Questions Whether in a classroom or other setting, our readers might enjoy a better understanding of money, ﬁnancial intermediation and governance by contemplating the following questions. PART I 11. True, false, explain: We must, either explicitly or implicitly, employ ‘models’ to understand social phenomena. 12. True, false, explain: Even if individuals do not consciously ‘maximize,’ assuming that they do can facilitate insight to how economies behave. 13. Under what conditions is the assumption of maximizing-behavior reasonable? Do the markets in which monetary and ﬁnancial services trade satisfy this condition? 14. A ‘good’ model builds on self-evident truths to generate accurate predictions: A. True, false, explain: Models that logically derive from the axiom of maximizing-behavior can be ‘good.’ B. Please describe a model built on the axiom of maximizingbehavior that predicts well. C. Did the decision-maker in your example (human or non-human) explicitly engage in maximizing-behavior? D. Even if decision-makers do not explicitly engage in maximizingbehavior, why can we gain insight from models that assume maximizing-behavior? 15. Congratulations! Congress just approved your nomination to the Federal Reserve Board of Governors (that is, the United States’ monetary authority). As a Board member, you will be presented with numerous models of the economy. How will you evaluate these competing models’ merits? 16. Why does the axiom of maximizing-behavior imply that the marginal cost of one’s actions equals the marginal beneﬁt? 17. ‘Intellectual honesty’ has been characterized as requiring the precise speciﬁcation of ‘conditions under which one is willing to give...
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