Question: How does direct finance differ from indirect

> What does the IS curve show? Why does it slope downward?

> What happens to aggregate output if unplanned inventory investment is either positive or negative?

> What condition is required for equilibrium in the goods market?

> How and why do changes in the real interest rate affect net exports?

> How and why do changes in the real interest rate affect planned investment spending?

> What are the two types of planned investment spending?

> According to the consumption function, what variables determine aggregate spending on consumer goods and services? How is consumption related to each of these variables?

> What causes the IS curve to shift?

> What are the four components of planned expenditure, and why did Keynesian analysis emphasize this concept?

> How do conflicting views of market structure influence the ideas of classical and Keynesian macroeconomists regarding price and wage flexibility and how quickly the economy adjusts to long-run equilibrium?

> Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI), the unemployment rate (UNRATE), and an estimate of the natural rate of unemployment (NROU). For the price index, adjust the un

> How do Keynesian views on macroeconomic fluctuations differ from those of classical macroeconomists?

> What is the difference between the short run and the long run in macroeconomic analysis? Why do macroeconomists differentiate between the two time horizons?

> What were the “Great Inflation” and the “Great Moderation”?

> Distinguish among leading, lagging, and coincident economic variables.

> Distinguish between pro cyclical and countercyclical economic variables.

> How do menu costs contribute to sticky prices?

> What are business cycles?

> Why is sustained per-capita growth possible in the Romer model but not in the Solow model?

> What role does the legal system play in promoting property rights?

> What is a patent? Why do governments grant them?

> On January 29, 2013, the Federal Reserve released a special statement that clarified its goals of “price stability” and “maximum employment.” Specifically, it stated that “the Committee judges that inflation at the rate of 2 percent, as measured by the a

> Why may private R&D expenditures be too low?

> In the Romer model, how does an increase in the fraction of the population engaged in R&D affect the growth rate of per-capita output over time?

> As an input to production, how does technology differ from labor and capital inputs?

> What is the impact of an increase in saving in the Romer model?

> In the Romer model, how does an increase in total population affect the growth rate of per capita output over time?

> According to the growth accounting equation, what are the three sources that contribute to economic growth?

> What are the four basic results of the Solow growth model? What is the model’s chief weakness?

> How does an increase in total factor productivity affect output per worker?

> What shortcoming of the Solow growth model does the Romer model attempt to remedy?

> How does population growth affect the steady-state levels of capital and output per worker?

> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1) and a measure of the price level, the personal consumption expenditure price index (PCECTPI). Convert the price index to inflation rate by setting the units to “Percent

> Beginning from a steady state in the Solow growth model, explain how an increase in the saving rate will affect the levels and growth rates of capital and output per worker.

> What are the two determinants of the steady state level of capital per worker? Why does capital per worker move to this steady-state level?

> What determines the amount of investment per worker and capital accumulation in the Solow growth model?

> Why does the per-worker production function have its particular shape and slope?

> In the per-worker production function, what factors determine the level of output per worker? Which one of these factors does the Solow growth model consider to be exogenous?

> Use the graphical representation of the Solow growth model to explain why an increase in the technology factor A leads to a more-than proportional increase in both the capital-labor ratio and output per worker.

> Refer to Problem 1 for data and assume now that the population growth rate increases to 5%. Calculate the new steady-state values of the capital-labor ratio and output. Explain your answer graphically, and compare the new values of the capital-labor rati

> Refer to Problem 1 for data and assume now that the saving rate increases to 50%. Calculate the new steady-state values of the capital labor ratio and output. Explain your answer graphically. Data from Problem 1: Use the following table to find the ste

> Use the following table to find the steady-state values of the capital-labor ratio and output per worker (i.e., complete the table) if the per worker production function is yt = 2kt 0.3: Saving rate Depreciation rate Population growth rate Technolog

> Why do governments provide safety nets for bank depositors, and what are their consequences?

> Go to the St. Louis Federal Reserve FRED database, and find data on a measure of the price level (PCECTPI), real compensation per hour (COMPRNFB), a measure of worker productivity (OPHNFB), the price of a barrel of oil (OILPRICE), and the University of M

> How can asymmetric information problems lead to a bank panic?

> What steps can the government take to reduce asymmetric information problems and help the financial system function more smoothly and efficiently?

> Why are asymmetric information problems particularly challenging in developing countries? What does this imply about the importance of financial intermediation and the role of banks in these countries?

> Why are financial intermediaries willing to engage in information collection activities when investors in financial instruments may be unwilling to do so?

> What is asymmetric information? What two asymmetric information problems hinder the operation of the financial system?

> What are the benefits of financial deepening?

> What role does the financial system play in promoting economic growth?

> What nonconventional monetary policies shift the aggregate demand curve, and how do they work?

> Why does the self-correcting mechanism stop working when the policy rate hits the zero lower bound?

> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1), real private domestic investment (GPDI), corporate profits (CP), a measure of the price level (PCECTPI), a measure of economic uncertainty (USEPUINDXM), and a measure o

> How does the policy rate hitting a floor of zero lead to an upward-sloping aggregate demand curve?

> Explain the processes of cost-push and demand-pull inflation. How do macroeconomists distinguish between the two?

> How can the monetary authorities target any inflation rate they want?

> Would it be a good idea for monetary policy makers to set the federal funds rate solely using the Taylor rule?

> How does the Taylor rule relate to the monetary policy curve?

> Describe the five time lags involved in implementing stabilization policy.

> Why do activists believe the economy’s self-correcting mechanism is slow?

> Summarize the main points of disagreement in the debate between activists and non activists.

> Why does the divine coincidence simplify the job of policy making? In what situations will it prevail? Why?

> What specific procedures do financial intermediaries use to reduce asymmetric information problems in lending?

> Go to the St. Louis Federal Reserve FRED database, and find data on real personal disposable income (DPIC96), a measure of household net worth (TNWBSHNO), a measure of the price level, the personal consumption expenditure price index (PCECTPI), the Unive

> What is the equilibrium real interest rate? How does it influence the interest rate decisions of Federal Reserve policy makers?

> Distinguish between hierarchical and dual mandates. Which best describes the policy making environment in the United States?

> Should policy makers strive to achieve zero rates of unemployment and inflation? Why or why not?

> Describe the two primary objectives of macroeconomic stabilization policy.

> The Heritage Index, published yearly by the Heritage Foundation, provides a comprehensive numerical measure of overall economic freedom for countries, with specific indicators reflecting the overall quality of financial markets through two indicators: fi

> Go to the St. Louis Federal Reserve FRED database, and find data on the St. Louis Fed financial stress index (STLFSI), the percent value of loans collateralized for commercial and industrial loans (ESAXDBNQ), and the net percentage of loan officers repor

> 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