Question:

> How does a credible nominal anchor help improve the economic outcomes that result from a positive aggregate demand shock? How does it help if a negative aggregate supply shock occurs?

> What benefits does a credible nominal anchor provide?

> Go to the St. Louis Federal Reserve FRED database, and find data on the daily dollar exchange rates for the euro (DEXUSEU), British pound (DEXUSUK), and Japanese yen (DEXJPUS). Also, find data on the daily three-month London Interbank Offer Rate (LIBOR)

> What are the arguments for and against rules?

> What is the time-inconsistency problem, and what role does it play in the debate between advocates of discretion and advocates of rules in policy making?

> What is the significance of the Lucas critique of econometric policy evaluation?

> How does the theory of rational expectations differ from that of adaptive expectations?

> What is the natural rate of unemployment? What has caused the natural rate to change over time?

> Why does real wage rigidity contribute to unemployment? What are its causes?

> Why does structural unemployment occur?

> What is frictional unemployment? Why can it be beneficial for workers, firms, and the economy?

> What are the three categories of employment status? What movement between categories results from the existence of discouraged workers?

> Identify three things that can change labor demand or supply and reduce employment. How would each of these affect real wages?

> Go to the St. Louis Federal Reserve FRED database and find data on the exchange rate of U.S. dollars per British pound (DEXUSUK). A Mini Cooper can be purchased in London, England, for £17,865 or in Boston, United States, for $23,495. a) Use the most rec

> Is the quantity of labor supplied inversely related to the real wage rate? Why or why not?

> Why is the quantity of labor demanded inversely related to the real wage rate?

> What are the determinants of residential investment?

> How are Tobin’s q theory and the neoclassical theory of investment related?

> What is Tobin’s q? How does it provide a theory of investment spending?

> Why do firms hold inventories, and why is their inventory investment a matter of interest to macroeconomists?

> Explain how the desired levels of capital and investment are affected by changes in the expected marginal product of capital, the user cost of capital, and taxes.

> According to the neoclassical theory of investment, how do firms determine their optimal amount of investment spending once they have identified their desired level of capital?

> Explain how the user cost of capital and the expected marginal product of capital together determine the desired level of capital.

> What is the user cost of capital? What variables determine this cost, and how does a change in each variable affect it?

> Go to the St. Louis Federal Reserve FRED database, and find data on daily dollar exchange rates for the euro (DEXUSEU), British pound (DEXUSUK), Japanese yen (DEXJPUS), Chinese yuan (DEXCHUS), and Canadian dollar (DEXCAUS). a) Report the exchange rates f

> What kinds of policies has the U.S. government pursued to encourage home ownership, and how do they achieve this goal?

> Identify and give examples of the three components of investment spending.

> What is the permanent income hypothesis? How does its consumption function relate to intertemporal choice?

> On what assumptions did Keynes base his theory of consumption? How does his theory relate to intertemporal choice?

> How do binding borrowing constraints affect the IBL and current and future consumption?

> How do changes in the real interest rate affect the IBL and current and future consumption?

> What can shift the intertemporal budget line, IBL? What happens to current and future consumption when IBL shifts occur?

> Explain how the intertemporal budget constraint and indifference curves are used to derive a consumer’s optimal choice of current and future consumption.

> What do indifference curves show about current and future consumption? Why do they slope downward? Why are they convex?

> What is the logic behind the intertermporal budget constraint? On what assumptions is it based, and how is its slope interpreted?

> Go to the St. Louis Federal Reserve FRED database, and find data on the budget deficit (FYFSD), the amount of federal debt held by the public (FYGFDPUN), and the amount of federal debt held by the Federal Reserve (FDHBFRBN). Convert the two “debt held” s

> What modifications to the intertemporal choice theory have been suggested by the random walk hypothesis and behavioral economics?

> Describe the life-cycle hypothesis and how it relates to intertemporal choice.

> Why is a theory of consumption also a theory of saving?

> What happens in a fixed exchange rate regime if a currency is overvalued? What problem can this create?

> How do fixed, floating, and managed (dirty) float exchange rate regimes differ?

> Why do central banks intervene in foreign exchange markets? How do these interventions affect their international reserves and exchange rates?

> What are the short-run effects on aggregate output and the inflation rate when the domestic currency appreciates or depreciates?

> Why does the foreign exchange market move toward equilibrium when the foreign exchange rate for the dollar is either above or below its equilibrium value?

> How is the theory of purchasing power parity related to the law of one price? Why doesn’t PPP hold in the short run?

> Differentiate the nominal and real exchange rates between dollars and euros. Do the two exchange rates move together? Why is appreciation or depreciation of real exchange rates important?

> Go to the St. Louis Federal Reserve FRED database, and find data on the total public debt by the federal government (GFDEBTN) and the amount of debt held by foreign and international investors (FDHBFIN). Download the data into a spreadsheet, and make sur

> What are the advantages and disadvantages of exchange-rate pegging?

> What is the foreign exchange market? Describe the two types of transactions that take place in this market.

> Why are fiscal multipliers higher when the policy rate has hit the floor of the zero lower bound?

> Is balancing the budget a contractionary macroeconomic policy?

> How does a supply-side analysis of the effects of a tax cut differ from one that focuses solely on aggregate demand?

> How can government increase the quantity of aggregate output demanded by changing government spending and taxes? Why does the multiplier for spending changes differ from that for tax changes?

> What arguments should be considered in assessing the burden that government debt imposes on future generations?

> What factors have influenced the debt-to GDP ratio in the United States since 1940?

> What is a budget deficit, and what are the two main ways in which the government can finance deficit spending? Which of these methods of financing deficits does the U.S. government most commonly use?

> Go to the St. Louis Federal Reserve FRED database, and find data on the total government debt as a percentage of GDP (GFDEGDQ188S) and gross domestic product (GDP). a) Report the most current available debt to-GDP ratio, and the ratio one year prior and

> How does the Ricardian equivalence view of the effects of tax cuts (and budget deficits) differ from the traditional view? What objections to the Ricardian equivalence view have been raised?

> Identify the four main categories of government spending and give an example of each. What are the government’s four main revenue sources?

> What prevented the financial crisis of 2007– 2009 from becoming a depression?

> What principal-agent problems resulted from the originate-to-distribute mortgage lending model?

> How did financial innovations in mortgage markets contribute to the 2007–2009 financial crisis?

> Why does debt deflation make financial crises worse?

> What causes bank panics and why do they worsen financial crises?

> Describe the three factors that commonly initiate financial crises, and explain how each one contributes to a crisis.

> Why is a financial crisis likely to lead to a contraction in economic activity?

> How should central banks respond to asset-price bubbles?

> 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 federal funds rate (FEDFUNDS), and the total volume of assets on the Federa

> What are the two types of asset-price bubbles? Which type poses a bigger threat to the financial system? Why?

> How does asymmetric information help us define a financial crisis?

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

> What are supply shocks? Distinguish between positive and negative supply shocks and between temporary and permanent ones.

> Starting from a situation of long-run equilibrium, what are the short- and long-run effects of a positive demand shock?

> What are demand shocks? Distinguish between positive and negative demand shocks.

> Describe the adjustment to long-run equilibrium if an economy’s short-run equilibrium output is above potential output.

> How does the condition for short-run equilibrium differ from that for long-run equilibrium?

> What factors shift the short-run aggregate supply curve? Do any of these factors shift the long-run aggregate supply curve? Why?

> Identify changes in three factors that will shift the aggregate demand curve to the right and changes in three different factors that will shift the aggregate demand curve to the left.

> Go to the St. Louis Federal Reserve FRED database, and find data on corporate net worth of nonfinancial businesses (TNWMVBSNNCB), private domestic investment (GPDIC1), and a measure of financial frictions, the St. Louis Fed financial stress index (STLFSI

> 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?