For the Smart People, Pre-Interview Question
So I go to a non-target, but one of my friends dads is a MD at a BB in Chicago. He was able to get me an interview outside of the normal times. I was given a pre-interview question example to answer and bring with me. They told me they will ask a similar question, so I want to write a perfect example so I'd be ready for something else.
Analyze the current state of the economy: does the economy appear to be recovering from a supply shock, or showing the signs of a recent, large demand shock, cruising along a normal, robust growth path or what?
I was given this answer below:
Over the past year, our economy has experienced the first signs of a recession. The economy has been faced with two supply shocks in 2008 - a slowdown in construction and a shock in terms of oil. When oil prices started to rise five years ago, experts speculated that circumstances were different from earlier recessions. However, once observing the data from the past year this does not seem to be the case. Construction reached its peaked two years ago, but now is experiencing a downturn as homes were overbuilt. This slowdown in construction has begun to effect consumer spending. With rising unemployment, wage increases that are lagging inflation, higher interest rates, falling household wealth and negative consumer expectations, consumer spending growth has halted. These supply shocks have caused stagflation decreasing the amount of spending and increasing prices; meaning that inflation has increased as well as the unemployment rate. Over the second part of this past year, our economy has appeared a bit different attempting to recover from the supply shocks earlier in the year. It has been hit with a financial crisis causing an increase in the demand for money as spending has been less rapid, decreasing velocity. This demand for money has lowered inflation but unemployment still continues to increase. The Fed is attempting to intervene by increasing the monetary supply; however, this is not counteracting the demand very much. This current economic downturn seems to be far from over and could break the duration record for U.S. recessions.
And this is the question:
Given your conclusion on the state of the economy, make and justify your policy conclusion and include a summary statement written in the form used by the Fed.
Any help would be highly appreciated,
You tryin to get us to do your homework for ya, or what, kid? lol...
It would probably be most beneficial for you to post your own answer and then get critiques, your message board team can't be taken with you to the interview.
Let's see...current state of the economy.
Well, let me draw this handbasket here, and there's all of us in it...oh, and it's in Hell.
Yeah...I think that's it.
How much credit do I get?
Not sure how popular this site is, but you have repeated your interview question verbatim and I am sure that anyone at this firm who is familiar with the question will be able to peg you in a second...youre the kid from a non target who is interviewing during a unique time...pretty transparent dude.
or, more likely, someone from your school will have the same assignment and call you out on it
We are experiencing a period of stagdeflation (most likely), because of a huge lack of demand.
There are no effective policies to fight deflation, we are screwed. Tell the MD that you would recommend the fed to run the printing press and dump a ton of money on U.S. citizens, it has to be so much money that people actually spend it and not save it or pay off credit cards.
Those are the answers I would give, but I don't feel like explaining why, because its your homework to begin with. Do the research yourself, afterall if you don't know this stuff then it means that finance does not interest you at all; so are you sure that you want to get into banking?
That person that gave you his/her answer has an extremely oversimplified view of the economy, because the housing construction did not cause any of these problems. The overbuilding was just a symptom (result) of the real underlying problems. I will give you a hint, we live in a global economy and the answer is far more complex. Spend a couple on weeks on this and you will learn a lot and will probably do good on your interview. If your interview is coming up soon, well then good luck.
this is epic. asked for smart people, and that's what he got
seriously...interviews giving pre-written questions about fed policy? since when do bankers have half a fucking clue about fed policy?
i call bullshit.
anyways, your answer seems pretty bad. fyi, we are not currently experiencing stagflation. if you say this, you will get shat on.
and as for stagdeflation, that's not actually a term because under all circumstances deflation is understood to be contractionary.
Yup. BS. Bankers could care less about fed policy. Don't even know what it means! So what kind of job is this? It must be an MD in public finance. Best I can tell.
Stagdeflation is a term that is being used by economists such as Nouriel Roubini, so it is as much of a term as stagflation is.
Deflation is NOT under all circumstances understood to be contractionary. Don't you remember in 2002-2003 (when the economy was expanding) the fears of deflation? Here is an article about Gov. Ben Bernanke's fear of deflation, from Nov. 2002:
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default…
Also... with regard to your answer above. Construction? Oil Prices? That's it? That's what caused all of this mess. Don't think so. I think the answer wreaks.
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