Questions from Macroeconomics

Q: Describe the possible effects of falling prices on equilibrium income.

Describe the possible effects of falling prices on equilibrium income.

Q: This appendix considers the case of a large open economy with a

This appendix considers the case of a large open economy with a floating exchange rate. Now suppose instead that a large open economy has a fixed exchange rate. That is, the central bank announces a t...

Q: The Mundell–Fleming model takes the world interest rate r*

The Mundell–Fleming model takes the world interest rate r* as an exogenous variable. Let’s consider what happens when this variable changes. a. What might cause the world interest rate to rise? (Hint:...

Q: What are the advantages of floating exchange rates and fixed exchange rates

What are the advantages of floating exchange rates and fixed exchange rates?

Q: According to the rational-expectations approach, if everyone believes that

According to the rational-expectations approach, if everyone believes that policymakers are committed to reducing inflation, the cost of reducing inflation—the sacrifice ratio—will be lower than if th...

Q: Explain the differences between demand-pull inflation and cost-push

Explain the differences between demand-pull inflation and cost-push inflation.

Q: The sacrifice ratio is the accumulated loss in output that results when

The sacrifice ratio is the accumulated loss in output that results when the central bank lowers its target for inflation by 1 percentage point. For the parameters used in the text simulation (see the...

Q: Country A and country B both have the production function Y

Country A and country B both have the production function Y = F(K, L) = K1/3L2/3. a. Does this production function have constant returns to scale? Explain. b. What is the per-worker production functio...

Q: A central bank has a new head, who decides to increase

A central bank has a new head, who decides to increase the response of interest rates to inflation. How does this change in policy alter the response of the economy to a supply shock? Give both a grap...

Q: Explain whether borrowing constraints increase or decrease the potency of fiscal policy

Explain whether borrowing constraints increase or decrease the potency of fiscal policy to influence aggregate demand in each of the following cases. a. A temporary tax cut b. An announced future tax...