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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.
Why might the Fed choose intermediate targets for its monetary policy, as opposed to directly pursuing its ultimate targets?
What might be the danger in using interest rates as targets for monetary policy when credit rationing is taking place?
Why does the Fed not stick more closely to its target paths for money? What are the dangers of targeting nominal interest rates?
How does the existence of the FDIC help prevent this problem? What would be the effects on the money supply and on the money multiplier?
Under what circumstances should the Fed conduct monetary policy by targeting mainly (a) interest rates or (b) the money stock?
Suppose fiscal policy actions are taken to put GDP at its potential level this period. What fiscal policy will be needed to put GDP on target next period?
Why might a pay-as-you-go social security system transfer resource from the young to the old? What are the consequences of such a system on economic efficiency?
To what extent do we need to worry about the national debt? In what way or ways is it a burden on society?
Classic hyperinflations have occurred in the aftermath of wars social upheavals. What factors lay behind the high rates of Russian inflation in the early 1990s?
How could the German government have financed the remaining 99 percent of its spending?
Evaluate strengths and weaknesses of gradual versus cold-turkey strategies of inflation reduction. Why is the credibility of anti-inflationary policy important?
What do Keynesians believe caused the Great Depression? Why are macroeconomists so interested in explaining the causes of the Great Depression?
Why is the fact that stock prices follow a random walk signal of stock market efficiency? What would have to true if stock prices did not follow a random walk?
What expectations must people have regarding future interest rates? Why might the above relationship signal a recession? Why might it not?
What do such high returns imply about the market's expectations regarding the future profitability of U.S. firms?