would you tell them? Why?
D. Taxes are, however unfortunately, a fact of life in America. Assume that you are on the committee appointed to look at "tax reform". What would you recommend as the best system of taxation in America? (You don't need to talk about specific numbers, but be sure that your choices reflect the values you would want to emphasize in our society.)
E. Here's a "softball" for you. What do you believe should be the role of government in managing and/or regulating the economy?
F. The Federal Reserve Board has been responsible for conducting our nation's money supply for decades. Critics charge that it is often ineffective, sometimes making things worse. Based on what you know, should changes be made in the way the Fed operates? Why or why not?
G. Do budget deficits matter? Justify your answer with reference to ideas discussed in class or the readings.