Answers to Homework #3

Posted to the right and here.

Chinese Stock Market Crashing

The Chinese stock market is plunging. Given our discussion of financial markets, what might account for such a drop in value? (Recall that what matters are profits, the real interest rate, and the growth rate).

Inflation

This article talks about rising consumer prices. If you model this as a shift upward in the SRAS curve, what do you predict will happen to output in the short run and the long run? What will happen to prices long run?

Inequality Slides

Slides from class 4/17 on inequality.

America's Recession

It looks more likely that the U.S. will actually have a recession (that is, the economy may actually shrink in size). This analysis assigns blame to two things a) less lending and b) consumer spending slowing down (MPC falls). Looking just at the loanable funds market, does both of these make sense? (Hint: not really). So the lending slowdown must show up somewhere else - like the money demand function. This would be a great article to use for your final paper.

Problem Set #3 Again

Just a reminder, in case you missed class. Problem set #3 is due on April 10th (not April 3rd as listed on the syllabus).

Problem Set #3

Problem set 3 is now posted in the right-hand column under class materials.

For Future Reference

This commentary is about setting up a government infrastructure bank. We will talk in a few weeks about the causes and consequences of government debt. This article is about one aspect of that - is government debt a bad thing if it funds productive investments?

Falling Dollar

Martin Feldstein (really smart economist) has a commentary on the fall in value of the U.S. dollar. You can frame his argument in terms of the real vs. nominal exchange rates, and then think about how this relates to our large trade deficit.

Let's All Just Relax

Robert Samuelson tells us to calm down about the economy. Given our class on the Great Depression, how/why does he feel so little panic?

How did this happen?

The Economist has a nice article describing the conditions that led to the current financial situation in the U.S.. It's more complex than what we discussed in class, but it is a nice summary.

Icelandomics

What you've learned in this class doesn't just work in the U.S. This article discusses the situation in Iceland and how they are acting to try and rescue the value of their currency. Can they continually prop up their exchange rate? Why not?

Banks Raising Reserve Ratios

This article gets at the heart of the issue with a financial crisis - banks horde cash. So how does this work without our model of the money market and the IS/LM?

Chinese Slides

Powerpoint slides for todays class.

Spillovers

Apparently the Canadians are worried. Think about how poor economic performance in the U.S. might affect Canada - specifically, what might happen to their net export demand? Does this matter if they have perfectly flexible exchange rates? How about if they have fixed exchange rates?