Economics for International Affairs Assignment

1) Describe two tools the Fed can use to affect the money supply, other than open market operations.

2) a. Describe the three roles played by money.

b. What does it mean to say that foreign currency can be a store of value but not a medium of exchange?

3) Search for the "World Economic Outlook Database" on the internet and locate the most recent version. Use this database to select inflation data (average consumer prices, percentage change) for South Korea, Japan,and the United States for the period 1990 to 2010.

(Start here: https://www.imf.org/external/pubs/ft/weo/2015/01/weodata/weoselgr.aspx)

a. Construct a table of annual inflation rates for these countries.

b. Now construct a graph using annual inflation rates on the vertical axis and the year on the horizontal axis. Plot the annual inflation rates from your table in three separate lines on the same graph.

c. How would you compare the experiences of these three countries based on your graph?

4) Using the data in the table below:

a. Determine the economic equilibrium for a government spending level of 60.

b. Show how you can arrive at the same answer by using the formula for the multiplier. Assume the propensity to consume is 0.8.

5) Go to the Economic Report of the President at https://www.gpo.gov/fdsys/browse/collection.action?collectionCode=ERP. Consult the most recent (2016) Report's table on "Gross Domestic Product." For the last year (2014), with final rather than preliminary figures, find the values of: gross domestic product personal consumption expenditures, and gross private domestic investment. Now find the value for fixed investment. If we assume that all inventory changes are unintended, fixed investment is the same thing as what we call intended investment.

You will note that the column on the right titled "Change in Private Inventories" is equal to the difference between total and fixed investment (just as we have noted that total investment equals intended investment plus change in inventories).

a. Calculate personal consumption expenditures (C) and intended investment (I) as percentages of gross domestic product (Y) respectively.

b. Calculate a simple measure of aggregate demand (C + II) without government spending.

6) Suppose that the Fed makes an open market sale of $15 million in bonds to HIJ Bank.

a. What is the effect on the Fed's balance sheet?

b. What is the initial effect on HIJ Bank's balance sheet?

c. Show in a graph the effect on the market for federal funds. (No numbers are necessary, for this or later sections of this exercise.)

d. Assuming that the level of business confidence remains unchanged, show on a graph how this open market sale will change the level of intended investment.

e. What is the effect on aggregate demand and output? Show on a carefully labeled graph.