1.      What could cause a previouslyupward-sloping yield curve to flatten out and eventually becomedownward sloping?

2.      “An increase in governmentspending financed by borrowing from the public will increase thesupply of money.” Comment on this statement.

3.      Assume the government financesa spending increase by issuing new securities. Does this create aburden on future generations? Why or why not? Would it make adifference whether the spending increase was used to finance thebuilding of a new highway or to send troops abroad to fight a warin another country?

4.      Explain how the sharp declinein housing values contributed to the financial crisis that startedin 2008.

5.      In the early 1930s, interest rateswere extremely low and money supply fell sharply. Does thisindicate that the Fed used expansionary or restrictive monetarypolicy? Explain your answer.

6.      Do you think the Keynsian orthe monetarist view provides a better explanation of the causes ofthe Great Depression? Why?

7.      Comment on the followingstatement:

         “A balance ofpayments surplus may lead to inflation, while a balance of paymentsdeficit may lead to unemployment.”

8.      Comment on the followingstatement:

         “A tradeimbalance can persist as long as the central bank wants it to.”

9.      In the early 1980s, the U.S.trade deficit increased sharply, yet at the same time the value ofthe U.S. dollar increased steadily. How can this be explained?

10.    Comment on the following statement:

         “If a centralbank used expansionary monetary policy to lower the value of thedomestic currency, the country’s trade imbalance would immediatelyimprove.”

11.    Assume interest rates in the U.S. arecurrently 5% and you expect the Japanese yen to appreciate by 2%.How much interest would the Japanese government have to pay on itsgovernment bonds for Americans to buy them?

12.    “Either expansionary fiscal policy or acurrency depreciation will increase domestic national income bydecreasing the level of foreign output demanded.” Comment on thisstatement.

13.    “A perfect-foresight model predicts thatexpansionary monetary policy has no effect on the level of output.”Comment on this statement with the help of an AD-AS diagram.

14.    When the federal government runs a budgetsurplus rather than a deficit, how will the public’s bond holdingsand the supply of money be affected?

15.    “The central bank can lower the budgetdeficit through open market purchases.” Comment on this statement.In your answer discuss whether money financing or debt financing ismore inflationary.