Question: The Federal Reserve has promised that at

> The following table shows unemployment and inflation rates for Canada during the 1972–1982 period: a) Plot Canada’s unemployment rates during this period. On the same graph, draw a horizontal line at 7.3%, representi

> Assume that policy makers are using the Taylor rule as a basis for policy changes, as specified in Equation 1. Under each of the following scenarios, show how the real interest rate, output, and inflation behave in both the short and long run. Use an IS

> The following panels describe two different short-run aggregate supply curves. In which situation is the case for non-activist policy stronger? Explain why. (a) (b) XIX Inflation AS Inflation LRAS AS Rate, T Rate, T AD AD Aggregate Output, Y Aggrega

> Suppose one could measure the welfare gains derived from eliminating output (and unemployment) fluctuations in the economy. Assuming these gains are relatively small for the average individual, how do you think this conclusion would affect the activist/n

> The following table shows the inflation rate and output level for four consecutive periods in a given economy. In period 1, the economy is at its long-run equilibrium (i.e., the inflation rate equals its target and output equals potential output). In per

> The recent debate about healthcare reform in the United States included arguments about how the proposed reform might affect the efficiency of the U.S. economy. Based on the aggregate demand and supply analysis, do you think that a more or less efficient

> Suppose the current administration decides to decrease government expenditures as a means of cutting the existing government budget deficit. a) According to the aggregate demand and supply analysis, what will be the effect of such a measure in the short

> The Heritage Index, published yearly by the Heritage Foundation, provides a comprehensive numerical measure of overall economic freedom for countries and reflects the strength or weakness of institutions, political freedom, ease of doing business, and ru

> Suppose that f is determined by two factors: financial panic and asset purchases. a) Using an MP curve and an AS>AD graph, show how a sufficiently large financial panic can pull the economy below the zero lower bound and into a destabilizing deflationary

> In 2003, as the economy finally seemed poised to exit its ongoing recession, the Fed began worrying about a “soft patch” in the economy; in particular, it worried about the possibility of deflation. As a result, the Fed proactively lowered the federal fu

> According to the Reserve Bank of New Zealand Act of 1989 (section 8): “The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices

> Suppose that the President gets legislation passed that encourages investment in research and development of new technologies. Assuming this policy results in positive technological change for the U.S. economy, what does aggregate demand and supply analy

> The consequences of climate change on the economy is a popular topic in the media. Suppose that a series of wildfires destroys crops in the western states at the same time a hurricane destroys refineries on the Gulf Coast. a) Using aggregate demand and s

> An article in the Wall Street Journal reported that inflation-adjusted wages have slumped in recent years. Is this statement consistent with the aggregate demand and supply analysis of the recent U.S. economic crisis? Explain.

> According to aggregate demand and supply analysis, what would be the effect of appointing a Federal Reserve System chairman known to have no interest in fighting inflation?

> Suppose that in an effort to reduce the current federal government budget deficit, the White House decides to sharply decrease government spending. Assuming the economy is at its long run equilibrium, carefully explain the short- and long-run consequence

> Oil prices declined in the summer of 2008, following months of increases since the winter of 2007. Considering only this fall in oil prices, explain the effect on short-run aggregate supply and long-run aggregate supply, if any.

> Suppose that the White House decides to sharply reduce military spending without increasing government spending in other areas. a) Comment on the effect of this measure on aggregate demand. b) Show your answer graphically

> Go to the St. Louis Federal Reserve FRED database, and find data on the labor force, capital stock, GDP, and the price level for Turkey and South Korea, with data codes provided in the table below. Download each country’s data on a sepa

> Evaluate the accuracy of the following statement: “The recent depreciation of the U.S. dollar had a positive effect on the U.S. aggregate demand curve.”

> Suppose that Congress passes legislation that establishes a tax credit for small businesses and tax incentives for all businesses that invest in new plant and equipment. a) What is the anticipated effect of these proposals on aggregate demand, if any? b)

> Internet sites that allow people to post their resumes online reduce the costs of job searches and create opportunities for individuals looking for jobs to be matched with potential employers more quickly. Assume that these advantages of Internet job hun

> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1) and the GDP deflator (GDPDEF). Convert the deflator to the inflation rate by setting the Units setting to “Percent Change from Year Ago,” and download the data. a) Based

> Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV) and the personal consumption expenditure price index (PCEPI). For both series, change the Units setting to “Percent Change from Year Ago.” a) Report the infl

> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1), the labor force (CLF16OV), and a measure of the capital stock, real consumption of fixed capital (A262RX1Q020SBEA). Download all of the data onto a spreadsheet. For (CL

> Go to the St. Louis Federal Reserve FRED database, and find data on the GDP deflator (GDPDEF) and the price of a barrel of oil (OILPRICE). For the GDP deflator, convert the Units setting to “Percent Change from Year Ago” and download the data. a) Calcul

> Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI). Convert the Units setting to “Percent Change from Year Ago” and download the data. Beginning in January 2012, the Fed formally

> Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI). Download the data, then calculate a series for inflation. For each quarter, take the percentage change in the price index from

> Go to the St. Louis Federal Reserve FRED database, and find data on the civilian unemployment rate (UNRATE) and a measure of the natural rate of unemployment (NROU). a) Calculate the cyclical unemployment rate for the most recent month available, and for

> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPCA), the labor force (CLF16OV), and a measure of the capital stock, real consumption of fixed capital (A262RX1A020NBEA). Download all of the data onto a spreadsheet; for (CL

> Go to the St. Louis Federal Reserve FRED database, and find data on labor force participation and the unemployment rate for the groups listed below. For each pair of demographic groups, calculate the difference in labor force participation and the differ

> Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV), unemployed (UNEMPLOY), and not in the labor force (LNS15000000). a) Using the most recent data available, calculate the labor force, the working age populat

> Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV) and a measure of real wages in the non-farm business sector (COMPRNFB). Convert the employment measure to “Quarterly” using the frequency setting, and downlo

> Go to the St. Louis Federal Reserve FRED database, and find data on the 30-year mortgage rate (MORTG), private residential fixed investment (PRFI), and the net percentage of bankers tightening credit standards on mortgages (DRTSPM). For the mortgage rate

> Go to the St. Louis Federal Reserve FRED database, and find data on net domestic investment (A557RC1Q027SBEA) and gross domestic investment (W170RC1Q027SBEA). a) For each series, report the values for the most recent quarter of data available. Why are th

> In the Romer model, what three factors determine an economy’s growth rate?

> Go to the St. Louis Federal Reserve FRED database, and find data on real private domestic investment (GPDIC96), real residential investment (PRFIC96), and real non-residential (business) fixed investment (PNFIC96). a) Using these data, calculate inventor

> How do macroeconomists distinguish between flexible and sticky prices and wages?

> What are property rights and how do they influence economic growth?

> Classify the following economic variables as pro cyclical or countercyclical and as leading, lagging, or coincident: real consumer spending, real investment spending, unemployment, inflation, S&P 500 Index, spread between long- and short-term interest ra

> What is the employment ratio? What notable trends in this ratio have occurred over the past fifty years?

> What government policies can be used to promote productivity growth?

> What is the policy trilemma?

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

> What basic relationship does the short-run Phillips curve describe? What trade-offs does this relationship seem to offer policy makers?

> What has been the general experience of countries that have adopted inflation targeting?

> What is cyclical unemployment?

> Go to the St. Louis Federal Reserve FRED database, and find data on the University of Michigan’s consumer sentiment index (UMCSENT) and real personal consumption expenditures (PCECC96). Convert the consumer sentiment index to “Quarterly” using the freque

> Identify three factors that might cause the exchange rate for a currency to rise.

> Suppose that in a given economy all goods and services produced are sold in perfectly competitive markets. Would you represent this economy using the classical or Keynesian approach? Explain why.

> Suppose the economy of India can be represented by the following production function: Y = AK1>3L2>3. Assume that during 2014, India’s technological growth (Solow residual) is 4%, and the growth rates of both the capital and labor input stocks are 3%. a)

> How does an increase in financial frictions affect planned investment spending?

> In the Solow growth model, which variables are exogenous and which are endogenous?

> Is stabilization policy more likely to be conducted with monetary policy or fiscal policy? Why?

> Assume that Luke is considering investing in new equipment and computers for his construction company. The real interest rate is 5%, construction equipment is valued at $600,000, and computers are valued at $20,000. Neither type of capital is expected to

> Describe the effect of an increase in next period’s income on the intertemporal budget constraint. If next year’s income increases by $3,000 and the interest rate is 5%, by how much does the intertemporal budget line shift?

> Suppose government purchases amount to $2.5 trillion, transfer payments amount to $1 trillion, net interest payments are $0.5 trillion, and tax revenue is valued at $3 trillion. a) Calculate the government deficit. b) Calculate the primary deficit.

> Go to the St. Louis Federal Reserve FRED database, and find data on the civilian population (CNP16OV) and the civilian population 55 years old and over (LNU00024230). Convert the two population series to “Quarterly” using the frequency setting, and downl

> The Bureau of Economic Analysis valued nominal U.S. gross domestic product (i.e., actual expenditure) at $16,420 billion at the end of 2012. Suppose that consumption expenditure was $12,210 billion, planned investment spending was $1,680 billion, and gov

> Assume that the per-worker production function is yt = 2kt 0.5. The saving and depreciation rates are estimated at 0.2 and 0.04, respectively. a) Calculate the capital-labor ratio steady state for this economy. b) Calculate consumption per worker at the

> Suppose a plot of the values of M2 and nominal GDP for a given country over forty years shows that these two variables are very closely related. In particular, a plot of their ratio (nominal GDP/M2) yields very stable and easy-to predict values. Based on

> According to the portfolio theory approach to money demand, what would be the effect of a stock market crash on the demand for money? (Hint: Consider both the increase in stock price volatility following a market crash and the decrease in the wealth of s

> Consider the portfolio theory of money demand. How do you think the demand for money would be affected by a hyperinflation (i.e., monthly inflation rates in excess of 50%)?

> Suppose a given country experienced low, stable inflation rates for quite some time, but then inflation picked up and has been relatively high and quite unpredictable over the past decade. Explain how this new inflationary environment would affect the de

> Explain how the following events will affect the demand for money according to the portfolio theory approach to money demand: a) The economy experiences a business cycle contraction. b) Brokerage fees decline, making bond transactions cheaper.

> Plot the values of velocity you found in Problem 7, and comment on the volatility (i.e., fluctuations) of velocity. Data from Problem 7: Suppose the liquidity preference function is given by L1i, Y2= Y - 1,000i. For the data given in the table below,

> Suppose the liquidity preference function is given by L1i, Y2= Y - 1,000i. For the data given in the table below, calculate velocity using Equation 2.

> In many countries, people hold money as a cushion against unexpected needs arising from a variety of potential scenarios (e.g., banking crises, natural disasters, health problems, unemployment, etc.) that are usually not covered by insurance markets. Exp

> Go to the St. Louis Federal Reserve FRED database, and find data on disposable personal income (DPI), personal saving (PSAVE), and personal consumption expenditures (PCEC). Download the data onto a spreadsheet. For each quarter, calculate the average pro

> Some payment technologies require infrastructure (e.g., merchants need to have access to credit card swiping machines). In most developing countries, this infrastructure is either nonexistent or very costly. Everything else being the same, would you expe

> Suppose a new payment technology allows individuals to make payments using U.S. Treasury bonds (i.e., U.S. Treasury bonds are immediately cashed when needed to make a payment, and that balance is transferred to the payee). How do you think this payment t

> What evidence is used to assess the stability of the money demand function? What does the evidence suggest about the stability of money demand, and how has this evidence affected monetary policy making?

> According to the portfolio theory of money demand, what are the four factors that determine money demand? What changes in these factors can increase the demand for money?

> What three motives for holding money did Keynes consider in his liquidity preference theory of the demand for real money balances? Based on these motives, what variables did he think determined the demand for money?

> During the Great Depression years of 1930– 1933, bank panics led to a dramatic rise in the currency and excess reserves ratios, while the monetary base rose by 20%. Explain how banks’ and depositors’ behavior led to the sharp increase in the currency and

> Calculate the money multiplier for the following values of the currency, excess reserves, and required reserves ratios (i.e., complete the following table), and explain why the money multiplier decreases when the currency or excess reserves ratio increas

> Under very particular conditions, banks would like to borrow from the Fed and, rather than use these borrowed funds to make loans, keep them in the form of excess reserves. What would be the effect on the monetary base and the money supply of an increase

> Suppose the Federal Reserve conducts an open market purchase for $100 million. Assuming the required reserves ratio is 10%, what would be the effect on the money supply in each of the following situations? a) There is only one bank, and the bank decides

> The Federal Reserve announced the closing of many lending facilities, like the term auction facility (TAF), that were originally created to extend loans to financial intermediaries during the most difficult years of the recent global financial crisis. Wh

> Go to the St. Louis Federal Reserve FRED database, and find data on real personal consumption expenditures (PCECCA) and a measure of real interest rates, the 10-year treasury inflation-indexed security (FII10). Convert the TIIS rate to “Annual” using th

> Go to the St. Louis Federal Reserve FRED database, and find data on population and GDP per capita for the following countries, with data codes provided in the table below. a) For each country, calculate the average population growth rate per year by ca

> Some developing countries have suffered banking crises in which depositors lost part or all of their deposits (in some countries there is no deposit insurance). This type of crisis decreases depositors’ confidence in the banking system. What would be the

> Use the Fed and the banking system T-accounts to describe the effects of a Fed sale of $200 million worth of government bonds to a bank that pays with part of its reserves held at the Fed. What would be the effect of this transaction on the Fed’s monetar

> Use the following information to determine the Fed’s balance sheet and calculate the Fed’s monetary liabilities: Currency in circulation = $750 billion Reserves of the banking system = $850 billion Securities held by the Fed = $450 billion Discount loans

> Identify the five factors that determine the money supply. For each factor, explain which player(s) in the money supply process—the Federal Reserve, depositors, and banks—control or influence it, and how and why it affects the money supply.

> Suppose the Fed buys U.S. Treasury securities from Bank of America. According to the simple model of multiple deposit creation, how does this open market purchase affect the money supply? What are the two basic assumptions of the simple model you have de

> What is the monetary base? How does the Federal Reserve influence its size?

> How do the traditional Keynesian, new Keynesian, and real business cycle models differ in their analysis of the effects of anti- inflation policy?

> How do the traditional Keynesian, new Keynesian, and real business cycle models differ in their analysis of the effects of expansionary policy?

> Compare the traditional Keynesian, new Keynesian, and real business cycle models in terms of expectations, price flexibility, and potential sources of business cycle fluctuations.

> In the new Keynesian model, what shocks cause business cycle fluctuations? Does it matter whether these shocks are anticipated or unanticipated? Explain.

> Go to the St. Louis Federal Reserve FRED database, and find data on the monthly U.S. dollar exchange rates to the Chinese yuan, Canadian dollar, and South Korean won. Download the data onto a spreadsheet. a) Over the most recent five-year period of data

> How do new Keynesian ideas about expectations affect the IS and aggregate demand curves?

> How do new Keynesian ideas about price setting and inflation expectations affect the short run aggregate supply curve?

> What objections to the real business cycle model have been raised?

> How does the real business cycle model explain fluctuations in employment and unemployment?

> How do the traditional, new Keynesian, and real business cycle models differ in their views about the efficacy of discretionary policy?

> What are the key ideas of the real business cycle model? How does it explain business cycle fluctuations?

> What are the arguments for and against central bank independence?

> What are the purposes of inflation targeting, and how does this monetary policy strategy achieve them?