1) Explain how demand drives supply. How does this determine the importance of the individual? Explain and illustrate with two examples.
2) What are the determinants of the exchange rate (or the value of the currency) on international markets? Explain each. How do high and low values of the currency affect a country’s exports and imports and the trade balance?
3) What are the tools of the federal government to conduct fiscal policy? Under what circumstances does the federal government conduct expansionary fiscal policy? Explain how the multiplier effect works.
4) How is the Federal Reserve (the American Central Bank) structured to maintain independence?
5) What are the tools of the Federal Reserve to conduct monetary policy? Why and when would they conduct expansionary policy and what would they do? Under perfect circumstances how would expansionary monetary policy work to help the economy? Explain and illustrate graphically.
6) If the required reserve ratio (RRR) is 10% what is the potential deposit creation for an Open Market Purchase of $10,000? What if the RRR increases to 12%? What if the RRR decreases to 8%? In your opinion is either of these likely to happen? Do you think that banks will lend out all their excess reserves in any situation?
7) Explain the Quantity Theory of Money. What will happen as the result of expansionary monetary policy if the Quantity Theorists are correct?