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survey of economics

Questions and Answers of Survey Of Economics

=+b. Why would modern macroeconomists consider the gold standard a bad idea?
=+a. Under the gold standard, if the velocity of money were stable when the economy was expanding, what would have had to happen to keep prices stable?
=+Under the gold standard, the money supply could expand only when the amount of available gold increased.
=+In the modern world, central banks are free to increase or reduce the money supply as they see fit. However, some people harken back to the “good old days” of the gold standard.
=+32-2 for the 1990-2000 period. Given the strong economic growth in the United States during the late 1990s, why would a Keynesian see the reduction in defense spending during the 1990s as a good
=+from the Economic Report of the President, replicate Figure
=+3. The fall of its military rival, the Soviet Union, in 1989 allowed the United States to significantly reduce its defense spending in subsequent years. Using the data in the following table
=+Committee, and what was it?
=+c. When was the last announcement by the NBER’s Business Cycle Dating
=+ is, what was the average duration of a business cycle in the period from 1945 to 2009?
=+b. What was the average duration of a business cycle when measured from the end of one expansion (its peak) to the end of the next?
=+a. How many business cycles have occurred since the end of World War IT in 1945?
=+2. The National Bureau of Economic Research (NBER) maintains the official chronology of past U.S. business cycles. Go to its website at www.nber.org/cycles/cyclesmain.html to answer the following
=+Govern | mentb Real GD] Short-t | ment d | udget d Pannu | erm int | ebt (per| eficit (p al grow | erest ra| cent of |ercent 0 Year | thrate te GDP) | fGDP)1991 3.4% |7.38% 64.8% |-1.81%1995 19
=+ What does it imply about the effectiveness of monetary policy? Of fiscal policy?
=+effectively be a 0% interest rate. What is this situation called?
=+b. We can safely consider a short-term interest rate that is less than 0.1% to
=+a. From the data, determine the type of policies Japan’s policy makers undertook at that time to promote growth.
=+key macroeconomic data for Japan for 1991 (a “normal” year) and 1995-2003.
=+The accompanying table from the Organization for Economic Cooperation and Development (OECD) shows some
=+1. Since the crash of its stock market in 1989, the Japanese economy has seen little economic growth and some deflation.
=+ 2. Why was there such a fierce debate over both the Fed’s unconventional monetary policy and over the appropriate level of the Fed’s inflation target?
=+What is the current state of consensus among most economists?
=+1, Why did the Great Recession lead to the decline of the Great Moderation consensus?
=+b. What would real business cycle theorists sa
=+a. What would rational expectations theorists say about this conclusion?
=+ Most observers agreed that the Fed’s aggressive monetary expansion helped reduce the length and severity of the Great Recession.
=+expansionary monetary policy stance (including what the Fed called quantitative easing).
=+In late 2008, as it became clear that the United States was experiencing a recession, the Fed reduced its target for the federal funds rate to near zero, as part of a larger aggressively
=+Note that unemployment did not return to its pre-recession level until 201
=+Do you think their objections to fiscal and monetary policy were valid during the Great Recession?
=+b. Monetarists, like Friedman, generally believe that discretionary monetary policy and fiscal policy are ineffective.
=+ Do you think Milton Friedman would have agreed with the Fed’s policy?
=+a. What effect would these events have on the velocity of money?
=+ 2. Starting in 2008, as the economy entered the Great Recession, unemployment soared while interest rates and investment spending fell sharply. The Fed accelerated the growth of M1 in response.
=+1. What are the limits of macroeconomic policy activism?
=+ Which conclusion would a Keynesian economist draw for the need for public policy?
=+optimism did not materialize in hiring or increased inventories plans.” Would this statement seem familiar to a Keynesian economist?
=+. Historically, optimism remains at recession levels. While small business owners appeared less pessimistic about the outlook for business conditions and real sales growth, that
=+ 2. Ina press release during the Great Recession, the National Federation of Independent Business, which calculates the Small Business Optimism Index, stated “The Small Business Optimism Index
=+Why would a classical economist have thought that action by the Federal Reserve would not have made a difference in the length or depth of the Great Depression?
=+Depression, because it failed to pursue a sufficiently expansionary monetary policy.
=+1. In their famous book A Monetary History of the United States, the economists Milton Friedman and Anna Schwartz argued that the Federal Reserve was responsible for the Great
=+Why was the Great Moderation consensus undermined by the 2008 financial crisis, leading to fierce debates among economists and the emergence of two post—Great Recession policy camps?
=+ How did challenges lead to a revision of Keynesian economics and the emergence of the new classical macroeconomics?
=+ What is monetarism and why did monetarists claim there are limits to the use of discretionary monetary policy?
=+ How did John Maynard Keynes and the experience of the Great Depression legitimize macroeconomic policy activism?
=+Why was classical macroeconomics inadequate for the problems posed by the Great Depression?
=+ What does this imply about the effectiveness of monetary and fiscal policy to reduce the unemployment rate?
=+What does this imply about the short-run and long-run Phillips curves in these two types of countries?
=+high inflation, a change in the actual inflation rate will immediately be reflected ina corresponding change in the expected inflation rate.
=+ it will take longer for a change in the actual inflation rate to be reflected in a corresponding change in the expected inflation rate. In contrast, in a country such as Zimbabwe, which has
=+ In a country such as Japan, which has had very little inflation in recent memory,
=+32, Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated into a change in expected inflation.
=+ 2 Interactive step- help with ing this problem can be found online
=+How would continuing deflation affect borrowers and lenders throughout the economy as a whole?
=+ What would you expect to happen if the deflation continued over the next few years?
=+11. Who are the winners and losers when a mortgage company lends $100,000 to the Miller family to buy a house worth $105,000 and during the first year prices unexpectedly fall by 10%?
=+ Is it possible for there to be no cost of disinflation?
=+ How can they try to minimize the unemployment cost of disinflation?
=+Assume that the state of the economy is not the result of a negative supply shock.
=+10. The economy of Brittania has been suffering from high inflation with an unemployment rate equal to its natural rate. Policy makers would like to disinflate the economy with the lowest economic
=+What were the implications for the effectiveness of monetary policy?
=+. How would you characterize the change in the U.S. economy from 2007 to 2009?
=+(You can check your answer by going back to the www.bls.gov website to find the percent change in the CPI from 2006 to 2007.) .
=+ From the data on Treasury bill interest rates, what would you infer about the level of the inflation rate in 2007 compared to 2009?
=+How would you relate this to your answer in part a?
=+Then do the same for 2007. How do the data for 2009 and 2007 compare?
=+” What is the maximum? The minimum?
=+Treasury Bill Rates” and select “2009” under “Select Time Period.” Examine the data in “4 Weeks Bank Discount.
=+b. Now go to www.treasury.gov and click on “Resource Center.” From there, click on “Data and Charts Center.” Under the heading “Interest Rates,” select “Daily
=+“Archived CPI Detailed Report Tables.” Download the zip file for 2009 and open file cpidogav.pdf. What is the value of the percent change in the CPI from 2008 to 2009?
=+,” click on the link “Consumer Price Index,” then “CPI Tables,” and then
=+9.a. Go to www.bls.gov. Click on link “Subjects”; on the left, under “Inflation &
=+Hint: Reread the For Inquiring Minds box on Okun’s law for help with answering this question.)
=+ How can you explain why the unemployment rate did not fall as much although the economy was experiencing strong economic growth? (
=+only slightly below what it was at the end of the recession.
=+positive economic growth, the unemployment rate has fallen
=+8. After experiencing a recession for the past two years, the residents of Albernia were looking forward to a decrease in the unemployment rate. Yet after six months of strong
=+What do these results tell us about the coefficient min Okun’s law?
=+What if the output gap were — 3%?
=+What would the unemployment rate be if the output gap were 2%?
=+What is the unemployment rate when aggregate output equals potential output?
=+6 5 4 3 2 42 0 «1 && Output gap Data from: Federal Reserve Bank of St. Louis.
=+where bis the vertical intercept and —mis the slope Unemployment rate
=+Unemployment rate = b - (mx Output gap)
=+Draw straight line through the scatter of dots in the figure. Assume that this line represents Okun’s law:
=+ 7. The accompanying scatter diagram shows the relationship between the unemployment rate and the output gap in the United States from 1996 to 2016.
=+What are the advantages and disadvantages of such a plan?
=+ a candidate for president argues that the United States should just print money to cover the government’s budget deficit.
=+6. Concerned about the crowding-out effects of government borrowing on private investment spending,
=+b. How large is the inflation tax for the two countries when calculated as a percentage of government receipts?
=+Data from: Bureau of Economic Analysis; Controller General of Accounts (India); Reserve Bank of India; International Monetary Fund; The World Bank.
=+Money sup | receipts in Inflationi | ply in 2015 | 2015 (billio n2015 (villions) | ns)India 5.87% Rp24,581 | Rp12,409 United Stat es. | ow | $3,082 | $3,515,
=+a. Use the numbers in the accompanying table to calculate the inflation tax in the United States and India (Rp = rupees).
=+ 5. The inflation tax is often used as a significant source of revenue in developing countries where the tax collection and reporting system is not well developed and tax evasion may be high.
=+Why is hyperinflation such a problem?
=+e. Redo parts a through d with an inflation rate of 25%.
=+i. After three years, what is the cumulative real inflation tax paid?
=+ Over the year, the inflation rate is again 10%. What is the real inflation tax paid by Maria for the third year?

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