Why does structural unemployment occur?
> What are the key ideas of the real business cycle model? How does it explain business cycle fluctuations?
> What are the arguments for and against central bank independence?
> What are the purposes of inflation targeting, and how does this monetary policy strategy achieve them?
> How does a credible nominal anchor help improve the economic outcomes that result from a positive aggregate demand shock? How does it help if a negative aggregate supply shock occurs?
> What benefits does a credible nominal anchor provide?
> What are the arguments for and against rules?
> For each of the following cases, determine which would be the preferred macroeconomic model to analyze business fluctuations. a) Most wages are the result of collective bargaining and are therefore quite rigid. In addition, expectations are based mostly
> What is the time-inconsistency problem, and what role does it play in the debate between advocates of discretion and advocates of rules in policy making?
> What is the significance of the Lucas critique of econometric policy evaluation?
> How does the theory of rational expectations differ from that of adaptive expectations?
> How do conflicting views of market structure influence the ideas of classical and Keynesian macroeconomists regarding price and wage flexibility and how quickly the economy adjusts to long-run equilibrium?
> How do Keynesian views on macroeconomic fluctuations differ from those of classical macroeconomists?
> What were the “Great Inflation” and the “Great Moderation”?
> Distinguish among leading, lagging, and coincident economic variables.
> Distinguish between pro cyclical and countercyclical economic variables.
> How do menu costs contribute to sticky prices?
> What are business cycles?
> Suppose consumer confidence surges, making consumers more willing to spend. Use the New Keynesian model to describe the effects on output and inflation depending on whether the surge in consumers’ confidence was anticipated or unanticipated.
> According to the growth accounting equation, what are the three sources that contribute to economic growth?
> What are the four basic results of the Solow growth model? What is the model’s chief weakness?
> How does an increase in total factor productivity affect output per worker?
> What is the difference between the short run and the long run in macroeconomic analysis? Why do macroeconomists differentiate between the two time horizons?
> How does population growth affect the steady-state levels of capital and output per worker?
> Beginning from a steady state in the Solow growth model, explain how an increase in the saving rate will affect the levels and growth rates of capital and output per worker.
> What are the two determinants of the steady state level of capital per worker? Why does capital per worker move to this steady-state level?
> What determines the amount of investment per worker and capital accumulation in the Solow growth model?
> Why does the per-worker production function have its particular shape and slope?
> In the per-worker production function, what factors determine the level of output per worker? Which one of these factors does the Solow growth model consider to be exogenous?
> Using a graphical representation of the new Keynesian model, describe the effects of an unanticipated negative demand shock (label this equilibrium as point 2). Compare these effects to those of an anticipated negative demand shock (label this equilibriu
> Use the graphical representation of the Solow growth model to explain why an increase in the technology factor A leads to a more-than proportional increase in both the capital-labor ratio and output per worker.
> Refer to Problem 1 for data and assume now that the population growth rate increases to 5%. Calculate the new steady-state values of the capital-labor ratio and output. Explain your answer graphically, and compare the new values of the capital-labor rati
> Refer to Problem 1 for data and assume now that the saving rate increases to 50%. Calculate the new steady-state values of the capital labor ratio and output. Explain your answer graphically. Data from Problem 1: Use the following table to find the ste
> Use the following table to find the steady-state values of the capital-labor ratio and output per worker (i.e., complete the table) if the per worker production function is yt = 2kt 0.3:
> 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,
> The Bureau of Labor Statistics (BLS) tracks the numbers of workers who are employed part-time for economic reasons. The number typically increases sharply at the beginnings of recessions and gradually declines at the ends of recessions. Is this behavior
> 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. 8
> 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
> 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?
> What is the natural rate of unemployment? What has caused the natural rate to change over time?
> Why does real wage rigidity contribute to unemployment? What are its causes?
> The graph on the next page is based on quarterly data on unemployment and real output growth in the United States between 2006 (q1) and 2013 (q2). Are these data consistent with the real business cycle theory hypothesis regarding the relationship between
> What is frictional unemployment? Why can it be beneficial for workers, firms, and the economy?
> What are the three categories of employment status? What movement between categories results from the existence of discouraged workers?
> Identify three things that can change labor demand or supply and reduce employment. How would each of these affect real wages?
> Is the quantity of labor supplied inversely related to the real wage rate? Why or why not?
> Why is the quantity of labor demanded inversely related to the real wage rate?
> What are the determinants of residential investment?
> How are Tobin’s q theory and the neoclassical theory of investment related?
> What is Tobin’s q? How does it provide a theory of investment spending?
> Why do firms hold inventories, and why is their inventory investment a matter of interest to macroeconomists?
> Explain how the desired levels of capital and investment are affected by changes in the expected marginal product of capital, the user cost of capital, and taxes.
> The table below shows the inflation rate and the level of real GDP under the anti-inflation policy known as the Volcker disinflation for two periods in the early 1980s. a) Use the data in the table to calculate the sacrifice ratio. b) Leading up to the
> Go to the St. Louis Federal Reserve FRED database and find data on the net saving rate as a percentage of national income (W207RC1A156NBEA). a) Calculate the average net saving rate over the period from 1960 to 1980, and again for the period from 1980 to
> According to the neoclassical theory of investment, how do firms determine their optimal amount of investment spending once they have identified their desired level of capital?
> Explain how the user cost of capital and the expected marginal product of capital together determine the desired level of capital.
> What is the user cost of capital? What variables determine this cost, and how does a change in each variable affect it?
> What kinds of policies has the U.S. government pursued to encourage home ownership, and how do they achieve this goal?
> Identify and give examples of the three components of investment spending.
> What determines whether budget deficits will result in inflation in the long run?
> Why are fiscal multipliers higher when the policy rate has hit the floor of the zero lower bound?
> Is balancing the budget a contractionary macroeconomic policy?
> How does a supply-side analysis of the effects of a tax cut differ from one that focuses solely on aggregate demand?
> How can government increase the quantity of aggregate output demanded by changing government spending and taxes? Why does the multiplier for spending changes differ from that for tax changes?
> Assume the following production function: Yt = AK0.4 t L0.6 t . The capital stock and output are measured in trillions of dollars, and the labor stock is measured in millions of people. a) Using the value of output and the capital and labor stocks, cal
> What arguments should be considered in assessing the burden that government debt imposes on future generations?
> What factors have influenced the debt-to GDP ratio in the United States since 1940?
> What is a budget deficit, and what are the two main ways in which the government can finance deficit spending? Which of these methods of financing deficits does the U.S. government most commonly use?
> How does the Ricardian equivalence view of the effects of tax cuts (and budget deficits) differ from the traditional view? What objections to the Ricardian equivalence view have been raised?
> Identify the four main categories of government spending and give an example of each. What are the government’s four main revenue sources?
> What causes the long-run aggregate supply curve to shift?
> Why does the short-run aggregate supply curve slope upward?
> What is Okun’s law? How do we combine it with Phillips curve analysis to derive the short-run aggregate supply curve?
> What relationship does the aggregate supply curve describe? How is this relationship depicted with the long-run aggregate supply curve?
> According to modern Phillips curve analysis, what factors determine the rate of inflation? How do changes in each factor affect the short-run Phillips curve?
> Immediately after the central bank of New Zealand adopted inflation targeting in 1989, economic growth was low and unemployment increased for some time (until 1992), but later, economic growth resumed and unemployment decreased. Comment on the relationsh
> What are adaptive expectations? What justifies the assumption of adaptive expectations in Phillips curve analysis?
> According to the expectations-augmented Phillips curve, what factors determine the rate of inflation? How do changes in each factor affect the short-run Phillips curve?
> What basic relationship does the long-run Phillips curve describe? How does this relationship differ from that described by the short-run Phillips curve?
> What condition is required for equilibrium in the money market? Why does the money market move toward equilibrium?
> What are open market operations? How does the Fed use these operations to increase or decrease the money supply?
> In Keynes’s liquidity preference theory, what variables determine the demand for real money balances? How does the demand for real money balances respond to changes in each of these variables?
> How does an autonomous tightening or easing of monetary policy by the Fed affect the aggregate demand curve?
> What is the aggregate demand curve? Why does it slope downward?
> How does an autonomous tightening or easing of monetary policy by the Fed affect the MP curve?
> What is the monetary policy curve? Why does it slope upward?
> Suppose the statistical office of a country does a poor job of measuring inflation and reports an annualized inflation rate of 4% for a few months, while the true increase in the price level has been around 2.5%. What will happen to the central bank’s cr
> What can increase the equilibrium interest rate in the liquidity preference framework?
> What is the real interest rate? Why can the Fed control the real interest rate in the short run but not in the long run?
> What causes the IS curve to shift?
> What does the IS curve show? Why does it slope downward?
> What happens to aggregate output if unplanned inventory investment is either positive or negative?
