Note for ECON 104 with Professor Pollin at UMass(2)
Note for ECON 104 with Professor Pollin at UMass(2)
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Date Created: 02/06/15
Economics 104 Introduction to Macroeconomics Prof Robert Pollin STUDY GUIDE FOR FINAL EXAM 12 4 13 Some basic information to begin with Review session time and place Bartlett 657TONIGHT Wednesday 124 13 from 6 7 8 pm Final exam time and place Thursday December 12 from 1030 am 7 1230 pm in the Totman Physical Ed Building Gym Please remember to bring your term papers to turn in with your exams You will not get credit for your term papers unless you turn them in before the exam begins The nal exam will be comprehensive That is you are responsible for all the material that we have covered this semester You should therefore review materials from the midterm study guide as well as this one However the nal will cover disproportionately the material that we have been through since the midterm In terms of lectures the material since the midterm begins with powerpoint lecture 15 on In ationUnemployment Tradeoff As with the midterm the exam will consist of a combination of truefalse questions multiple choice questions and short essay questions requiring about three paragraphs to answer You will have some choice in deciding which questions to answer You will also be asked to describe your term paper for the course Unemployment and In ation 1 Evidence on in ationunemployment tradeoff is it accurate to say that there is always a tradeoff between unemployment and in ation Compare evidence on a decadebydecade basis What do the patterns show 2 Consider the decade of the 1970s What could explain the pattern that we observe then relative to those for the 1950s and 1960s 3 Consider the 1990s Then Federal Reserve Chair Alan Greenspan hypothesized that the Us workers had become traumatized If Greenspan s observation is accurate why might that in uence the in ationunemployment tradeoff both in the 1990s and more generally Pollin E can omi cs 1 04 Fall 2013 Study Guide for Final Exam Page 2 Global Economic Patterns and Global Trade 1 Be clear on where the US stands in the global economy How big is the US economy as a share of the global economy How important is the US in terms of population In terms of addressing climate change 2 Rich poor and middleincome countries Be clear on some of the major differences between countries in terms of what the average person in each category of country can expect 3 What is the law of comparative advantage Following the law of comparative advantage why would any given country seek to specialize in producing one or two products and importing everything else they need rather than diversifying 4 If we consider the cases of South Korea and China is it accurate to say that their successful growth experiences has been tied to the idea of comparative advantage In this context be able to distinguish between static and dynamic comparative advantage China and the U S Economy 1 Be clear on the basic facts about the transformation of the Chinese economy since the Revolution of 1949 which first brought the Communist Party to power If we think about two big transitions since 1949 the first period was one of promoting major gains in basic living standards and equality The second phase was about opening the economy to markets though the Communist Party was stilliand is stilliin power 2 China s successful growth experience since the early 1980s has been closely tied to its achievements as an exporter with the United States being the largest single purchaser of Chinesemade products What have been the main factors behind China s success in exports 3 Be sure to understand the role of exchange rate issues with respect to China and the US and more generally How does having a cheap currency help a country export How could China continue to help keep its currency value low 4 Has the rise of China as an export powerhouse been detrimental in any way to working people in the US If so how and if not why not Pollin E can omi cs 1 04 Fall 2013 Study Guide for Final Exam Page 3 Federal Reserve and US Monetary Policy 1 Be clear on what we are referring to when we talk about The Fed Who are the main decision makers at the Fed 2 The Fed s mandate is to maximize employment in a manner consistent with price stability The Fed s main policy tools are to 1 lower or raise the Federal Funds interest rate and 2 lender of last resort policies Be clear on what both of these policies are and how they differ 3 Using the tools available to them how might it be more dif cult for the Fed to maintain control over in ation and unemployment when nancial markets are unregulated 4 We have gone over how the current monetary policy stance at the Fed has been extraordinary in historical terms because the Fed has held the Federal Funds interest rate at close to zero for over four years and is committed to probably maintaining this same stance through 2016 What is the purpose of this policy 5 Have the Fed s monetary policies worked over the recession Banks have been able to borrow at near zero percent but they are holding cash hoards rather than lending to businesses Consider why banks may be doing this Also consider what the rami cations might be for a US recovery Fiscal Policy and the US Federal Government Budget 1 Be very clear on key categorical distinctionsde nitions Understanding them is not a matter of mere word games but of understanding the issues at hand The key de nitions to know are I De cits vs accumulated debt I Cyclical vs structural de cits 2 The main justi cation for cyclical de cits comes from the functional nance approach The overall approach here is not to think of government de cits as necessarily either good or bad but to ask the question what function are the de cits serving Are the deficits being put to good use 3 Within the context of functional nance what is the justi cation for the government running de cits during recessions such as the one we have been experiencing Pollin Econ amics 1 04 Fall 2013 Study Guide for Final Exam Page 4 4 Two perspectives other than functional nance on the governments running scal de cits are the doctrine of sound nance and the Ricardian Equivalence theory Be clear on what these mean In both cases they would argue against the government running de cits But what are their arguments In what ways do they differ from the functional nance perspective 5 As a share of Us GDP the federal govemment s fiscal deficit reached its highest level since World War II between 200912 What is the explanation for de cits at this level 6 While the scal de cit reached an historic high over 2009 12 government interest payments as a share of overall government spending remained historically low How could this be possible Why has it happened 7 Prof Alan Meltzer offers his perspective on why the Us federal government is running big deficits now He clearly opposes big scal de cits but on what grounds Does he oppose big deficits under any and all circumstances 8 Considering the recent US experience with rising federal deficits Prof John Taylor writes in his 2012 book First Principles Nothing better signi es America s recent failure to follow the principles of economic freedom than the exploding debt of the federal government I do not exaggerate when I use the word exploding Its soaring upward climb resembles the fireworks on America s Independence Day But rather than remind us of America s founding it portends America s ending I carry a version of the chart in my wallet and show it to my students and to my children and grandchildren because it s theirfuture on the line p 101 Be prepared to offer an assessment of this comment by Taylor And be clear your assessment certainly does not have to be the same as mine 9 FOR POSSIBLE EXTRA CREDIT ONLY How could the perspective of Professors Reinhart and Rogoff on the relationship between a country s level of public debt relative to the country s GDP be seen as critical to the arguments in behalf of austerity policies What are some possible problems with their perspective Pollin E can omi cs 1 04 Fall 2013 Study Guide for Final Exam Page 5 Financial Collapse and Recession 1 We have recently experienced the most severe financial bubble collapse and crisis in 70 years Be clear on the basic dynamics driving a nancial bubble Why can nancial bubbles be selfreinforcing Why do they collapse 2 Two factors have contributed to making this nancial bubble and crash bigger than previous ones 1 rising inequality in the Us economy and 2 Deregulation of Us nancial markets How have these factors contributed to the crisis 3 How has the government tried to get out of the crisis using monetary policy scal policy and nancial regulatory policies 4 What is your assessment as to how well these various efforts have worked to get the economy out of the crisis 5 The debates on the crisis and on solutions for getting out involve both philosophical positions and technical debates on policy tools How would you distinguish between the philosophical viewpoints How would you distinguish the technical debates on policy approaches Solutions Now that you have gotten through a course in economics you have as much basic knowledge of the problems at hand as most policymakers So be prepared to give reasoned views as to what we do today about mass unemployment and the historically large scal de cits I have given you some of my views in areas such as scal de cits monetary policy nancial transaction taxes and taxing the banks excess cash reserves Of course there is no need for you to agree with me But I am going to ask you to give your thoughts on some aspect of the current policy situation and debates
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