Question: In the Romer model, how does an

> Starting from a situation of long-run equilibrium, what are the short- and long-run effects of a permanent negative supply shock?

> Explain why the aggregate demand curve slopes downward and the short-run aggregate supply curve slopes upward.

> What causes the long-run aggregate supply curve to shift?

> Why does the short-run aggregate supply curve slope upward?

> What is Okun’s law? How do we combine it with Phillips curve analysis to derive the short-run aggregate supply curve?

> What relationship does the aggregate supply curve describe? How is this relationship depicted with the long-run aggregate supply curve?

> According to modern Phillips curve analysis, what factors determine the rate of inflation? How do changes in each factor affect the short-run Phillips curve?

> What are adaptive expectations? What justifies the assumption of adaptive expectations in Phillips curve analysis?

> According to the expectations-augmented Phillips curve, what factors determine the rate of inflation? How do changes in each factor affect the short-run Phillips curve?

> What basic relationship does the long-run Phillips curve describe? How does this relationship differ from that described by the short-run Phillips curve?

> Go to the St. Louis Federal Reserve FRED database, and find data on house prices (SPCS20RSA), stock prices (SP500), a measure of the net wealth of households (TNWBSHNO), and personal consumption expenditures (PCEC). For all four measures, be sure to con

> Go to the St. Louis Federal Reserve FRED database and find data on the net saving rate as a percentage of national income (W207RC1A156NBEA). a) Calculate the average net saving rate over the period from 1960 to 1980, and again for the period from 1980 to

> What condition is required for equilibrium in the money market? Why does the money market move toward equilibrium?

> What are open market operations? How does the Fed use these operations to increase or decrease the money supply?

> In Keynes’s liquidity preference theory, what variables determine the demand for real money balances? How does the demand for real money balances respond to changes in each of these variables?

> How does an autonomous tightening or easing of monetary policy by the Fed affect the aggregate demand curve?

> How do changes in planned expenditures affect the aggregate demand curve?

> What is the aggregate demand curve? Why does it slope downward?

> How does an autonomous tightening or easing of monetary policy by the Fed affect the MP curve?

> What is the monetary policy curve? Why does it slope upward?

> What can increase the equilibrium interest rate in the liquidity preference framework?

> What is the real interest rate? Why can the Fed control the real interest rate in the short run but not in the long run?

> Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI), real GDP (GDPC1), an estimate of potential GDP (GDPPOT), and the federal funds rate (DFF). For the price index, adjust the un

> 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?

> 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?

> How does direct finance differ from indirect finance? Which form of finance is more important?

> 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