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Explain why the government must be overestimating the revenue it will receive from the resulting inflation tax.
What is the fastest growing component of GDP, and why? What is the composition of GDP by percentage?
What does empirical evidence suggest regarding the extent to which people substitute leisure over time?
When will aggregate shocks (shocks to the economy at large, rather than to particular regions or markets) have the strongest effect on output? Explain.
What are the similarities and differences between Mankiw's menu-cost model of aggregate supply and Lucas's imperfect-information one?
What are rational expectations? How do rational expectations differ from perfect foresight? Is monetary policy neutral under both assumptions?
Explain why output can diverge, in the short run, from its full-employment level. To what extent do these models complement or contradict each other?
Explain why the futures prices are not generally equal to the spot price-the price paid today to receive the foreign currency today.
What happens during the period of adjustment from the short to the long run?
What are the short- and long-term volume effects of an exchange depreciation? Does empirical evidence suggest that they are of sufficient size?
What would be the adjustment process along the lines described by the monetary approach to the balance of payments?
Show, too, how sterilization operations are reflected in the central bank's balance sheet.
Assume that there is perfect mobility of capital. How does the imposition of a tariff affect the exchange rate, output, and the current account?
Why Is the importance of spillover effects larger or smaller under flexible exchange rates, as opposed to fixed ones?
Discuss the lures and dangers in exchange market intervention when exchange rates are flexible. Do you think such intervention is a good idea?
What is the best that can be done to keep GDP as close to target as possible each period?
Suppose that GDP is $40 billion below its potential level. What policy actions can be taken to put GDP back on target each period?
How does nominal GDP targeting differ from real GDP targeting? Why is real GDP targeting the riskier of the two strategies?
What is dynamic inconsistency? Explain intuitively how it might arise in the case of the short-run tradeoff between inflation and unemployment.
Evaluate the argument that monetary policy should be determined by a rule rather than discretion. How about fiscal policy?
What is an econometric model? There is always some uncertainty with respect to predictions based on such models. Why? What is the source of this uncertainty?
What is an outside lag? Why does it generally take the form of a distributed lag? Which has the smaller outside lag-fiscal or monetary policy?
What are these, and in what order do they occur? Which has the smaller inside lag-fiscal or monetary policy? Why?
What information do you need to have to make an informed decision? When would each be a good (or bad!) choice?
Show the effects on the Fed balance sheet of a purchase of gold and a corresponding sterilization through an open market sale.