Written Response Questions

Article 1: Ben Bernanke, Why are interest rates so low?

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low

Article Review: This is a post from Ben Bernanke's blog. The purpose of the post is to explain why interest rates are so low and the role that the Federal Reserve (the Fed) plays in determining the rates.

Question 1: Draw a graph of the credit market and explain the difference between the real interest rate and the nominal interest rate.

Question 2: In paragraph 5, Bernanke discusses what the Fed is trying to do with its benchmark interest rate. Summarize the Fed's objectives as described by Bernanke and explain why trying to set the benchmark rate above/below the equilibrium rate would have negative consequences for the economy.

• Section 2.3 discusses economic questions; also you may want to reference the discussions of the Federal Reserve from the various book chapters.

Question 3: As Bernanke mentions some commenters have suggested that the Fed has "thrown savers under the bus" by maintaining low interest rates. Explain why Bernanke thinks this analysis is incorrect. Do you agree or disagree with Bernanke's position?

Article 2: The Wisdom of Free Trade.

http://www.nytimes.com/2015/04/26/upshot/economists-actually-agree-on-this-point-the-wisdom-of-free-trade.html?_r=0

Article Review: This is an article written by a very talented economist George Mankiw. The article discusses why economists are generally supportive of free trade.

Question 1:Based on the material in Chapter 14, discuss the arguments for international trade and the arguments against international trade.

Question 2: Explain reasons the article gives for why the public and politicians are not supportive of expanding international trade.

Question 3: Discuss policy ideas that may mitigate the argument against international trade you have mentioned in Question 1 and Question 2. What decision rule would you use to decide if these policies make international trade "worth it"?

The book and the article also discuss the positives of international trade. When discussing a decision rule, make sure you consider how your policy may impact the benefits to free trade and make sure you include the benefits in your decision rule.