Explain internal balance and external balance.
Discuss the components of Y = C + Id + G + (X – M). Specifically,
What is the most important variable in explaining consumption behavior? Discuss the consumption function and the marginal propensity to consume.
What is the most important variable I explaining investment by firms? Explain why this is.
Discuss the import function and the marginal propensity to import.
Demonstrate algebraically how the goods market equilibrium condition collapses to the capital market equilibrium condition S(Y) = I(i), or S(Y) = Id + If.
Draw the diagram for the aggregate expenditure model, explain all of its elements, and show how an increase in government spending (autonomous spending) increases GDP.
Derive the IS and LM curves and explain their slopes, and compare them to their neoclassical counterparts.
Discuss the mathematical solution of the IS-LM model. What variables are assumed fixed and outside the scope of (exogenous to) the model?
Explain the derivation of the FE curve for the extended IS-LM model. Explain the effect of Y and i on the balance of payments. Discuss and explain the slope of the FE curve and its relationship to capital mobility.
Using the extended IS-LM model, show the three possible configurations of the FE curve relative the IS-LM equilibrium, and the effect of each on the settlements balance. What do these positions imply under fixed and floating exchange rates?
What are real exchange rates and how do these affect imports and exports (import functions and export functions)?
Explain fractional reserve banking and the money multiplier process.
Explain how foreign exchange intervention can change the domestic money supply. What is sterilization and how is it used to change this?
Explain how an increase in the domestic money supply can worsen the trade balance, affecting the payments balance.
Discuss the effects of expansionary fiscal policy under fixed exchange rates. Explain the effects on the current account and on the capital account.
Using the extended IS-LM model, explain the difficulty of conducting domestic monetary policy under a fixed exchange rate regime with perfect capital mobility. Explain why under the same conditions, fiscal policy works almost perfectly.
Using the extended IS-LM model under fixed exchange rates, explain the shifts and adjustments that would occur in response to an international capital-flow shock.
Under some conditions with fixed exchange rates, domestic policy may run afoul of exchange rate policy. That is to say, policymakers cannot seem to address in a simple way a to address an internal problem without causing an external one. Explain this and the Mundell-Fleming policy mix solution. What is Mundell’s assignment rule?
What is the J-Curvc? Following a devaluation or depreciation of the currency, Why does the trade balance worsen initially, and then improve later? In other words, explain the shape of the curve.
Why would countries choose to coordinate macroeconomic policies? Discuss the problems of forming a free-trade, single-currency area like the Euro area. What kinds of coordination are necessary? What individual policy may the individual nations utilize and why?
Explain the effects of expansionary domestic monetary policy in a country with flexible exchange rates. Explain the linkages as the money moves through the economy and has its effects on the capital and current accounts as well as on domestic spending. Is the monetary policy enhanced or made weaker by the flexible exchange rates? Explan.
Explain the effects of expansionary fiscal policy in a country with flexible exchange rates. Explain the linkages as the changes move through the economy and have their effects on the capital and current accounts as well as on domestic spending. Is the fiscal policy enhanced or made weaker by the flexible exchange rates? Explain.
Explain the effects of expansionary domestic monetary policy in a country with fixed exchange rates. Explain the linkages as the money moves through the economy and has its effects on the capital and current accounts as well as on domestic spending. Is monetary policy enhanced or made weaker by the fixed exchange rates? Explain.
Explain the effects of expansionary domestic fiscal policy in a country with fixed exchange rates. Explain the linkages as the changes move through the economy and have their effects on the capital and current accounts as well as on domestic spending. Is fiscal policy enhanced or made weaker by the fixed exchange rates? Explain.
Compare the advantages and disadvantages of fixed and floating exchange rate regimes, and give examples of conditions that might make each attractive to a country.
Discuss the effects of internal and external shocks on an economy with fixed exchange rates. Now explain the effects of the shocks on an economy with flexible exchange rates. Under what conditions would a country prefer each exchange rate regime?
Why might fixed exchange rates result in greater price stability and lower global inflation rates? What are currency boards and dollarization, and how might each result in a more credible fixed-exchange-rate/low-inflation regime?
What are the limitations and possibilities for policymaking in countries under fixed exchange rates? under flexible exchange rates? Why? Explain.
Identify and explain the five major forces that can lead to an international financial crisis.
What are the typical components of an IMF rescue package for a financial crisis? Can this lead to moral hazard? Free riders?
Why do developing nations want to attract direct foreign investment (DFI)? Why do they fear DFI? Why do firms want to engage in DFI?
Discuss the proposals, popular and unpopular, for changes hoped to reduce the likelihood or frequencies of international financial crises.
What are the key characteristics of an optimum currency area (OCA)? Is the Euro Area an OCA? More specifically, what characteristics of the EU make it fall short of an OCA and what characteristics make it appear to be a pretty good approximation of an OCA? Would a subset of the EU countries make for a better OCA? Why?
What are the external benefits of integration?
Discuss the nature of the Euro Area labor markets. How are they changing? How is this likely to affect the EU as an OCA?
What is the Lisbon Agenda and, specifically what are the elements of the agenda related to EU labor markets? How has the Agenda been received?
According to the theory of optimum currency areas (OCA), what are the benefits associated with the currency area?
According to the theory of optimum currency areas (OCA), what are the costs associated with the currency area, and what factors help to minimize the costs of forming the currency area?
According to the theory of OCA, whether shocks are expected to be symmetric or asymmetric is very important. Explain these two terms and explain how integration relates to the effects of such shocks.
What is seigniorage? In what sense is it an "undeclared tax"? When and where has it been a more central feature of economies?
Discuss the structure and organization of the Eurosystem and the European System of Central Banks.
How does the ECB conduct monetary policy? What are the three monetary policy instruments and how are they used? Explain the four major categories regarding the aim, regularity, and procedures of open market operations by the ECB.
What are the three key ECB interest rates used in policy making? Explain them.