Philip Leatherwood, Lecturer

Kazakhstan Institute of Management, Economics, and Strategic Planning

15 February, 2001

1. Discussion of Rational and Adaptive Expectations
1. Applied to prices
2. Applied to interest rates (pp. 341-342, Hall and Taylor)
2. Using a circular flow diagram, model an economy including Household, Financial, Government, and Foreign sectors. Include flows that allow for hoarding, deficit spending by government, and trade deficit. Label each flow and define each sector algebraically.
3. Graph a simple IS curve, first for a closed economy, then for an open economy.
1. Account for the effect of interest rates on net exports as described on p. 325
2. Account for the effect on the multiplier as described on p.326
4. Explain the relationship of trade deficits to government spending deficits. (The circular flow diagram may help in understanding this.)
5. Use graphs of supply and demand to show how protectionism affects the exchange rate.
6. Our reading states "…not only did the dollar interest rate rise, but so did interest rates in most other countries." (p. 346) Is that surprising? Explain.