| | | | | | Appendix B Additional Media Exercises | | | | | | | | | (Asterisked questions are more difficult or introduce new terminology/concepts.) | | | | | | | | | 1. Alan Blinder, the Fed's newish vice-chairman, insisted that central banks could use interest rates to reduce unemployment, at least for a few years. "Sell dollars" said a former European finance minister, summing up many economists' feelings. | | | | | | | | | a. Explain how the Fed could use interest rates to reduce unemployment. | | | | | | | | | b. Under what circumstances would this practice be appropriate, and under what circumstances would it not be appropriate? | | | | | | | | | c. Why might the reaction of many economists be to "sell dollars"? | | | | | | | | | d. If this policy were undertaken appropriately, following your answer to part b, would the policy's effectiveness be enhanced or curtailed by the "sell dollars" reaction of part c? | | | | | | | | | 2. Consumer prices rose just 0.1 percent in July from June. While the increase from a year earlier is 2.8 percent, inflation in the last three months is a mere 0.8 percent annualized. As a result, the long bond plunged to a new low of 5.63 percent from 6.33 percent a week earlier. | | | | | | | | | Explain why the long bond plunged. | | | | | | | | | 3. The reason for Clinton's caution is obvious: the bond market sent him a signal a month ago that big spending is just not acceptable. In anticipation of Clinton's victory, coupled with talk from the Clinton camp about fresh spending, the sell-off of treasury bonds boosted long-term interest rates to about 7.7 percent from 7.3 percent. | | | | | | | | | Explain why interest rates rose. | | | | | | | | | 4. Analysts are wondering if Canadian yields can fall while U.S. yields are rising. | | | | | | | | | Can they? If so, how? If not, why not? | | | | |