PART TWELVE: THE ECONOMY

1. Look at the list of goals for the economy. Choose one of the goals and explain why it is a valuable goal.
2. Describe the form that demand takes as it moves from households to firms.
3. Describe the form that supply takes as it passes from households to firms.
4. The four productive resources are: land, plant and equipment, labor, and management/entrepreneurial skills. What specific word is used to describe the income produced by each?
5. As you look at the four boxes, who produces goods and services?
6. Explain why consumer savings is a withdrawal from the economy.
7. Explain why business investment is an injection into the economy.

PART THIRTEEN: MEASURING THE ECONOMY

1. Explain the equation AD = C + I + G + x
2. Define fiscal policy in your own words.
3. You are the President of the United States. How would you explain to the American people how a change in government spending can be used to ease unemployment?
4. Explain the difference between the employment rate and the unemployment rate. Why does the distinction matter?
5. Consider the list of productive activities that are not included in the GDP. Choose one and discuss some of the reasons economists exclude it from the GDP.
6. Professor Swanson says that it is “ok the GDP is not exact.” What caveat does he give to justify it as a viable measurement?

PART FOURTEEN: INFLATION

1. Why do we need a base year for the CPI?
2. Why have apparel prices stayed so low?
3. Why are energy and food left out of the calculation of core inflation?
4. Give some examples illustrating the difference between a price increase and inflation.
5. Who is hurt and who benefits as inflation rises?

PART FIFTEEN: WHAT IS MONEY?

1. What is the basic test of money?
2. Briefly describe the inefficiencies of a barter system.
3. What do we mean by stating that money provides a standard of value?
4. When we have money, we can choose to hold it or to spend it. What is the cost to society of individuals holding money?

PART SIXTEEN: THE FEDERAL RESERVE AND THE MONEY SUPPLY

1. Describe the process by which money is expanded from an initial bank deposit. Include an explanation of the money multiplier in your answer.
2. Explain how the Federal Reserve uses the reserve requirement to manipulate the money supply.

PART SEVENTEEN: ADDITIONAL TOOLS OF MONETARY POLICY

1. Explain the difference between the Discount Rate and the Federal Funds Rate.
2. Describe how both increases and decreases in these rates would affect the money supply.
3. Explain how the Federal Reserve would use open market operations to lower interest rates and why it would be effective.
4. What problem in the economy is the Federal Reserve likely trying to address if it raises the reserve requirement and the discount rate and begins selling bonds in the open market?

PART EIGHTEEN: FISCAL POLICY AND THE NATIONAL DEBT

1. Name the two components of fiscal policy.
2. Explain how a built-in and automatic stabilizer like unemployment compensation helps the government reach its economic goals.
3. Describe each of the three fiscal policy lags below and explain why they are problematic.
4. The Recognition Lag
5. The Decision Lag
6. The Execution Lag
7. Describe both the present costs and future costs of the national debt.