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Suppose Congress and the president decide to increase government purchases today, say for national defense. Explain how this affects the IS curve.
The permanent-income theory of consumption: According to the permanenting come hypothesis, how does your consumption change in each of the following scenarios?
Using the IS-MP diagram, explain what happens to economic activity in the short run. What is the economics underlying the response in the economy?
Explain what happens to the economy in the absence of any monetary policy action. Be sure to include graphs showing how output and inflation respond over time.
According to the Fisher equation, what should the nominal interest rate be? Suppose bank A charges a nominal interest rate on loans equal to 8%.
Discuss the economic value of a college education. What is the present discounted value of your labor income if you forgo college and start work immediately?
Explain the effect on wages, the employment-population ratio, and unemployment - all for the overall economy.
Suppose the U.S. unemployment rate at the start of 2010 had been 6% instead of 9.7%. How many more people would have been working?
What is the difference between the natural rate of unemployment and cyclical unemployment? How are these related to structural and frictional unemployment?
Is the unemployment rate in Europe today higher or lower than in the United States? What about hours worked per person?
In the past 50 years, both the fraction of hours worked by college graduates and the relative wage of college graduates have gone up. Why?
Suppose the government decides to reform tax system to reduce income tax rate. Explain the effect on wages, the employment-population ratio, and unemployment.
Explain the arguments for and against each reform. The insurance payment be increased so that it replaced 100% of a worker's regular labor income for 26 weeks.
What is the difference between a real interest rate and a nominal interest rate? What is the intuition behind the Fisher equation?
What is the government budget constraint? How does it help us understand the causes of high inflation?
How can we understand the Great Inflation of the 1970s? Does the government budget constraint help?
What is the key endogenous variable in the quantity theory? Explain the effect on this key variable of the following changes: The money supply is doubled.
What is the rate of inflation in this baseline case? Back to the baseline case, suppose real GDP growth rises to 5% per year.
Explain what you would do to the money supply in response to the Real GDP increases by 4% during a boom.
What is the nominal return associated with an investment in capital, and why? What is the Fisher equation in this example?
Can the real interest rate be negative? In what circumstances? Can the nominal interest rate be negative? Discuss.
Over the next 5 years, which economy do you think suffers a higher cost of inflation, and why?
Hyperinflations: Explain some of the costs of hyperinflations. If they are so costly to an economy, why do they occur?
The complete version of the Thomas Sargent quote that began this chapter. Why did Sargent include the modifiers persistent high?
How much currency was in circulation in 1981? What was the size of the monetary base in 1981?