1. "Put the Mighty Dollar to Work" by Paul Lim - Money Magazine November 2014
"After getting pushed around for much of the 2000s, the once-wimpy buck is fighting back. The dollar has gained nearly 20% over the past 3 1/2 years compared with an index of global currencies. It's now at multiyear highs against the euro and the yen.
Investors worldwide snap up bucks when they want to buy things denominated in our currency — including U.S. bonds, stocks, and other assets. The dollar's current rally got going in 2011 and 2012, as the U.S. economy fitfully grew while Europe and Japan slipped into double-dip recessions. That has made America look like a better relative investment ....
"And as our recovery gains strength, interest rates should nudge higher, making bonds more attractive to yield-seeking overseas investors. "Iljn any shift in a currency, there are going to be winners and losers,' says Liz Ann Sonders, chief investment strategist for Charles Schwab."
Explain in terms of an economist using appropriate graphs:
I. Why the currency is getting stronger and, ceteris paribus, how this affects the U.S. trade balance?
2. Ceteris paribus, what the effect of a stronger currency is on the U.S. Macro economy?
3. Why there are "winners and losers" when exchange rates change.
2. Federal Open Market Committee (FOMC):
"The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.
Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.."
What "gradual adjustments in the stance of monetary policy" is the FOMC planning and how are these adjustments implemented? Explain in terms of an economist using appropriate graphs what the FOMC has been seeking to accomplish to date by its "accommodative" policy.
Why does the FOMC feel it's time to reduce its stimulus? Why does the FOMC make a point of saying "The Committee continues to
closely monitor inflation indicators...."
3. "Despite talk of GOP unity, Trump's programs face fight from Republican budget hawks" LA Times Nov. 15, 2016 by Lisa Mascaro
"Paul D. Ryan appears to be cruising toward reelection as I louse speaker, but his bold promise Tuesday of a new "dawn" for GOP unity — Republican lawmakers found "Make America Great Again" hats waiting on their chairs at a morning meeting — does not hide the deep divisions that remain.
"There's a clash growing between Donald Trump's new vision of the Republican Party, which includes increased spending on several
fronts, and budget hawks like Ryan and the GOP's small-government Freedom Caucus, whose ideology had previously dominated the party....
"Trump has also shown little interest in Ryan's signature budget-slashing proposals — such as cutting entitlement spending on Medicare and Medicaid — which had long been central to the GOP's plan for reducing deficits.
"In fact, very little of what Trump promised to do during the campaign involved cutting government spending. Rather, he spoke of investing in the nation, creating jobs, and he once proudly proclaimed himself "the king of debt" in his business dealings."
What is a "budget hawk"? What do these budget hawks advocate when it comes to the federal budget? Using appropriate graphs, show and explain the potential perverse effects that the budget hawks envision the President's policies would lead to if there was indeed a big deficit making him "the king of debt".