| This is school, so let's start out with a multiple-choice
test. The questions below are extracted from "A Bad News Quiz", The
New Republic, August 21, 1989. The quiz was written at a time when
the economy was doing rather well, with low inflation, low unemployment,
and strong economic growth. All the answers were given in the media during
1989. |
1. Increased disposable income is bad because:
a. This could mean more consumer spending, which might
increase inflation (Wall Street Journal, June 19).
b. Consumers have been slowing their spending, but not
quickly enough (Wall Street Journal, June 5). |
|
2. Signs of moderating inflation are bad because:
a. Low inflation drives down the stock market (Wall Street
Journal, April 2).
b. Low inflation may push the stock market to artificial
highs (CBS, April 18). |
|
3. A strong dollar is bad because:
a. This might cause the Federal Reserve to raise interest
rates (Wall Street Journal, March 14).
b. It "adds new uncertainties to the outlook for business"
(New York Times, June 19).
c. U.S. government officials are embarrassed that
they have so much difficulty driving down the value of their currency (New
York Times, June 19). |
|
4. A weak dollar is bad because:
a. This might cause the Federal Reserve to raise interest
rates (Washington Post, Jan 29).
b. U.S. exports would increase and "this could tend to
lull people to sleep" about the dangers of future declines in U.S. exports
(New York Times, June 19). |
|
5. Higher interest rates would be bad because:
a. They would depress the stock market (Washington Post,
Feb 25).
b. They would inflate the stock market (Wall Street
Journal, June 12). |
|
| There is a lot of fog in the news media when it comes
to questions of macroeconomics. Some of what is said is simply wrong,
as at least some of the answers in the bad news quiz must be. In other
instances, statements are often implied to be factual, when in fact they
depend on empirical evidence about which there remains much uncertainty,
or on economic theories about which there remains much debate. One aim
of this course is to provide the analytical tools with which we can dissipate
some of this fog. |