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What happens when the Fed monetizes a budget deficit? Is this something it should always try to do?
What would the LM curve look like in a classical world? If this really were the LM curve that we thought best characterized the economy.
What is crowding out, and when would you expect it to occur? In the face of substantial crowding out, which will be more successful-fiscal or monetary policy?
Discuss the circumstances under which the monetary and fiscal policy multipliers are each, in turn, equal to zero.
Define an open market sale by the Fed. Show both the immediate- and the longer-term impacts.
In the Keynesian case, what happens to equilibrium output and to prices? In the classical case, what is the effect on output and on prices?
How does an increase in the tax rate affect the IS curve? How does the increase affect the equilibrium level of income?
Suppose that consumption is, in fact, reduced by an increase in the interest rate. How will the IS curve be affected?
Explain in words how and why the income and interest sensitivities of the demand for real balances affect the slope of the LM curve.
Explain in words how and why the multiplier G and the interest sensitivity of aggregate demand affect the slope of the IS curve.
How does the IS-LM model developed in this chapter relate to the model of aggregate demand developed in Chapter 9 ?
Why? What assumption about consumption behavior leads to this result? What happens to this ratio after retirement?
What interest rate would be needed on pound securities, such as government bonds, for you to be willing to buy those securities with your dollars today.
In 1990-1992 Finland fell into serious difficulties. What adjustment policies would you recommend for such a case?
Explain first why the equilibrium levels of output and the interest rate are unaffected.
Explain the purchasing power parity theory of the long-run behavior of the exchange rate. Indicate whether there are any circumstances.
What costs are associated with imperfectly anticipated inflation? Discuss them carefully. Who loses, and who gains, when inflation is higher than we expect?
Why do we call mechanisms such as proportional income taxes and the welfare system automatic stabilizers?
Using your knowledge of the amount of time required for the many components. Can you think of any problems with using fiscal policy to stabilize the economy?
What is the full-employment budget surplus, and why might it be a more useful measure than the actual, or unadjusted, budget surplus?
Calculate the aggregate unemployment rate. How will this affect the aggregate unemployment rate?
Should the United States index its wages and prices? How would your answer differ if you expected that nation would face a period of extremely high inflation?
What are the pros and cons of these two arguments? What, in your opinion, are good long-run goals for reducing inflation and unemployment?
Discuss the differences in the unemployment patterns of adults and teenagers. What does this imply about the types of jobs that the groups are seeking?
Why would Argentina have to give the United States seignior age if it gave up its peso and completely dollarized its economy?