Start Discovering Solved Questions and Your Course Assignments
TextBooks Included
Active Tutors
Asked Questions
Answered Questions
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?
What happens to the government surplus when the economy goes into a recession? What happens to the full-employment surplus when economy goes into a recession?
Does money growth cause inflation, or does inflation cause money growth? Discuss. How does your answer depend on the behavior of the Fed?
What are the consequences for the money supply of the increased demand for cash?
What happens to reserve demand and the supply of reserves? If instead the Fed keeps the supply of reserves constant, what happens to the funds rate?
Using a supply and demand diagram of the federal funds market, show how an increase in reserve requirements would affect the equilibrium federal funds rate.
Why does the Fed increase the supply of reserves when prices rise if it is targeting the federal funds rate?
Why will the Fed need to increase or to decrease the supply of reserves? Will it need to engage in an open market purchase or a sale to accomplish this?
Why is capital shortage alone not the most important factor? How do some of the factors interact with each other?
List some important ways in which LDCs differ from more-developed countries. How have different developing countries fared over recent decades?
The government is considering using expansionary fiscal or monetary policy to help. Which type of policy will result in a higher level of net exports?