1. Monetary Policy, Chapters 14, 15, and 162. FOMC Simulation3. International Finance, Chapter 19 (pages 423-433)`The Final Exam TimesEcon 251 HartmannPrinciples of Macroeconomics Fall 2011Exam Dates: The 1:30 class is scheduled to take the exam on Friday, December 16th at 1:30 p.m. in room OEC 207, while the 3:25 class is scheduled to take the exam on Wednesday, December 21st at 10:30 a.m. in room OEC 208. Unless I hear otherwise, I will assume you will be taking the exam for the class you are registered and expect youto take that exam. If you want to take the final exam with the other class, you must email me by midnight Thursday, December 15th requesting to switch test times. I just need to know how many people are taking each exam so I bring to correct number of exams with me.Office Hours for Principles of Macroeconomic Classes:Thursday, December 15th 3- 5 p.m. Friday, December 16th 12-1 p.m.Friday, December 16th 1-1:30 p.m. for last minute questions (OEC 207)Monday, December 19th 4-6 p.m. Tuesday, December 20th 4-6 p.m.Wednesday, December 21st 10-10:30a.m. for last minute questions (OEC 208)I have three additional comments. First, I have different set of office hours for my Managerial students, so my availability outside the times listed above is limited. Second, if several people come at the same time, we will move to a classroom. I will post on my office door which room in OEC you can find us. Third, if I am talking with a student, I will not answer the phone. So, leave a phone number where I can reach you if I do not answer my phone during office hours.Chapters Covered Since the Second Midterm:1. Monetary Policy, Chapters 14, 15, and 16 2. FOMC Simulation3. International Finance, Chapter 19 (pages 423-433)Half of the final will cover the material since the second midterm. The format of this section will be similar to the previous two midterms. The other half of the exam will consist of multiple-choice questions and will be a comprehensive examination of the material taught in this course. If you can answer any question on the two midterms without looking at the key, you should be fine. Recall I have put blank midterm 1 and 2 exams on the web. Illustration of how I can convert a midterm question into a multiple choice question.Suppose the FOMC raises interest rates. How does the rise in interest rates affect the demand for investment and investment expenditures? a. shift the demand curve for investments; move along the investment expenditure curveb. move along the demand curve for investments; shift the investment expenditure curvec. shift the demand for investments; shift the investment expenditure curved. move along the demand for investments; move along the investment expenditure curve Good luck studying for all of your final exams!1. Reread “What Economists Do?” By Robert Lucas (This was distributed on first day of class. If you lost it, pleasevisit class website http://courseweb.stthomas.edu/mehartmann/macro/macro_econ.html).2. The FOMC is meeting next week to decide whether to raise, lower, or keep interest rates at their current level. Based on lecture notes, you should be able to answer:a. Suppose the Federal Reserve is concerned about deflation. Will they raise or lower money supply to counter the deflation? Explain why.b. Use the aggregate demand and supply model to illustrate how your answer to (a) will affect real GDP and the price level.c. How will raising interest rates affect the value of the U.S. dollar? (See lecture notes on shifters of demand and supply of USD.)b. What is the federal funds rate? c. Describe the steps of the open market operations Fed undertakes to raise the target for federal funds rate.d. What does an economic indicator (e.g., slower productivity, higher prices due to higher oil costs) signal about the prospects of economic growth in the U.S.? You should be able to explain whether an indicator signals economic growth or stagnation. See notes from the FOMC simulation.3. “Vietnam To Sell Dollars; Devaluation Ruled Out” Wall Street Journal November 4, 2010, pg. A1 SUMMARY: Vietnam's central bank said it will sell U.S. dollars on the local market to relieve pressure on the sliding Vietnamese dong, but a state official ruled out further devaluation of its currency this year. With inflation remaining stubbornly high at near double-digit levels, the government has been under pressure to further devalue its local unit. The dollar has risen more than 7% against the dong on the unofficial market in thelast month, prompting a significant increase in the price of various goods and commodities. Many businesses have been snapping up dollars as they lose faith in the Vietnamese currency. However, Le Duc Thuy, chairman of the National Committee of Financial Supervision, was quoted by state media as saying the government decided not to devalue the dong between now and the Lunar New Year, which is in February. Vietnam has devalued the dong three times since last November. Instead of devaluation, the country will dip into its foreign-exchange reserves to cover a shortage of dollars, state media and a government official said. "The central bank will intervene when necessary," Mr. Thuy said. "To stabilize the market, it may inject several hundreds of million dollars each month.'' Answer the following questions: a. Why is Vietnam selling their U.S. dollars? b. Graphically depict the exchange-rate intervention the Vietnam’s Central Bank is undertaking. (See lecture notes.) UPDATE: “The darkening economic outlook has turned the status quo for emerging-market currencies upside down. In recent weeks Turkey, South Korea and Indonesia have taken or forewarned of measures to curb their currencies' slides after global growth sent investors fleeing riskier assets, including equities and emerging-market currencies.” Given above, you should be able to describe how have these countries try to prevent the value of these currencies from falling. Related lecture notes.a. Why do countries buy up USD? (See lecture notes.)b. Describe the exchange-rate intervention that these countries must undertake in order to keep their exchangerates undervalued. (See lecture notes.) c. What do these countries do with their USD (i.e., what did the purchase with the USD)? (See lecture notes.)d. Explain why China cannot effectively raise interest rates to cool its economy without allowing its