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foundations macroeconomics

Questions and Answers of Foundations Macroeconomics

What is the effect of a flexible exchange rate and monetary and fiscal policy on the Mundell- Fleming model?
Explain the Mundell-Fleming model in terms of a fixed exchange rate along with the effect of monetary and fiscal policies on it.
Explain the Mundell-Fleming model in terms of a fixed exchange rate and capital mobility.
How does internal and external equilibrium get disturbed? What are the policies required to correct any disturbances?
Capital inflow affects the balance of payments equilibrium. What is the effect of the exchange rate in it?
How does an open economy affect the goods market? Explain.
Explain the difference between a fixed and a flexible exchange rate.
Why must the external balance be in balance?
Explain the relationship between the balance of payments and the exchange rate.
Explain the relationship between wages and employment.
Explain the Friedman-Phelps amendment on the Philips curve.
Why is the Philips curve criticized?
What is the modified Philips curve?
Critically explain the short run aggregate supply curve and the relationship of inflation, output, and the inflation rate.
Explain briefly the inflation expectation and the aggregate supply curve .
Explain the long term adjustments in the aggregate supply curve.
Explain the effects of monetary and fiscal policy on the aggregate supply curve.
What are the properties of the aggregate supply curve?
briefly.
Explain the term “production function”
Explain the dynamic aggregate supply curve.
Explain the Philips curve in detail.
Explain the lifespan income and consumption of an individual.
Write a note on:a) The consumption functionb) Permanent incomec) The life cycle hypothesis
Critically examine the effect of monetary policy on income.
Expansionary fiscal policy helps to keep the interest rate stagnant in the economy. Explain.
More money supply in the economy leads to an increase in the prices. Comment.
Credit to the commercial banks is an asset for the monetary authority. Comment.
Explain equilibrium in the money market. How does expansionary monetary policy affect equilibrium?14 The net foreign exchange assets of the monetary authority change the reserve money. Comment.
What are the sources of change in reserve money? Explain in detail.
How is money measured? Explain the monetary aggregates in detail.
Explain the term “money multiplier” in detail.
What are the approaches to the demand for money?
What are the characteristics of money? Explain in detail.
Explain the various types of money.
What is the Duesenberry approach of relative income? Explain.
Critically examine Friedman’s approach of the consumption function with reference to cyclical movements
Explain Friedman’s approach of permanent income.
Critically evaluate the Ando-Modigliani approach of the life cycle hypothesis.
Explain the Friedman and Ando-Modigliani theories of consumption.
Explain the equilibrium of aggregate demand in an open and closed economy.
Draw the flowchart of the equilibrium of the goods and money markets.
What is an effect of monetary policy on the goods market? Explain in detail.
Investors invest in the economy when they predict an increase in the aggregate demand, what do they do when there is a predicted contraction in the aggregate demand?
In the long run, do prices have a positive effect on wages? Explain in relation to the aggregate demand and supply equilibrium.
A contractionary monetary policy leads to a decline in the interest rate. Comment.
How does an expansionary fiscal policy affect the IS-LM equilibrium?
Derive the equilibrium of the aggregate demand and supply.
Write a short note on the instruments of monetary control.
Write a short note on money multiplier.
Derive the income and substitution effects of a wage increase on the hours of work.
If the government were to reduce income taxes, how would output and the price level be affected in the short run and the long run? Show the impact on the aggregate demand and the aggregate supply in
How does an increase in the tax rate in the IS-LM model affect the following?a) The IS curveb) The equilibrium rate of interest
What are the implications of an increase in the tax rate in the IS-LM model?
Write a note on neo-classical theory of investment.
Explain the following:a) Show the effect of monetary and fiscal policies on the Classical supply curve.b) Explain why the classical aggregate supply curve is vertical. How does it differ from the
Bring out the relative effectiveness of fiscal and monetary policies under different conditions.
Derive the fiscal and monetary policy effect on the IS-LM framework.
Write a short note on full-employment budget surplus.
Write a note on the following:a) Income and spending.b) Balanced budget theorem.c) What is “crowding out” and when do you expect it to occur? Would a monetary or a fiscal policy be appropriate in
7. How does a change in s R caused by a change in a or s affect the long· term growth rate of output per capita in this model? What good does such an increase in s R possibly do?
6. Insert the expression you found above for r into the formula of Ouest ion 5 for s R• and possibly rearrange for a manageable expression, in order to find the endogenous s R along the balanced
5. Combine the e)pression you have just found for PAt with the one you found above for :n: t to find an expression for PA1+ 1• Insert your expression, as well as the expression you found above for
4. Using your results above and the definition of the capital value of a patent, (rt-o)PA,=:n: t +!!. PA, show that along a balanced growth path with a constant research share, s R• one must
3. Using your results from Question 2 and the arbitrage condition {35'), show that along a balanced growth path with a constant research share, sR, the capital value of a patent, PAt•must be
2. Now show that along a balanced growth path with a constant research share, s Fi' one must have for the factor rewards {entering into the endogenous determination of the research share):1-a
1. Show that it follows from (28') that g, converges towards:g se e (1 + n) 1 1
5. How is the degree, x, to which each existing idea is used along the balanced growth path affected by an increase in r ? (Hint: Use that in equilibriurT, x= K,/A,=k,L, and then use (38)and g • =
4. Show that the (endogenous) value for the R&D share compatible with balanced growth is:(5 apL R= ------ --~~~a. (1 +r) +-s and compare to (48). Show that under the obvious restriction, sR< 1, an
3. Use the above to convince yourself that in the complete model (Eqs (27)-(36)), the only change required is that (34) is replaced appropriately as found in Question 1 above. Show that the only
2. Go further and convince yourself that the next time something should be revised is at the point where the consumers' income cash flow is computed. Net of subsidies and taxes this cash flow is: Y =
1. Go through all the arguments and formulae we have presented from the beginning of Section 3, and convince yourself that the first time something should be revised because of the government
6. How is the growth rate, g •• affected overall by an increase in p?
5. Hold a~ain s R fixed for a while. How does an increase in p affect the interest rate r-a, when it is taken into account how p affects g. , (37), and how g. affects r, (42)? Now try to explain the
4. Now show that according to (48), a larger productivity in the R&D sector, p, implies a smaller research share, sR' Surprised this time?
3. You can see from (39) and (43) that an increased o implies a lower gross profit n , which itself pulls in the other direction on PA than does r-(5, ct. (46). However, this latter effect is
2. To understand the dependence found in Question 1, first hold sR fixed. Investigate how an increased o affects the rental rate, r, and the interest rate, r- o, and then how it affects the capital
1. Show that according to (48), a larger rate of depreciation on capital, o, implies a larger research share, s R' Does this surprise you or is it more or less as you would have expected?
4. You may have found above that decreases in the growth rate of the labour force, whether they are once and for all or gradual, do not really (in the model of semi-endogenous growth with reasonable
3. Assume that the decrease in the growth rate of the labour force comes gradually, so the change from 0.0 15 to 0.005 takes place over the 120 years following period 10 with an equal relative change
2. Compute the steady state values for g 1, g>; and K,/Y, before and after the parameter change.Simulate the model consisting of Eqs (5)- (10) over periods 0 to 200 assuming that from period 0- 1 0
1. To describe the qualitative effects, explain how diagrams like Figs 9.2 and 9.3 are affected by the parameter change and explain how g 1 and k., adjust over time. Explain how there can be a
3. If tP ~.then 1 - G'(g •• ) E!! as long as n is not too far from 0. Hence, according to this rate of convergence and assuming ¢ = ~ and n close to 0, every period about one half of the
2. Consider the generic form g 1+1 = G(g1) of the transition equa1ion. Show that linearizing this around the steady state value g •• and changing into logs yields:In g1+1 - In g1 £!! ( 1 - G'(g
1. Sketch the transition curve in a diagram and explain how it shifts as tP increases and eventually goes to 1. How will this affect the speed of convergence?
3. Same questions for ¢< 1 and n < 0, and for¢ = 1 and n < 0. For these ones, what is the longrun growth rate in output per worker according to the full model?
2. Same questions for ¢ > 1 and n = 0.
1. If tjJ = 1 and n > 0, what does the transition curve look like and what is the evolution of the technological growth rate g1 in the long run? (Once again this is really just a description of the
4. In the model of endoQenous Qrowth (tP = 1, n = 0), what is the lonQ·run effect on the Qrowth rate of GOP per worker of a permanent increase in p?
3. Does the long-run growth rate of output per worker change as a result of the change in the research productivity parameter? What are the long-run effects on output and consumption per worker of
2. Using a diagram like Fig. 9.2 for the independent dynamics of g 1, describe how g 1 evolves over time. (Note that the transition curve does not move, but there is the initial jump in g 1 you found
1. First show that this implies the technological growth rate from period 1 to 2: g 1 = (A2 - A 1)/A 1 =(p'fp)g ••. (Hint: Write down Eq. (1 1) of Section 2 for period 1 and for period 0, divide
4. Illustrate the second equation in a 'Solow-type diagram' (and, if you wish to, also in a'modified Solow-type diagram') and show that k and y converge to specific constant values, k* and J* ,
3. Illustrate the first of the above differential equations in a diagram with gA along the horizontal axis and g A along the vertical one. Show that g A converges monotonically to:Jn g •• "" 1 -
2. Still using standard notation and definitions, e.g. fO.
1. Show that, at any time, the technological growth rate, gA"" A/A, according to this model is:gA = ~" 1 ~ = pA1'-\sRL)' .Explain for each of the two cases if> = 1 and < 1 how the output of the
5. Analyse the resulting model as we have analysed models of semi-endogenous growth in this chapter going through the following steps: find the aggregate production function and describe its returns
4. What value of r maximizes the rate of economic growth {for the case A 1 = aG, as well as for A,= a{G,/L,))? Describe the opposing forces that determine the growth-maximizing tax rate.Discuss the
3. Is there a scale effect? Assume alternatively that it is government expenditure per worker, G ,/L,, that is productive, so that A,=aG, above is replaced by A,= a{G,/L,). Analyse the model and find
2. Show that the model is equivalent to an AK model (like (20) and (21) in the chapter) with appropriate relabelling of parameters. Find the growth rate of capital per worker and of GOP per worker

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