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HIGH SCHOOL FED CHALLENGE CHAMPIONSHIP "HOW TO" GUIDE
Learning Goals
 
 
To focus the attention of teachers and students on the most important subjects, learning goals have been listed. Use these to guide your study and preparation as the judges may use them in formulating their questions.
 
Money, income and GDP

Explain:

  • how money serves as a medium of exchange (liquidity) and a way to store and hold wealth.

  • that money can take different physical and electronic forms.

  • that money works because it is widely accepted and trusted to serve its functions.

  • that GDP is total current production of all final goods and services in the economy;
    = value of total spending in the economy
    = value of total income including wages, profits, interest, rents.
  • the difference between real and nominal GDP

  • that a rise in GDP is associated with decreases in unemployment, and increases in income of individuals and households; that a decline in GDP is associated with increases in unemployment and decreases in household income (called recession).

Report:

  • the current growth rate of real and nominal GDP and how it compares to previous periods.
 
Financial firms and the financial system
Explain:
  • that a person's saving is his or her current income minus what is spent on goods and services.

  • why a person might want to save (not spend) all current income.

  • why a person or business might want to borrow.

  • the role of interest rates as the return to savers for supplying funds and the price to borrowers of obtaining them.
     
  • the difference between real and nominal interest rates.

  • the role of banks and other financial firms as a way of collecting funds from savers and making them available to borrowers.

  • why the functioning of financial markets is important to GDP and unemployment.

  • how the failure of one or more large financial institutions can affect other (healthy) institutions and set off a decline in confidence that may cause a financial crisis where lending/borrowing and spending/production stop functioning effectively.

  • the role that oversight/regulation of financial firms provides in preventing such events.

 

Unemployment

Explain:

  • that an unemployed person is actively seeking a job but can't find one at current wage rates.

  • how sticky or sluggish wages and prices can result in unemployment above or below the rate associated with “full employment”.

  • why unemployment is costly to individuals and the economy.

  • how unemployment generally fluctuates along with GDP (see above).

  • that there is a level of unemployment associated with stable inflation, called the non-accelerating inflation rate of unemployment (NAIRU) and that unemployment under this level is associated with rising inflation and above it with declining inflation.
Report:
  • current estimates of the NAIRU and compare to current unemployment rate

  • the current unemployment rate and how it compares to previous periods.
 
Inflation

Explain:

  • that inflation is defined as an increase in the overall price level.

  • that inflation erodes the stored value of money, complicates exchange and production decisions, increases uncertainty about value and relative prices and undermines trust in economic institutions.

  • that deflation is defined as a decrease in the overall price level.

  • that deflation creates a disincentive for current spending, increases the burden of debt, and makes it harder for the Fed to stimulate economy because interest rates can't be reduced beyond zero.

  • the difference between core and headline inflation

  • how expectations about future inflation can impact current inflation.

Report:

  • the current level of core and headline inflation and compare to previous periods.
 
Monetary policy, financial stability and the role of the Federal Reserve

Explain:

  • the basic structure of the Federal Reserve System and its relationship to Congress.

  • the importance of an independent central bank.

  • the Fed's goals (dual mandate): sustainable (full) employment; and price stability.

  • why, in the short run, the Fed has to balance sustainable full employment and price stability

  • why changes in spending and production don't always change prices immediately.

  • what is meant by potential output and the output gap.

  • how the Federal Reserve can change the supply of money (liquidity) in the economy.

  • which types of spending are especially sensitive to interest rates.

  • the impact of Federal Reserve issuing/constraining money on the output gap and dual mandate.

  • the relationship between Federal Reserve policy and inflation expectations.

  • the Federal Reserve's role in maintaining financial market stability.

  • your policy recommendation; including but not limited to a discussion of GDP, inflation, and unemployment in framing your answer.