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Explain why a macroeconomic model should be built from microeconomic principles. What are the two key threads in modern business cycle theory?
What is principal effect of an increase in government spending? Why might a decrease in taxes have no effect? What is the cause of inflation in long run?
When did the five most recent recessions occur in the United States? What role did credit market imperfections play in the recent financial crisis.
Why does a modern industrial economy need a central bank? Why the quantity of bank reserves supplied normally is higher and the quantity of bank reserves demand
How did the Fed reduce the federal funds rate? Illustrate your answer on a diagram.
In the early years of this decade, the federal government's budget deficit rose sharply because of tax cuts. What would you expect to happen to interest rates?
The money supply (M) is the sum of bank deposits (D) plus currency in the hands of the public. What do you notice about the relationship between M and B?
Distinguish between the expenditure lag and the policy lag in stabilization policy. Does monetary or fiscal policy have the shorter expenditure lag?
How would you define an unfair trade practice? Suppose Country X exports much more to the United States than it imports, year after year.
Give one or more arguments for engaging in contractionary monetary or fiscal policies under these circumstances. Which arguments do you find more persuasive?
Explain why expectations of inflation affect the wages that result from labor-management bargaining.
What is a Phillips curve? Why did it seem to work so much better in the period from 1954 to 1969 than it did in the 1970s?
Explain the difference between crowding out and crowding in. Given the current state of the economy, which effect would you expect to dominate today?
Explain how the U.S. government managed to accumulate a debt of $12 trillion. To whom does it owe this debt? Is the debt a burden on future generations?
If the Federal Reserve lowers interest rates, what will happen to the government budget deficit?
Explain why lags make it possible that policy actions intended to stabilize the economy will actually destabilize it.
What will be the price ratio between the two commodities (that is, the price of oil in terms of wheat) in each country if there is no trade?
What should be the interest rate on the mortgage-backed security? What happens if the expected default rate rises to 8 percent?
Suppose, further, that Country X does not alter its trade practices in any way. Is the United States better or worse off? What about Country X?
What items do you own or routinely consume that are produced abroad? From what countries do these items come?
What, then, does the purchasing-power parity theory predict should have happened to the exchange rate between the mark and the dollar between 1980 and 1985?
How are the problems of a country faced with a balance of payments deficit similar to those posed by a government regulation that holds the price of milk?
Explain why the members of the Bretton Woods conference in 1944 wanted to establish a system. What flaw led to the ultimate breakdown of the system in 1971?
Why do you think the government of Japan was unhappy about this currency appreciation?
For years, the U.S. government has been trying to get Japan and the European Union. Explain how more rapid growth in Japan would affect the U.S. economy.