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What were some of the problems with the communist system, and why was the switch to a market economy expected to lead to increased incomes?
What are some of the roles that government can play in promoting economic development and growth?
What three characteristics of the assets might help differentiate the choice between them?
Discuss the likely unemployment consequences of reducing inflation in each of these two scenarios.
With unemployment around 4 percent and inflation low but with signs the economy was starting to slow, would you have lowered interest rates?
What will be the long-run effects on the real interest rate at full employment? Will this alter the short-run or long-run effects of the fiscal expansion?
Assume Ricardian equivalence is true. How will the current equilibrium real interest rate and investment be affected?
Using a supply and demand analysis of the capital market, explain what the impact of the tax cut will on the equilibrium real interest rate at full employment.
What trade-off between average unemployment and average inflation do policymakers face?
Determine the size of the simple spending multiplier and the total change in real GDP demanded following a $10 billion decrease in spending:
What is meant by dynamic inconsistency? Give at least two examples of policies that are dynamically inconsistent.
Why do some economists argue that interventions to reduce economic fluctuations are either ineffective or counterproductive?
How do inflation and unemployment affect different groups differently, and how do these differences affect views on macroeconomic policy?
Suppose the government cuts taxes. If households save all of their tax cut, will the real interest rate and investment be affected? Explain.
How can monetary policy maintain the economy at full employment? If policy succeeds in maintaining full employment, what happens to inflation?
How might you distinguish between these two hypotheses? Do they have different implications for inflation?
Return to the situation of year 1 in the previous problem. By how much would unemployment need to rise to lower inflation in year 2 to 3 percent?
Does this evidence necessarily imply anything about the shape of the SRIA curve? How might you interpret these data?
What would be the effect on the short-run inflation adjustment curve of an announcement that OPEC- the cartel of oil-producing countries-had fallen apart.
Using the ADI-IA (inflation adjustment) framework, explain how a rise in energy prices would affect output and inflation in the short run.
If the central bank's policy rule remains unchanged, what will be the short-run and long-run effects on output and inflation of this change in fiscal policy?
How will this switch in policy affect the central bank's monetary policy rule? How will it affect the slope of the ADI curve?
What other channels are there through which monetary policy may affect aggregate expenditures?
How does the monetary policy rule shift if the central bank's target for inflation is reduced? How does this reduction affect the ADI curve?
If the central bank wants to keep inflation equal to its target how must the monetary policy rule shift if equilibrium full-employment real interest rate falls?