Question: Go to the St. Louis Federal Reserve

> Go to the St. Louis Federal Reserve FRED database, and find data on the three-month U.S. Treasury note (TB3MS), the three-month AA nonfinancial commercial paper rate (CPN3M), the three-month AA financial commercial rate (CPF3M), and the St. Louis Fed fin

> Suppose total population is 100 million and 25% is devoted to the production of research and development. Using the simplified version of the Romer model outlined in the chapter, calculate the following: a) The change in technology (∆ At), if χ = 0.0005

> Although Okun’s law holds for different countries, those with more flexible labor markets experience a higher response of unemployment to changes in GDP. During the recent financial crisis, real GDP decreased in the United States, Germany, and France. Co

> Using the expression for the short-run aggregate supply curve obtained in Problem 6, draw a new short-run aggregate supply curve on the same graph if there is a price shock such that ρ = 2. Calculate inflation when output is $8, $10, and $12 trillion, re

> Go to the St. Louis Federal Reserve FRED database, and find data on real government spending (GCEC1), real GDP (GDPC1), taxes (W006RC1Q027SBEA), and a measure of the price level, the personal consumption expenditure price index (PCECTPI). Download all th

> Assuming that Okun’s law is given by U - Un = -0.75 *1Y - YP2 and that the Phillips curve is given by π = πe - 0.6 * 1U - Un2+ ρ, a) Obtain the short-run aggregate supply curve if expectations are adaptive, inflation was 3% last year, and potential outpu

> Suppose Okun’s law can be expressed according to the following formula: U - Un = -0.75 *1Y - YP. Assuming that potential output grows at a steady rate of 2.5% and that the natural rate of unemployment remains unchanged, a) Calculate by how much unemploym

> During 2007, the U.S. economy was hit by a price shock when the price of oil increased from around $60 per barrel to around $130 per barrel by June 2008. While inflation increased during the fall of 2007 (from around 2.5% to 4.0%), unemployment did not c

> Suppose that the expectations-augmented Phillips curve is given by π = πe 0.51U - Un2. If expected inflation is 3% and the natural rate of unemployment is 5%, complete the following: a) Calculate the inflation rate according to the Phillips curve if unem

> The following graph shows inflation and unemployment rates for Canada for the period between 1970 and 2012. Does this graph show evidence in favor of the Phillips curve? Canada (1970–2012) 14 E 12 10 4 4 8 10 12 14 Inflation Rate Unemployment Rate 2

> Some Federal Reserve officials have discussed the possibility of increasing interest rates as a way of fighting potential increases in expected inflation. If the public came to expect higher inflation rates in the future, what would be the effect on the

> Plot the Phillips curve for Canada using the following data. Do you find evidence in favor of the Phillips curve in your plot? Explain. 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Inflation Rate (%) 1.4 1.1 1.6 1.9 2.3 3.8 3.6 4.1 4.6 Unemploy

> Consider the money market. Suppose the U.S. economy begins to boom and aggregate output increases. Describe the effect on the interest rate if the Federal Reserve decides to increase the money supply at the same time that aggregate output increases.

> Assume the demand for real money balances is given by Md = Y - 150i. P 6 a) Find the equilibrium interest rate if the money supply is $1,700 billion and output equals $12,900 billion. b) Find the new equilibrium interest rate if the money supply is

> Suppose the economy experiences a contraction in aggregate output. How would this event affect the demand curve for real money balances? On the graph from part (b) of Problem 6, draw the original and the new demand curve, if necessary. Data from Problem

> (Advanced) Go to the St. Louis Federal Reserve FRED database, and find data on potential output (GDPPOT), real GDP (GDPC1), a measure of the price level, the personal consumption expenditure price index (PCECTPI), and the University of Michigan inflation

> Assume the demand for real money balances is given by Md = Y - 150i (an interest rate of 2% is entered into this formula as 2). Suppose P 6 Y = 12,900 billion, so that Md =12,900

> Suppose U.S. aggregate output is still below potential by 2018, when a new Fed chair is appointed. Suppose his or her approach to monetary policy can be summarized by the following statement: “I care only about increasing employment; inflation has been a

> What would be the effect on the aggregate demand curve of an increase in U.S. net exports? Would an increase in net exports affect the monetary policy curve? Explain why or why not.

> Suppose the monetary policy curve is given by r = 1.5 + 0.75 π, and the IS curve is given by Y = 13 - r. a) Find the expression for the aggregate demand curve. b) Calculate aggregate output when the inflation rate is at 2%, 3%, and 4%. c) Plot the aggreg

> Refer to the monetary policy curve described in Problem 1. Assume now that the monetary policy curve is given by r = 2.5 + 0.75 π. a) Does the new monetary policy curve represent an autonomous tightening or loosening of monetary policy? b) Plot the new m

> Assume the monetary policy curve is given by r = 1.5 + 0.75 π. a) Calculate the real interest rate when the inflation rate is at 2%, 3%, and 4%. b) Plot the monetary policy curve and identify the points from part (a).

> Referring to Problem 8, what is the combined effect of these two events on the IS curve? Data from Problem 8: Suppose you read in the newspaper that prospects for stronger future economic growth will lead the dollar to strengthen and stock prices to inc

> Suppose you read in the newspaper that prospects for stronger future economic growth will lead the dollar to strengthen and stock prices to increase. a) Comment only on the effect of the strengthened dollar on the IS curve. b) Comment only on the effect

> After the press conference that followed the Federal Open Market Committee meeting on June 19, 2013, there were reports in the media that Chairman Bernanke’s comments were a signal that the Fed would raise interest rates sooner than expected. As a result

> Part of the 2009 stimulus package ($93 billion) was paid out in the form of tax credits. However, even though interest rates did not change significantly during that year, aggregate output did not increase. Using the parameters from the numerical example

> Go to the St. Louis Federal Reserve FRED database, and find data on potential output (GDPPOT), real GDP (GDPC1), and a measure of the price level, the personal consumption expenditure price index (PCECTPI). For the price index series, choose the units as

> Go to the St. Louis Federal Reserve FRED database and find data on the M1 Money Stock (M1SL) and the Monetary Base (AMBSL). a) Calculate the value of the money multiplier using the most recent data available, and the data from five years prior. b) Based

> Suppose the U.S. Congress declares China to be a “currency manipulator” and therefore legislates a tariff on Chinese goods. Considering only the decrease in imports, a) comment on the effect of such a measure on the IS curve. b) show your answer graphica

> Suppose that Dell Corporation has 20,000 computers in its warehouses on December 31, 2016, ready to be shipped to merchants (each computer is valued at $500). By December 31, 2017, Dell Corporation has 25,000 computers ready to be shipped, each valued at

> Calculate consumption expenditure using the consumption function (as described by Equation 2) and the following estimates: Autonomous consumption: ……………….………. $1,450 billion Income: ……………………………………….………... $14,000 billion Taxes: ……………………………………………………... $

> Assume the following estimates: Autonomous consumption: $1,625 billion Disposable income: $11,500 billion Using the consumption function in Equation 2, calculate consumption expenditure if an increase of $1,000 in disposable income leads to an increase

> For each of the following products, state whether they are sold in a perfectly competitive market or in a monopolistically competitive market: a) Dairy products (e.g., milk, cheese, etc.) b) Cars

> Discuss the following statement: “When Keynes stated that ’in the long run, we are all dead’ he meant that we should focus only on the short run and not pay attention to any

> Using Table 8.1 (NBER business cycles), identify the longest and shortest expansion and contraction in the United States from Table 8.1: TABLE 8.1 NBER BUSINESS CYCLE DATES Source: NBER website. www.nber.orglcyclesimain.html Expanslon (months from

> Consider the following variables: real GDP, consumer spending, investment, unemployment, inflation, stock prices, interest rates, and credit spreads. Classify each as pro cyclical, countercyclical, or a cyclical, and as leading, lagging, or coincident.

> Refer to the data provided in Problem 4 to answer the following questions. a) Plot real GDP and the stock prices index on the same graph. b) Plot the unemployment and inflation rates on the same graph. c) Considering real GDP and the unemployment rate, w

> Use the information given in the following table to answer the following questions. Assume the business cycle is entirely determined by changes in real GDP. a) Identify the peak and trough during this period. b) Comment on the timing of the inflation rat

> Go to the St. Louis Federal Reserve FRED database, and find data on the unemployment rate (UNRATE) and a measure of the price level, the personal consumption expenditure price index (PCECTPI). For both series, choose the frequency as “quarterly,” and for

> The NBER Business Cycle Dating Committee stated that the U.S. economy entered a recession in December 2007. The S&P/Case-Shiller Home Price Index (a widely used measure of home prices) shows an increase in home prices from January 2000 to April 2006. Fro

> Discuss the following statement: “Real GDP has decreased for two quarters in a row; we definitively are living through a contraction.”

> Do you think that the hourly wage (i.e., the price of labor) is a relatively flexible or a relatively sticky price? Explain why.

> Using the accompanying graph, measure the following: a) Expansions (in months from trough to peak) b) Contractions (in months from peak to trough) Economic Activity 01/1912 01/1913 12/1914 08/1918 03/1919 Time

> Do you tend to agree more with Sachs (foreign aid should be increased) or with Easterly (foreign aid can do more harm than good) in the foreign aid debate? Explain your arguments.

> Do you think corruption affects the enforcement of property rights, or is it that badly designed institutions create opportunities for corruption? In other words, does corruption determine the enforcement and design of property rights, or is it the other

> Transparency International constructs the Corruption Perception Index (CPI), meant to measure “the perceived level of public-sector corruption in 180 countries and territories around the world.” The CPI ranges from 0 (

> The International Property Rights Index (IPRI) ranks countries according to the significance and protection of both intellectual and physical property rights. What correlation between income per capita growth and the IPRI ranking might you expect? Why?

> How might the effects of government spending on proper sewage infrastructure, which results in improved sanitation for crowded cities in poor countries, promote economic growth?

> Uruguay has implemented the One Laptop per Child (OLPC) initiative in which one laptop is given to every child and teacher in a public primary school. Comment on the effects of this program on the following: a) Uruguay’s human capital stock b) Uruguay’s

> Consider the world economy and comment on the effect of the Industrial Revolution on the world growth rate of output per person, according to the assumptions of the Romer model.

> Discuss the validity of the following statement: “Unlike Solow’s model, Romer’s model concludes that changes in the saving rate do not affect the sustained per-capita output growth rate.”

> Michael Kremer’s research suggests that higher population might stimulate technological progress. How can higher population stimulate technological change?

> During the late 1960s, Chinese authorities imposed the precepts of the “Cultural Revolution” on their people. As a result, almost all scholars and researchers were sent to the fields to perform manual agricultural tasks. Comment on the effect this had on

> Suppose two countries have the same growth rates of capital and labor inputs. These factors contribute two percentage points to their respective countries’ total output growth rates. Output growth rates are 2.5% for country 1 and 4.5% for country 2. a) E

> The U.S. government has provided billions of dollars for broadband Internet access nationwide, including grants for rural broadband access, expansion of computer center capacity, and sustainable broadband adoption initiatives. Is there a good rationale f

> Start by drawing a given country’s steady state, using only the investment and the depreciation and capital dilution curves. On the same graph, do the following: a) Consider the effects of an immigration wave of individuals who exhibit both higher saving

> Start by graphing the U.S. steady-state capital labor ratio and labeling it k* 1900 (draw only the investment and the depreciation and capital dilution curves). a) On the same graph, show the effects of the following: ■ The massive immigration waves of t

> Based on the Solow model’s conclusions about population growth, comment on the effects of immigration on a country’s a) aggregate output level. b) capital-labor ratio.

> One of the most well-known population control policies is the one-child policy implemented by China since the late 1970s. Comment on the side effects of such a policy. This policy has been dubbed a success, since fertility rates dropped by a considerable

> A measure of real interest rates can be approximated by the Treasury Inflation Indexed Security, or TIIS. Go to the St. Louis Federal Reserve FRED database, and find data on the five year TIIS (FII5) and a measure of the price index, the personal consump

> Assume that low standards of living (i.e., low capital-labor ratios, in the Solow model’s terms) are the reason that some countries exhibit high fertility rates. Comment on the effect of population control policies to reduce fertility rates. Explain why

> Consider the effects of an increase in the saving rate on the United States capital-labor ratio, according to the Solow model. a) What would be the immediate effect of a saving rate increase on the capital-labor ratio? What would be the long-run effect?

> The tsunami that hit Japan in April of 2011 was the costliest national disaster in history. The following graph describes Japan’s economy before the tsunami. Assume Japan was at its steady-state capital-labor ratio before the tsunami hi

> Compare the following factors of production in terms of their rivalry and excludability: a) A robot that welds car frames and the idea of building a car in an assembly line b) A recipe to make pancakes and the recipe to manufacture a soda drink

> Transparency and communication with the public by the Federal Reserve have increased significantly over the last decade. What does this say about the Federal Reserve’s view of the relevance of the three business cycle models?

> Suppose the U.S. Congress is forced to increase taxes to pay for the cost of health care reform in the United States. Describe the effects of such a policy, according to the three business cycle models, if this increase in taxes is fully anticipated by e

> Speeches made by Federal Reserve officials are an integral part of the Fed’s management of expectations strategy. In a speech made in November 2002, then-Fed Governor Ben Bernanke, when trying to reassure the public that the Fed would try to avoid a gene

> For each of the following cases, determine which would be the preferred macroeconomic model to analyze business fluctuations. a) Most wages are the result of collective bargaining and are therefore quite rigid. In addition, expectations are based mostly

> Suppose consumer confidence surges, making consumers more willing to spend. Use the New Keynesian model to describe the effects on output and inflation depending on whether the surge in consumers’ confidence was anticipated or unanticipated.

> Using a graphical representation of the new Keynesian model, describe the effects of an unanticipated negative demand shock (label this equilibrium as point 2). Compare these effects to those of an anticipated negative demand shock (label this equilibriu

> A measure of real interest rates can be approximated by the Treasury Inflation Indexed Security, or TIIS. Go to the St. Louis Federal Reserve FRED database, and find data on the five year TIIS (FII5) and a measure of the price index, the personal consump

> The Bureau of Labor Statistics (BLS) tracks the numbers of workers who are employed part-time for economic reasons. The number typically increases sharply at the beginnings of recessions and gradually declines at the ends of recessions. Is this behavior

> The graph on the next page is based on quarterly data on unemployment and real output growth in the United States between 2006 (q1) and 2013 (q2). Are these data consistent with the real business cycle theory hypothesis regarding the relationship between

> The table below shows the inflation rate and the level of real GDP under the anti-inflation policy known as the Volcker disinflation for two periods in the early 1980s. a) Use the data in the table to calculate the sacrifice ratio. b) Leading up to the

> Assume the following production function: Yt = AK0.4 t L0.6 t . The capital stock and output are measured in trillions of dollars, and the labor stock is measured in millions of people. a) Using the value of output and the capital and labor stocks, cal

> Immediately after the central bank of New Zealand adopted inflation targeting in 1989, economic growth was low and unemployment increased for some time (until 1992), but later, economic growth resumed and unemployment decreased. Comment on the relationsh

> Suppose the statistical office of a country does a poor job of measuring inflation and reports an annualized inflation rate of 4% for a few months, while the true increase in the price level has been around 2.5%. What will happen to the central bank’s cr

> As part of its response to the global financial crisis, the Fed lowered the federal funds rate target to nearly zero by December 2008, a considerable easing of monetary policy. However, survey-based measures of five-to-ten-year inflation expectations rem

> Central banks that engage in inflation targeting usually announce the inflation target and the time period for which that target will be relevant. In addition, central bank officials are held accountable for their actions (e.g., they could be fired if th

> In some countries, the president chooses the head of the central bank. The same president can fire the head of the central bank and replace him or her with another director at any time. Explain the implications of such a situation for the conduct of mone

> What are the benefits and costs of sticking to a set of rules in each of the following cases? How do each of these situations relate to the conduct of economic policy? a) Going on a diet b) Raising children

> Go to the St. Louis Federal Reserve FRED database, and find data on Real Private Domestic Investment (GPDIC1); a measure of the real interest rate, the 10-year Treasury Inflation-Indexed Security, TIIS (FII10); and a measure of financial frictions, the S

> Suppose an econometric model based on past data predicts a small decrease in domestic investment when the Federal Reserve increases the federal funds rate. Assume that the Federal Reserve is considering an increase in the federal funds rate target to fig

> Consider two individuals forming expectations about mortgage rates. Mark forms adaptive expectations, and looks only at past mortgage rates to form expectations about future rates. Gloria forms rational expectations. Suppose an individual who is well kno

> Comment on the impact on the Fed’s credibility of the appointment of a majority of governors who are reluctant to increase interest rates to fight inflation for fears of causing too much unemployment in the short run.

> Suppose that during the last ten years, Nicole tried to forecast future inflation rates to negotiate her salary. Every year, she used all available information and even incorporated news about the conduct of monetary policy. However, her forecasts were s

> The following graph represents the labor market of a given country. Assuming the prevailing real wage is w1, a) measure unemployment using the graph. b) list three factors that might prevent this market from clearing. Real Wage Rate, w ($ per worke

> Suppose a country is rapidly making the transition from an agricultural-based economy to an economy in which most of GDP comes from manufacturing. a) How do you think structural unemployment will be affected? b) Can you think of any measure the governmen

> Discuss the effects of the Internet on frictional unemployment. How do you think websites that allow employees to search for job opportunities more efficiently impact frictional unemployment?

> During recessions, it becomes increasingly difficult to find a job. How do you think the number of “discouraged workers” would be affected by a recession?

> For each of the following situations, explain how the labor force and the unemployment rate change. a) An individual quits his or her job and does not look for a job anymore. b) An individual who was not in the labor force now decides to look for a job.

> Using a graph, analyze the effect of a recession and an increase in day care costs on the real wage and employment.

> Go to the St. Louis Federal Reserve FRED database, and find data on the most recent values for Personal Income (PINCOME), Disposable Personal Income (DPI), and Personal Consumption Expenditures (PCEC). a) For the most recent quarter available, compute th

> Using a graph, analyze the effect of technological advances that have increased workers’ productivity in the last few decades (e.g., the Internet) on the labor market. What will be the effect on the real wage and employment if the supply curve does not s

> Anthony currently earns $25 an hour and works forty hours a week. When his boss offers to pay him $28 per hour, Anthony decides to accept the offer and also decides to keep working forty hours. What is the effect of Anthony’s decision on the labor supply

> The natural rate of unemployment is higher in France than in the United States. Suppose you are a recent college graduate and you are eager to find a job. Which country’s labor market seems more promising to you? Can you identify the trade-off between a

> Assume that the marginal product of labor is MPL = 0.65 * $13>L, where output is measured in trillions and L is the number of workers (in millions). a) Draw the MPL curve. b) Find the quantity of workers demanded if the real wage is $50,000 per worker.

> A relatively recent trend in most developed countries, including the United States, is the creation of single-person households. Discuss the short- and long-run consequences of this trend on residential investment.

> From 2009 to 2013, stock prices doubled in the United States. What was the likely effect of this stock market rise on business investment in the United States? Explain using Tobin’s q theory.

> The following graph shows the quarterly change in private inventories in the United States from 2007 to 2010. (Figures are billions of 2005 dollars.) Explain the changes in private inventories during this period. Change in Private Inventories (bill