Economics Discussion Board Questions

Discussion 01 

For a review of what an IP, an IR, and an FP post are please consult the course site in the lesson all about discussions. You can download a Word version of this discussion at the bottom of this page.

For discussion 01 you are to respond to one of the 4 numbered items in the list below. You don’t need to answer all 4 questions in your discussion contribution, but I expect you to consider all questions and when the discussion unfolds and then when the suggested answer guide is posted, I expect you to think about each question.

• Question 1 is about the relationship between the price level and the money supply in the US.
• Question 2 is about recent trends in some currencies
• Question 3 is about loan sharking, the contribution here is that you are to incorporate ideas from this class into your response.
• Question 4 is about the broadly defined financial system.

Some of the questions have “sub-parts” They were designed to be equally hard or equally easy but allow you to choose what you are most interested in. Recall that one of the grading criteria for the discussion is originality, so if all provided IP postings are about the same topic, it gets harder to be original.

1. Consider Figure 4, Section 1.3 “Why Study Money and Monetary Policy” on page 9 of your textbook which shows the pathway of price levels and M2 over time. Based on your knowledge of Economics and/or prior learning, answer the question, “What do you think the relationship is between M2 and the price level in the United States?” I know you have already looked at the picture in the text but, just for this moment, ignore the picture you see. Please describe it as “positive, negative, or no relationship.” Explain why you have this expectation.
2. Please consider the following questions related to the international currency markets.
   1. a. Please obtain the exchange rate between the US Dollar (USD) and the Mexican Peso (MXN) over the past 30 days at . Has the Mexican Peso increased or decreased in value relative to the US Dollar? Describe and explain the relationship. The relationship may not be all that “clear cut” in that some swings in the exchange rate might be happening counter to the 30 day trend. Just do your best, maybe focus on the beginning and ending values.
   2. Is it easier or harder for US firms to export domestically produced goods and services to Mexico over the past month?
   3. Has the Polish Zloty (PLN) increased or decreased in value relative to the U.S. dollar over the past 60 months. Fully explain and document.
3. Suppose I can buy a car today for $8,000 and the car is worth, over the next year, an extra $15,000 in income because it expands on my abilities as a travelling salesman.
   1. Is it rational for me to get a loan from Larry the Loan Shark at an 80% interest rate if nobody else will give me a loan? Fully explain, including calculations, why or why not. Include in your explanation any impact on overall economic activity. For this one instance you can ignore the time value of money and income tax rates.
   2. After drawing up your explanation, can you generalize from this example to make the case for legalizing loan sharking? If legalized what limits might you suggest on the practice as you currently understand it is conducted now. Go ahead have some fun with this part of the question.
4. Consider the broadly defined “financial system” of chapters 01 and 02. Please do each of the following:

1. Explain what is meant by “Direct Finance” and what types of firms engage in this, give 2 examples.
2. Explain what is meant by “Indirect Finance” and what types of firms engage in this, give 2 examples.
3. Explain how the following things encourage the functioning of financial intermediaries:
   1. 1. Transaction Costs
      2. Risk Sharing
      3. Information Costs – be specific and include explicitly either moral hazard or adverse selection.

         You can download a Word version of this discussion here.

Last Updated on September 12, 2019