Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV) and the personal consumption expenditure price index (PCEPI). For both series, change the Units setting to “Percent Change from Year Ago.” a) Report the inflation rate and the growth rate in employment for the most recent period. b) At the end of the last recession, what were the inflation rate and the employment growth rate? c) Based on your answers to parts (a) and (b), do the data support or refute the real business cycle model? Briefly explain.
> The following function describes the demand condition for a company that makes caps featuring names of college and professional teams in a variety of sports. Q = 2,000 - 100P where Q is cap sales and P is price. a. How many caps could be sold at $12 each
> What would happen to revenue from seignorage if the inflation rate was very high? Hint: check Equation 8 and assume a quickly rising price level.
> Describe the effects on the economy if the Federal Reserve uses monetary policy to burst a wrongfully identified asset-price bubble.
> Suppose a central bank identifies an increase in lending to the floral industry. In particular, many small businesses are borrowing aggressively to import tulips. As market participants observe a sharp increase in the price of tulips, the central bank co
> Critics of the Federal Reserve in 2013 warned that the Federal Reserve’s commitment to keeping the federal funds rate near zero for an extended period of time might increase expected inflation. Explain why low levels of interest rates might fuel inflatio
> According to the Federal Reserve Act of 1913 (Section 13.3), “In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, […] may authorize any Federal Reserve bank, during such periods as the said board may determine, […]
> The following figure, from the Federal Reserve Monetary Policy Report to the Congress (July 21, 2009), shows mortgage delinquency rates from 2001 to 2009 in the United States. a) Explain why mortgage delinquency rates were higher for subprime mortgages.
> According to the FDIC, thirty banks failed or were assisted during 2008: six were based in California, two in Florida, and five in Nevada. The New York Times reported in 2007 that Nevada 1-36.1%2, Florida 1-30.8%2, and California 1-21.3%2 were among the
> As the effects of the 2007–2009 financial crisis became more pervasive, legislators and policy makers debated about the role played by the Federal Reserve as a regulatory agency. While the Federal Reserve argued for more regulatory oversight of the finan
> The following figure, from the Federal Reserve Monetary Policy Report to the Congress (July 21, 2009), shows the gross issuance of mortgage backed securities (MBS) in the United States from 2007 to the second quarter of 2009. Comment on the drastic chang
> Most legal systems assume that it is better not to incarcerate a guilty individual than to incarcerate an innocent person (i.e., if you are making a mistake, at least choose the lesser of the two). As central banks can potentially make a mistake when bur
> Go to the St. Louis Federal Reserve FRED database, and find data on recession dating (USRECQ) and real GDP (GDPC1), real consumption (PCECC96), and real private domestic investment (GPDIC1). a) Using the recession dating series (USRECQ), when did the mos
> One of the possible solutions to asset-price bubbles is the enforcement of macro prudential regulation. Financial intermediaries have an incentive to constantly look for profitable opportunities, which often implies the design of new financial instrumen
> Suppose you are about to buy a car and ask to see a vehicle history report to check on previous accidents or problems reported for that car. When you are told that this information is not available, you decide not to buy the car. a) Do you think this exa
> One of the main characteristics of financial deepening is that more individuals participate in the financial system: more people open checking and saving accounts, and more firms rely on financial intermediaries as a source of funds. Comment on the effec
> Many policy makers in developing countries have proposed the implementation of systems of deposit insurance like the one that exists in the United States. Explain why this might create more problems than solutions in the financial system of a developing
> Financial regulators have been working to improve transparency and reduce risk in the derivatives market. How do you think increased transparency will affect financial intermediaries that trade derivatives? How do you think it will affect the overall per
> Gustavo is a young doctor who lives in a country with a relatively inefficient legal system and (probably as a consequence) an inefficient financial system. When Gustavo applied for a mortgage, he found that banks (he visited many) usually required colla
> In December 2001, Argentina announced that it would not honor its sovereign (government-issued) debt. Many investors were left holding Argentinean bonds that were now priced at a fraction of their recent value. A few years later, Argentina announced that
> Suppose you go to a bank intending to buy a certificate of deposit with your savings. Explain why you would not offer a loan to the next individual who applies for a car loan at the bank at a higher interest rate than the rate the bank pays on certificat
> Identify the type of asymmetric information problem described in each of the following scenarios: a) A loan officer requests information about your work and credit history before approving your car loan application. b) The same loan officer explains that
> Suppose a given country encourages its citizens to save 20% of their income and then allocates these funds through government owned financial intermediaries. As a result, many government officials get mortgages to buy expensive houses (and often default
> The production function for technology in Equation 8 can be expressed as At+1 - At = χ At αt Nt. Assume that χ = 1, that both N and α can vary over time, and that N is interpreted as the labor force rather than population. Go to the St. Louis Federal Res
> Microcredit programs (i.e., very small loans issued to the extremely poor) usually target a group of women and assign funds to them under the condition that decisions about the use of funds are made by all women in the group. How do you think this proced
> Suppose a firm has a great idea: overnight shipping. This idea will decrease costs for many businesses and will therefore result in a more efficient economy. If the entrepreneurs who create this concept cannot get funds to put their idea to work, what do
> The Taylor rule suggests that the policy rate target should be increased when the output gap is positive. Do you think the Taylor rule encourages or discourages demand-pull inflation? Which might be a limitation of the Taylor rule with respect to demand-
> The following table shows unemployment and inflation rates for Canada during the 1972–1982 period: a) Plot Canada’s unemployment rates during this period. On the same graph, draw a horizontal line at 7.3%, representi
> Assume that policy makers are using the Taylor rule as a basis for policy changes, as specified in Equation 1. Under each of the following scenarios, show how the real interest rate, output, and inflation behave in both the short and long run. Use an IS
> The following panels describe two different short-run aggregate supply curves. In which situation is the case for non-activist policy stronger? Explain why. (a) (b) XIX Inflation AS Inflation LRAS AS Rate, T Rate, T AD AD Aggregate Output, Y Aggrega
> Suppose one could measure the welfare gains derived from eliminating output (and unemployment) fluctuations in the economy. Assuming these gains are relatively small for the average individual, how do you think this conclusion would affect the activist/n
> The following table shows the inflation rate and output level for four consecutive periods in a given economy. In period 1, the economy is at its long-run equilibrium (i.e., the inflation rate equals its target and output equals potential output). In per
> The recent debate about healthcare reform in the United States included arguments about how the proposed reform might affect the efficiency of the U.S. economy. Based on the aggregate demand and supply analysis, do you think that a more or less efficient
> Suppose the current administration decides to decrease government expenditures as a means of cutting the existing government budget deficit. a) According to the aggregate demand and supply analysis, what will be the effect of such a measure in the short
> The Heritage Index, published yearly by the Heritage Foundation, provides a comprehensive numerical measure of overall economic freedom for countries and reflects the strength or weakness of institutions, political freedom, ease of doing business, and ru
> Suppose that f is determined by two factors: financial panic and asset purchases. a) Using an MP curve and an AS>AD graph, show how a sufficiently large financial panic can pull the economy below the zero lower bound and into a destabilizing deflationary
> In 2003, as the economy finally seemed poised to exit its ongoing recession, the Fed began worrying about a “soft patch” in the economy; in particular, it worried about the possibility of deflation. As a result, the Fed proactively lowered the federal fu
> According to the Reserve Bank of New Zealand Act of 1989 (section 8): “The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices
> Suppose that the President gets legislation passed that encourages investment in research and development of new technologies. Assuming this policy results in positive technological change for the U.S. economy, what does aggregate demand and supply analy
> The consequences of climate change on the economy is a popular topic in the media. Suppose that a series of wildfires destroys crops in the western states at the same time a hurricane destroys refineries on the Gulf Coast. a) Using aggregate demand and s
> An article in the Wall Street Journal reported that inflation-adjusted wages have slumped in recent years. Is this statement consistent with the aggregate demand and supply analysis of the recent U.S. economic crisis? Explain.
> According to aggregate demand and supply analysis, what would be the effect of appointing a Federal Reserve System chairman known to have no interest in fighting inflation?
> Suppose that in an effort to reduce the current federal government budget deficit, the White House decides to sharply decrease government spending. Assuming the economy is at its long run equilibrium, carefully explain the short- and long-run consequence
> Oil prices declined in the summer of 2008, following months of increases since the winter of 2007. Considering only this fall in oil prices, explain the effect on short-run aggregate supply and long-run aggregate supply, if any.
> Suppose that the White House decides to sharply reduce military spending without increasing government spending in other areas. a) Comment on the effect of this measure on aggregate demand. b) Show your answer graphically
> Go to the St. Louis Federal Reserve FRED database, and find data on the labor force, capital stock, GDP, and the price level for Turkey and South Korea, with data codes provided in the table below. Download each country’s data on a sepa
> Evaluate the accuracy of the following statement: “The recent depreciation of the U.S. dollar had a positive effect on the U.S. aggregate demand curve.”
> Suppose that Congress passes legislation that establishes a tax credit for small businesses and tax incentives for all businesses that invest in new plant and equipment. a) What is the anticipated effect of these proposals on aggregate demand, if any? b)
> Internet sites that allow people to post their resumes online reduce the costs of job searches and create opportunities for individuals looking for jobs to be matched with potential employers more quickly. Assume that these advantages of Internet job hun
> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1) and the GDP deflator (GDPDEF). Convert the deflator to the inflation rate by setting the Units setting to “Percent Change from Year Ago,” and download the data. a) Based
> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1), the labor force (CLF16OV), and a measure of the capital stock, real consumption of fixed capital (A262RX1Q020SBEA). Download all of the data onto a spreadsheet. For (CL
> Go to the St. Louis Federal Reserve FRED database, and find data on the GDP deflator (GDPDEF) and the price of a barrel of oil (OILPRICE). For the GDP deflator, convert the Units setting to “Percent Change from Year Ago” and download the data. a) Calcul
> Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI). Convert the Units setting to “Percent Change from Year Ago” and download the data. Beginning in January 2012, the Fed formally
> Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI). Download the data, then calculate a series for inflation. For each quarter, take the percentage change in the price index from
> Go to the St. Louis Federal Reserve FRED database, and find data on the civilian unemployment rate (UNRATE) and a measure of the natural rate of unemployment (NROU). a) Calculate the cyclical unemployment rate for the most recent month available, and for
> Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPCA), the labor force (CLF16OV), and a measure of the capital stock, real consumption of fixed capital (A262RX1A020NBEA). Download all of the data onto a spreadsheet; for (CL
> Go to the St. Louis Federal Reserve FRED database, and find data on labor force participation and the unemployment rate for the groups listed below. For each pair of demographic groups, calculate the difference in labor force participation and the differ
> Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV), unemployed (UNEMPLOY), and not in the labor force (LNS15000000). a) Using the most recent data available, calculate the labor force, the working age populat
> Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV) and a measure of real wages in the non-farm business sector (COMPRNFB). Convert the employment measure to “Quarterly” using the frequency setting, and downlo
> Go to the St. Louis Federal Reserve FRED database, and find data on the 30-year mortgage rate (MORTG), private residential fixed investment (PRFI), and the net percentage of bankers tightening credit standards on mortgages (DRTSPM). For the mortgage rate
> Go to the St. Louis Federal Reserve FRED database, and find data on net domestic investment (A557RC1Q027SBEA) and gross domestic investment (W170RC1Q027SBEA). a) For each series, report the values for the most recent quarter of data available. Why are th
> In the Romer model, what three factors determine an economy’s growth rate?
> Go to the St. Louis Federal Reserve FRED database, and find data on real private domestic investment (GPDIC96), real residential investment (PRFIC96), and real non-residential (business) fixed investment (PNFIC96). a) Using these data, calculate inventor
> How do macroeconomists distinguish between flexible and sticky prices and wages?
> What are property rights and how do they influence economic growth?
> Classify the following economic variables as pro cyclical or countercyclical and as leading, lagging, or coincident: real consumer spending, real investment spending, unemployment, inflation, S&P 500 Index, spread between long- and short-term interest ra
> What is the employment ratio? What notable trends in this ratio have occurred over the past fifty years?
> What government policies can be used to promote productivity growth?
> What is the policy trilemma?
> What causes the short-run aggregate supply curve to shift?
> What basic relationship does the short-run Phillips curve describe? What trade-offs does this relationship seem to offer policy makers?
> What has been the general experience of countries that have adopted inflation targeting?
> What is cyclical unemployment?
> Go to the St. Louis Federal Reserve FRED database, and find data on the University of Michigan’s consumer sentiment index (UMCSENT) and real personal consumption expenditures (PCECC96). Convert the consumer sentiment index to “Quarterly” using the freque
> Identify three factors that might cause the exchange rate for a currency to rise.
> The Federal Reserve has promised that at some future date, it will raise interest rates as part of its “exit strategy” from the expansionary monetary policy it pursued in the aftermath of the global financial crisis. What will be the impact of this “exi
> Suppose that in a given economy all goods and services produced are sold in perfectly competitive markets. Would you represent this economy using the classical or Keynesian approach? Explain why.
> Suppose the economy of India can be represented by the following production function: Y = AK1>3L2>3. Assume that during 2014, India’s technological growth (Solow residual) is 4%, and the growth rates of both the capital and labor input stocks are 3%. a)
> How does an increase in financial frictions affect planned investment spending?
> In the Solow growth model, which variables are exogenous and which are endogenous?
> Is stabilization policy more likely to be conducted with monetary policy or fiscal policy? Why?
> Assume that Luke is considering investing in new equipment and computers for his construction company. The real interest rate is 5%, construction equipment is valued at $600,000, and computers are valued at $20,000. Neither type of capital is expected to
> Describe the effect of an increase in next period’s income on the intertemporal budget constraint. If next year’s income increases by $3,000 and the interest rate is 5%, by how much does the intertemporal budget line shift?
> Suppose government purchases amount to $2.5 trillion, transfer payments amount to $1 trillion, net interest payments are $0.5 trillion, and tax revenue is valued at $3 trillion. a) Calculate the government deficit. b) Calculate the primary deficit.
> Go to the St. Louis Federal Reserve FRED database, and find data on the civilian population (CNP16OV) and the civilian population 55 years old and over (LNU00024230). Convert the two population series to “Quarterly” using the frequency setting, and downl
> The Bureau of Economic Analysis valued nominal U.S. gross domestic product (i.e., actual expenditure) at $16,420 billion at the end of 2012. Suppose that consumption expenditure was $12,210 billion, planned investment spending was $1,680 billion, and gov
> Assume that the per-worker production function is yt = 2kt 0.5. The saving and depreciation rates are estimated at 0.2 and 0.04, respectively. a) Calculate the capital-labor ratio steady state for this economy. b) Calculate consumption per worker at the
> Suppose a plot of the values of M2 and nominal GDP for a given country over forty years shows that these two variables are very closely related. In particular, a plot of their ratio (nominal GDP/M2) yields very stable and easy-to predict values. Based on
> According to the portfolio theory approach to money demand, what would be the effect of a stock market crash on the demand for money? (Hint: Consider both the increase in stock price volatility following a market crash and the decrease in the wealth of s
> Consider the portfolio theory of money demand. How do you think the demand for money would be affected by a hyperinflation (i.e., monthly inflation rates in excess of 50%)?
> Suppose a given country experienced low, stable inflation rates for quite some time, but then inflation picked up and has been relatively high and quite unpredictable over the past decade. Explain how this new inflationary environment would affect the de
> Explain how the following events will affect the demand for money according to the portfolio theory approach to money demand: a) The economy experiences a business cycle contraction. b) Brokerage fees decline, making bond transactions cheaper.
> Plot the values of velocity you found in Problem 7, and comment on the volatility (i.e., fluctuations) of velocity. Data from Problem 7: Suppose the liquidity preference function is given by L1i, Y2= Y - 1,000i. For the data given in the table below,
> Suppose the liquidity preference function is given by L1i, Y2= Y - 1,000i. For the data given in the table below, calculate velocity using Equation 2.
> In many countries, people hold money as a cushion against unexpected needs arising from a variety of potential scenarios (e.g., banking crises, natural disasters, health problems, unemployment, etc.) that are usually not covered by insurance markets. Exp
> Go to the St. Louis Federal Reserve FRED database, and find data on disposable personal income (DPI), personal saving (PSAVE), and personal consumption expenditures (PCEC). Download the data onto a spreadsheet. For each quarter, calculate the average pro
> Some payment technologies require infrastructure (e.g., merchants need to have access to credit card swiping machines). In most developing countries, this infrastructure is either nonexistent or very costly. Everything else being the same, would you expe
> Suppose a new payment technology allows individuals to make payments using U.S. Treasury bonds (i.e., U.S. Treasury bonds are immediately cashed when needed to make a payment, and that balance is transferred to the payee). How do you think this payment t
> What evidence is used to assess the stability of the money demand function? What does the evidence suggest about the stability of money demand, and how has this evidence affected monetary policy making?
> According to the portfolio theory of money demand, what are the four factors that determine money demand? What changes in these factors can increase the demand for money?
> What three motives for holding money did Keynes consider in his liquidity preference theory of the demand for real money balances? Based on these motives, what variables did he think determined the demand for money?
