s and Applications. o Explain the way in which this statement makes sense: "To achieve lower nominal interest rates, a central bank has to raise the nominal interest rate." o When cities pass laws limiting the rent landlords can charge on apartments, the laws usually apply to existing buildings and exempt any buildings not yet built. Advocates of rent control argue that this exemption ensures that rent control does not discourage the construction of new housing. Evaluate this argument in light of the time-inconsistency problem. o The central bank would like to minimize this loss. If the central bank commits to targeting 5 percent inflation, what is expected inflation? If the central bank follows through, what is the unemployment rate? What is the loss from inflation and unemployment? If the central bank commits to targeting zero inflation, what is expected inflation? If the central bank follows through, what is the unemployment rate? What is the loss from inflation and unemployment? Based on your answers to parts (a) and (b), which inflation target would you recommend? Why? Suppose the central bank chooses to target zero inflation, and expected inflation is zero. Suddenly, however, the central bank surprises people with 5 percent inflation. What is unemployment in this period of unexpected inflation? What is the loss from inflation and unemployment? What problem does your answer to part (d) illustrate? o On April 1, 1996, Taco Bell, the fast-food chain, ran a full-page ad in the New York Times with this news: "In an effort to help the national debt, Taco Bell is pleased to announce that we have agreed to purchase the Liberty Bell, one of our country's most historic treasures. It will now be called the Taco Liberty Bell and will still be accessible to the American public for viewing. While some may find this controversial, we hope our move will prompt other corporations to take similar action to do their part to reduce the country's debt." Would such actions by U.S. corporations actually reduce the national debt as it is now measured? How would your answer change if the U.S. government adopted capital budgeting? Do you think these actions represent a true reduction in the government's indebtedness? Do you think Taco Bell was serious about this plan? (Hint: Note the date.) Be sure to explain your answers. o The Social Security system levies a tax on workers and pays benefits to the elderly. Suppose Congress increases both the tax and the benefits. For simplicity, assume that Congress announces that the increases will last only one year. How might this change affect the economy? (Hint: Think about the marginal propensities to consume of the young and the old.) Does your answer depend on whether generations are altruistically linked? Explain. o Some economists have proposed the rule that the cyclically adjusted budget always be balanced. Compare this proposal to a strict balanced-budget rule. Which is preferable? What problems do you see with the rule requiring a balanced cyclically adjusted budget? Find some recent projections for the future path of the U.S. government debt as a percentage of GDP. What assumptions are made about government spending, taxes, and economic growth? Do you think these assumptions are reasonable? If the United States experiences a productivity slowdown, how will reality differ from this projection? (Hint: A good place to look ishttp://www.cbo.gov.) ALL BIBLIOGRAPHY PLEASE