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Chapter 13

Define discretionary fiscal policy. What is the goal of fiscal policy? How will fiscal policy be implemented in case of a recessionary gap? How about in case of an inflationary gap?

How will a change in taxation impact the AD curve? Explain and graph.

What is crowding out?

What does the Laffer curve show? What are the reasons why tax revenue increases and beyond a certain tax rate, decrease?

Explain how Supply Side economics work?

Discuss the different lags that fiscal policy could be faced with.

What are automatic stabilizers? Give examples and show they workin case the economy is in a recession or in a situation of inflation.

In the appendix you should be able to calculate problems using the balanced budget multiplier.

Chapter 14

How large is the national debt today? How large was the federal deficit for 2016? Look at figure 14-1. Why do you think we experienced a federal surplus around the year 2000?

Look at table 14-1. How much does the federal government pay in interest on the national debt PER HOUR?

Discuss the burdens of the national debt (public debt). How does the burden of the national debt held by foreigners differ from the consequences of the debt held by local citizens. What are the consequences of budget deficits?

How could we reduce budget deficits?

What is the trade deficit?

Chapter 15

List the functions of money. Rank the different forms of asset in terms of their liquidity. What are the characteristics of a good that will make it a successful money standard? What determines the value of money? What backs the US currency?

List and compare the different financial intermediary.

Look at the history of the Federal Reserve System. Discuss the different functions of the Fed. What is meant by the “fractional reserve system”? How come it does not undermine the security and safety of bank deposits? How does the banking system create money? Explain how the money multiplier works. Calculate the money multiplier. Calculate how much money supply will increase given a certain reserve ratio. How much of that increase in money supply is real money and how much is “created”.

What is the FDIC? Will it be able to prevent a serious run on the banking sytem?

Chapter 16:

Discuss the three demands for money.

Discuss the ways that the Fed will influence interest rates (open market operations, change in the reserve requirements, change in discount rate) – the videotaped lecture will help you understand the way the Fed could change money supply which will then change interest rates given the demand for money.

What is the relationship between the price of bonds and interest rates. What is the yield of the bond?

Explain in detail what happens when the Fed increases the money supply? You should be able to graph that as well.

How is the value of the dollar determined in the US? How is the value of the dollar determined on international markets (dollar appreciation or depreciation). How will the depreciation of the dollar impact the US economy? (look at the changes in the AD)

What is the equation of exchange (quantity theory of money)? How does it explain changes in employment and the price level? Analyze figure 16-7 and explain what happens to inflation and employment as the Fed changes money supply.

What are the pros and cons of the Fed’s credit policy?

Chapter 17:

Define the natural rate of unemployment. Does the natural rate of unemployment differ among countries? Why?

What monetary tools would you use in case of an expansionary monetary policy? What steps should be taken to implementan expansionary fiscal policy?

What does the Phillips curve represent? What is measured on each axis? What happens when you move up and down the Phillips curve? What does it mean when the economy moves to a point to the right of the Phillips curve? When you move to a point to the left of the Phillips curve?

When would you use an active and when would you use a passive policy? See table 17-1


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