Question #2 . 3) Discuss some long term solutions to the Federal Government’s rising national debt. Points to consider in your answer: You must address.

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Question #2 . 3) Discuss some long term solutions to the Federal Government’s rising national debt. Points to consider in your answer: You must address entitlement spending Will you hurt the current economy (GDP) with your ideas? Are your ideas politically realistic? How quickly do you feel a need to solve the budget crisis?

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Growth of Entitlements 2011 Entitlement Spending & Interest on Debt 50% of Gov’t Budget 2040? Entitlement Spending & Interest on Debt Over 70% of Gov’t Budget

Question #4 3) Discuss whether the Federal Reserve should . 3) Discuss whether the Federal Reserve should keep interest rates at zero Benefits Costs/Risks

Who “wins” with zero percent interest rates? 5.25% 0.0% Keep in mind that there is no “free lunch” in economics Zero percent interest rates help some and hurt others They can help in the short run and potentially due damage in The long run…

Money is not the same as Wealth! An increase in money supply does not lead to more wealth Wealth Unchanged MS

Friedrich Hayek Economist from School of Austrian Economics Believed in: Free Markets, Limited central bank action artificially low interest rates lead to Malinvestment Friedrich Hayek 1899 - 1992 Bad investment that is only made because interest rates are very low….. Credit bubbles lead to malinvesment which is unproductive does not shift PPF to right This leads to an eventual “bust”

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Solution: Loose Monetary Policy Economic Situation GDP growth = -1.0%, Unemployment = 10.0% Little to no inflation Solution: Loose Monetary Policy MS2 ------------------ i2 MD Interest Rate Qty of $ MS1 --------- i1 Inflation Real GDP AS1 Affects AD AD2 AD1

Socratic Seminar Seminar Guidelines: Worth 125 points Grade based on performance and preparation Bring Notes & Come Prepared Each student must have notes All notes will be collected If absent during seminar: 3-4 Paper will then be required—due Tuesday 4/5th