Question: What do indifference curves show about current

> 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.”

> 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

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

> 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

> 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

> 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

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

> 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.

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

> 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 government policies can be used to promote productivity growth?

> What is the policy trilemma?

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

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

> What is cyclical unemployment?

> 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?

> 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

> 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

> 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?

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

> The Federal Reserve has promised that at some future date, it will raise interest rates as part of its “exit strategy” from the expansionary monetary policy it pursued in the aftermath of the global financial crisis. What will be the impact of this “exi

> 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)

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

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

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

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

> 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 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

> 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

> 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.

> 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

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

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

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

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

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

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

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

> 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?

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

> 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.

> 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

> 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

> 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?

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

> 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?

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

> 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?

> Using the accompanying graph, measure the following: a) Expansions (in months from trough to peak) b) Contractions (in months from peak to trough)

> 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?

> 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

> 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

> 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

> 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.

> 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?

> 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?

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

> 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.

> 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?

> 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

> 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?

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

> 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.

> 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.

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

> 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

> 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?