Midterm Exam, Spring 2020

I am thinking of having the midterm due on Sunday, April 5, at 11 PM. Simply email it to me at my gmail address by then: zxkimball@gmail.com. If you need to draw any graphs, feel free to either make them with software or draw them by hand and then use Camscanner (free version is fine) or one of its competitors to rectify the image make a file out of the rectified image and either insert that image or email it to me separately.

The midterm exam consists of two questions about monetary policy, one about short-run fiscal policy, two about long-run fiscal policy and two about financial stabilization policy. The weight of each question is proportional to the amount of reading I am asking you to do for each question, except that I really want you to at least try on each question. I will penalize doing nothing on a question quite a bit. In addition to answering the specific questions in a coherent, well-written way, try to provide evidence along the way that you have done the reading; giving you incentive to do the reading is an important part of the purpose of this exam.

For the first question, based on “Next Generation Monetary Policy,” simply

  • discuss each idea and then after discussing them all,

  • propose what you would do if you were doing a research project on one or more of these ideas.

For all the other questions, here is the template for your answer. Each question is about a policy proposal. Write:

  • The essence of the idea

  • Pros

  • Cons (Don’t feel you need to spare my feelings. But think about what I might say in response.)

  • How one can deal with the cons

  • The relative merits of this proposal compared to other policies with similar goals

  • What you would do for a research project in this area

Given this common template for answering each question, I’ll just label the policy idea and then direct you to the relevant readings by links. Please send me an email right away if one of the links doesn’t work. More generally, feel free to send questions by email. Typically I’ll craft an answer for the whole class unless it is a minor question or one I think the others wouldn’t be interested in. I’ll keep to keep an eye on time, but you can ask questions in class on Monday and Wednesday after break, too.

  1. Next Generation Monetary Policy: Read the paper. I’ll also talk about this in class on Monday and Wednesday after break, so you might want to do other questions first and work on this question after I present it in class. (You will still have 4 days after class on Wednesday, April 1 to complete the exam.)

  2. Negative Interest Rate Policy: Read my three papers on negative interest rate policy, which all have links near the top here. If, after reading the papers, people still have questions, I might suggest a few blog posts on negative interest rate policy, but I think it is pretty much all there in the three papers. By my criterion of weight according to the amount of reading, this is clearly the most important question, but don’t spend all your time on it. Please make sure you do the other questions. I am especially interested in cons—problems and difficulties—and ways to mitigate those problems and difficulties in this area.

  3. National Lines of Credit: Read the paper “Getting the Biggest Bang for the Buck in Fiscal Policy”, “Avoiding Economic Carnage from the Coronavirus: There are Better Policies than Sending Everyone $1000” (do discuss this idea in the context of the coronavirus shock), “Helicopter Drops of Money Are Not the Answer” and these posts:

    Most Important Posts about National Lines of Credit

  4. Capital Budgeting: I’ll go over the slides from “Capital Budgeting: The Powerpoint File” and “Discounting Government Projects” on Monday, April 30. Before that read the column “One of the Biggest Threats to America's Future Has the Easiest Fix” and even more importantly the blog post “Discounting Government Projects.”

  5. Public Contribution Program: Read “How and Why to Expand the Nonprofit Sector as a Partial Alternative to Government: A Reader’s Guide” and these blog posts that fill out the core argument:

  6. High Equity Requirements (a.k.a. “Capital Requirements” and “Leverage Limits” and “Capital Conservation Buffers). Read:

  7. A US Sovereign Wealth Fund (and more generally, sovereign wealth funds capitalized by issuing government debt, especially by countries big enough this can meaningfully affect equilibrium prices). Read: