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economics today the micro view

Questions and Answers of Economics Today The Micro View

1.43 In a poll of economists, 50 per cent of those interviewed said that forward guidance by the Bank of England would be conditioned on the unemployment rate.Source: Reuters, 11 July 2013 a What
1.42 After you have studied Economics in the News on pp. 742–743, answer the following questions.a What decision did the ECB take on interest rates at its October 2016 meeting?b What were the
1.41 The UK economy suffered a shock contraction in real GDP in the fourth quarter of 2010. Shadow chancellor Ed Balls said the figures were a matter of ‘great concern’ and due largely to the
1.40 What are the three ingredients of a financial and banking crisis and how do the four extraordinary monetary policy actions address each of them?
1.39 Explain the key differences between QE and normal open market operations.
1.38 Explain how bailing out troubled banks and taking them into public ownership avoids the risk of a serious collapse of aggregate demand. Does the government borrowing to buy the troubled banks
1.37 Between August 2007 when the global financial crisis started and April 2008, Bank Rate was cut from 5.75 per cent to 5 per cent. Only when the shockwaves intensified in October 2008 did the Bank
1.36 What monetary policy actions would you expect a central bank to take in the situation described by Alan Greenspan? Greenspan Says Economy Strong The US central bank chairman, Alan Greenspan,
1.35 What monetary policy actions would you expect to have created the situation described by Alan Greenspan? Greenspan Says Economy Strong The US central bank chairman, Alan Greenspan, said
1.34 Describe the time lags in the response of output and inflation to monetary policy actions designed to respond to falling house prices. Robert Shiller, Professor of Economics at Yale University,
1.33 What challenge do falling house prices pose for the conduct of monetary policy? How could monetary policy prevent house prices from falling? Robert Shiller, Professor of Economics at Yale
1.32 Dollar Tumbles to 15-Year Low Against Yen The dollar tumbled to a fresh 15-year low on persistent fears over the US economic outlook.Source: yahoo.com , 7 October 2010 a How do ‘fears over the
1.31 How does monetary policy influence the exchange rate? Financial markets predict a 95 per cent or more certainty that rates will rise by a quarter of a percentage point in June, October and
1.30 How do expectations of the future of the interest rate influence the exchange rate? Financial markets predict a 95 per cent or more certainty that rates will rise by a quarter of a percentage
1.29 What do you think happened to inflation expectations between 2008 and 2010, and why? From 2008 to 2010 the rate of interest on UK 10-year maturity bonds fell from 4.6 per cent a year to 3.6 per
1.28 How does Bank Rate influence the long-term real interest rate? From 2008 to 2010 the rate of interest on UK 10-year maturity bonds fell from 4.6 per cent a year to 3.6 per cent a year. During
1.27 What role does the long-term real interest rate play in the monetary policy transmission process? From 2008 to 2010 the rate of interest on UK 10-year maturity bonds fell from 4.6 per cent a
1.26 Why might the Bank of England decide to raise interest rates when inflation is rising and growth is weakening?
1.25 Why might the Bank of England decide to lower interest rates when inflation is rising and growth is weakening?
1.24 Explain the dilemma that rising inflation and weakening growth poses for the Bank of England.
1.23 Looking at Bank Rate since 2000, identify periods during which, with the benefit of hindsight, the rate might have been kept too low. Identify periods during which it might have been too high.
1.22 How would the government deficit change in 2014 and 2015 if the Bank of England did not raise the rate of interest and the value of sterling depreciated sharply? The budget deficit is £1.6
1.21 How would the government deficit change in 2014 and 2015 if the Bank of England raised interest rates? The budget deficit is £1.6 billion higher in the period April–July 2013 than in the same
1.20 The European Central Bank (ECB) targets the Eurozone inflation rate to make it remain below but close to 2 per cent a year. To pursue this goal, the ECB sets the official ECB interest rate but
1.19 Suppose the Chancellor of the Exchequer decided to strip the Bank of England of its operational independence to meet a government-specified inflation target and gave Cabinet the task of deciding
1.18 The deep 2008–2009 recession and the overshoot of inflation above the upper bound of the target suggests that the inflation target should be raised. Do you agree? Why or why not?
1.17 Based on the performance of UK inflation and unemployment in 2010, which of the Bank’s goals appears to have taken priority? The statutory role of the Bank of England is to maintain price
1.16 Explain the conflict among these goals in the short run. The statutory role of the Bank of England is to maintain price stability and, subject to that, to support the economic policy of Her
1.15 Explain the harmony among these goals in the long run. The statutory role of the Bank of England is to maintain price stability and, subject to that, to support the economic policy of Her
1.14 Financial Markets React to Bank of England QE Policy The Bank of England’s latest bond-buying spree has rattled financial markets by stoking fears that the massive post-referendum rescue
1.13 What further actions might the Bank of England take in 2017 to influence the real GDP growth rate in 2017?(Remember the time lags in the operation of monetary policy.) The UK economy shrugged
1.12 a What actions that the Bank of England had taken in 2015 and 2016 would you expect to influence UK real GDP growth in 2017? Explain how those policy actions would transmit to real GDP.b Draw a
1.11 If real GDP grows faster than potential GDP, what will happen to the output gap and unemployment in 2017? The UK economy shrugged off Brexit uncertainties by growing by 0.5 per cent in the third
1.10 a Is it the long-term nominal interest rate or the long-term real interest rate that influences spending decisions?Explain why.b How does the market determine the long-term nominal interest rate
1.9 What are the roles of Bank Rate and the long-term interest rate in the monetary policy transmission process?
1.8 a Why did the MPC extend QE in August 2016?b Why might the MPC have decided to raise Bank Rate and reverse QE in August 2016? Bank of England Enters Political Sphere Monetary policy has
1.7 Explain why the Monetary Policy Committee (MPC)decided to cut Bank Rate in August 2016. Bank of England Enters Political Sphere Monetary policy has unintentionally taken the Bank of England into
1.6 What does the Bank of England do to determine whether Bank Rate should be raised, lowered or left unchanged?
1.5 How does the Bank of England hit its repo rate target?Illustrate your answer with an appropriate graph.
1.4 What are the two possible monetary policy instruments?Which one does the Bank of England use and how has its value behaved since 2004?
1.3 Inflation Expected to Surge Britain’s inflation rate rose sharply in September to 1 per cent with many economists expecting it to peak at between 3 per cent and 4 per cent a year in
1.2 ‘Monetary policy is too important to be left to the MPC.The government should be responsible for it.’ How is responsibility for monetary policy allocated among the MPC, Parliament and the
1.1 ‘Unemployment is a more serious economic problem than inflation and it should be the focus of the Bank of England’s monetary policy.’ Evaluate this statement and explain why the Bank’s
1.4 Does the economic growth rate increase? Suppose that the UK economy is at full employment, the infl ation rate is 2 per cent a year, and Bank rate is 4 per cent a year. But real GDP is growing
1.3 Which macroeconomic variables change over the next year or two and in which direction? Suppose that the UK economy is at full employment, the infl ation rate is 2 per cent a year, and Bank rate
1.2 Which macroeconomic variables change over the next few weeks or months and in which direction? Suppose that the UK economy is at full employment, the infl ation rate is 2 per cent a year, and
1.1 Which macroeconomic variables change immediately and in which direction? Suppose that the UK economy is at full employment, the infl ation rate is 2 per cent a year, and Bank rate is 4 per cent a
1.4 Did QE work?
1.3 What is QE and what is the key idea in using it?
1.2 What policy actions have the Bank of England and the UK government taken in response to the financial and banking crisis?
1.1 What are the three main ingredients of a financial and banking crisis?
1.5 How do the Bank’s actions influence the inflation rate and how long does it take for the inflation rate to respond to the Bank’s policy changes?
1.4 How do the Bank of England’s actions influence real GDP and how long does it take for real GDP to respond to the Bank’s policy changes?
1.3 How do the Bank of England’s actions change the exchange rate?
1.2 Do interest rates fluctuate in response to the Bank of England’s actions?
1.1 Describe the channels by which monetary policy ripples through the economy and explain how each channel operates.
1.◆ How did the monetary policy response to Brexit change the ripple effects? Exclusive reliance on monetary policy has failed to secure a significant recovery of UK economic activity and is
1.◆ At which stage in the ripple effects that began in 2008 did conventional monetary stimulus not work? Exclusive reliance on monetary policy has failed to secure a significant recovery of UK
1.◆ What are the ripple effects of a change in Bank Rate? Exclusive reliance on monetary policy has failed to secure a significant recovery of UK economic activity and is distorting financial
1.4 How do open market operations influence the repo rate determined?
1.3 How does the Bank of England create a corridor for the repo rate?
1.2 What is the main influence on the MPC’s interest rate decision?
1.1 What is the Bank of England’s monetary policy instrument?
1.3 What is the Bank of England’s record in achieving the inflation target?
1.2 What is the rationale for setting an inflation target?
1.1 What are the objectives of monetary policy?
1.◆ Explain the Bank of England’s extraordinary policy actions since the global financial crisis
1.◆ Explain the transmission channels through which the Bank of England influences real GDP, jobs and inflation
1.◆ Explain how the Bank of England influences interest rates
1.◆ Describe the objectives of UK monetary policy and the framework for achieving them
28 Pubs in Budget VAT Cut Demand Struggling pubs want the VAT on food and accommodation to be cut from 20 per cent to just 5 per cent for pubs, restaurants and hotels to give members much-needed
27 US Financial Crisis Over? Not Really Economist Deepak Lal says the US financial crisis is not solved and contains the seeds of a more serious future crisis. For India and China, with no structural
26 After you have studied Economics in the News on pp. 716–717, answer the following questions.a What is the projected budget deficit for 2020 in the Treasury Budget Statement of March 2016?b What
25 Why might the stimulus package come ‘too late’? What are the potential consequences of the stimulus package coming‘too late’? Juicing the Economy Will Come at a Cost The $150-billion
24 Is the budget deficit arising from the action described in the news clip structural or cyclical or a combination of the two? Explain. Juicing the Economy Will Come at a Cost The $150-billion
23 Explain why $150 billion of stimulus won’t increase the budget deficit by $150 billion. Juicing the Economy Will Come at a Cost The $150-billion stimulus plan will bump up the deficit, but not
22 The economy is growing slowly, the inflationary gap is large and there is a budget deficit.a Do we know whether the budget deficit is structural or cyclical? Explain your answer.b Do we know
21 The economy is in a boom and the inflationary gap is large.a Describe the discretionary and automatic fiscal policy actions that might occur.b Describe a discretionary fiscal restraint package
20 Push to Cut Deficit Collides With Politics as Usual So it goes in Campaign 2010 where cutting the deficit is a big issue but where support for doing some of the hard things to achieve that is
19 Explain the potential supply-side effects of the tax changes Tax Hikes for Top Earners 750,000 more people will start to pay the 40% rate of tax as a result of forthcoming tax rises. However,
18 Explain the potential demand-side effect of the tax changes. Tax Hikes for Top Earners 750,000 more people will start to pay the 40% rate of tax as a result of forthcoming tax rises. However,
17 What do you think the term ‘revenue neutral’ means? Tax Hikes for Top Earners 750,000 more people will start to pay the 40% rate of tax as a result of forthcoming tax rises. However, 500,000
16 What are the possible long-term consequences of such a tax rise on the supply-side of the economy, for tax revenues and the budget deficit? Sir Richard Lambert, the outgoing head of the CBI,
15 Why has the UK government raised the top rate of tax to 50 per cent? Sir Richard Lambert, the outgoing head of the CBI, accused the government of failing to articulate a clear vision for economic
14 Suppose that capital income taxes are based (as they are in the UK and most countries) on nominal interest rates. And suppose that the inflation rate increases by 5 per cent. Use appropriate
13 a Is the government’s budget exerting a positive or negative impact on investment?b What fiscal policy action might increase investment and speed economic growth? Explain how the policy action
12 What is the amount of tax revenue? What is the government budget balance? Suppose that in the UK investment is £160 billion, saving is£140 billion, government expenditure on goods and services
11 UK public sector net debt as a percentage of GDP in 2009/10 was 154.7, but excluding ‘financial interventions’by the Bank of England the net debt was 53.6 per cent of GDP.Explain what accounts
10 Explain how the rebuilding of roads and other infrastructure would drive the economic recovery. Ed Balls, the Shadow Chancellor, urged the Chancellor to increase capital spending to get the
9 Is this expenditure on infrastructure a fiscal stimulus?Would such expenditure be a discretionary or an automatic fiscal policy? Ed Balls, the Shadow Chancellor, urged the Chancellor to increase
8 The research of economists Patrick Minford and Harald Uhlig suggests that tax cuts to stimulate the economy would pay for themselves in the long run.Explain what is meant by tax cuts paying for
7 The economy is in a recession, the recessionary gap is large, and the government has a budget deficit.a Do we know whether the budget deficit is structural or cyclical? Explain your answer.b Do we
6 The economy is in a recession, and the recessionary gap is large.a Describe the discretionary and automatic fiscal policy actions that might occur.b Describe a discretionary fiscal stimulus package
5 The Office for Budget Responsibility projects that, under current policies, government debt will reach 233 per cent of GDP in 30 years and nearly 500 per cent in 50 years. a What is a fiscal
4 Suppose that instead of taxing nominal capital income, the government taxed real capital income. Use appropriate graphs to explain and illustrate the effect that this change would have on:a The tax
3 What fiscal policy action might increase investment and speed economic growth? Explain how the policy action would work.
2 The government is considering raising the tax rate on labour income. What are the supply-side effect of such an action. Use appropriate graphs to show the directions of change, not exact magnitudes
1 The Budget George Osborne says he has little option but to push on with the harshest public spending cuts in living memory because a reversal would alarm the bond markets and plunge Britain into
4 Which policy would increase the economic growth rate? The economy is at full employment, the infl ation rate is 2 per cent a year, and the government’s budget defi cit is 3.5 per cent of GDP. The
3 How would lower income taxes change the macroeconomic variables? The economy is at full employment, the infl ation rate is 2 per cent a year, and the government’s budget defi cit is 3.5 per cent

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