New Semester Started Get 50% OFF Study Help! --h --m --s Claim Now

Question Answers

Textbooks

Find textbooks, questions and answers

Oops, something went wrong!

Change your search query and then try again

Result Not Found

Books FREE
Study Help
Tutors
AI Study Planner NEW
Sell Books

Search
Sign In
Register

study help
business
foundations macroeconomics

Macroeconomics: A European Perspective 1st Edition Olivier Blanchard, Alessia Amighini, Francesco Giavazzi - Solutions

Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. European countries have always been negatively affected by exchange rate volatility among their currencies (prior to Euro adoption) because their economies are heavily
Current monetary policy Problem 10 in Chapter 4 asked you to consider the current stance of monetary policy. Here, you are asked to do so again, but with the additional understanding of monetary policy you have gained in this and previous chapters.Go to the website of the ECB and download either
Ricardian equivalence and fiscal policy First consider an economy in which Ricardian equivalence does not hold (i.e. an economy like the one we have described in this book).a. Suppose the government starts with a balanced budget.Then, there is an increase in government spending, but there is no
Consider an economy characterised by the following facts.i. The official budget deficit is 3% of GDP.ii. The debt-to-GDP ratio is 100%.iii. The nominal interest rate is 8%.iv. The inflation rate is 6%.a. What is the primary deficit/surplus ratio to GDP?b. What is the inflation-adjusted
Consider the economy described in problem 6.a. Suppose the economy starts with Y − Yn and πe = π*.b. Now suppose there is an increase in πe. Assume that Yn does not change. Using the diagram you drew in problem 6(b), show how the increase in pe affects the MP relation.(Again, remember that a >
Inflation targeting and the Taylor rule in the IS–LM model This problem is based on David Romer’s ‘Short-Run Fluctuations,’ which is available on his website (emlab.berkeley.edu/users/dromer/index.shtml). Consider a closed economy in which the central bank follows an interest rate rule.The
Suppose you have been elected to Parliament. One day, one of your colleagues makes the following statement:The central bank chair is the most powerful economic policy maker in our country. We should not turn over the keys to the economy to someone who was not elected and therefore has no
Inflation targets Consider a central bank that has an inflation target, p*. The Phillips curve is given byπt − πt−1 = −α(ut − un)a. If the central bank is able to keep the inflation rate equal to the target inflation rate every period, will there be dramatic fluctuations in
Taxes, inflation and home ownership In this chapter, we discussed the effect of inflation on the effective capital-gains tax rate on the sale of a home. In this question, we explore the effect of inflation on another feature of the tax code – the deductibility of mortgage interest.Suppose you
Explain how each of the developments listed in (a) through(d) would affect the demand for M1 and M2.a. Banks reduce penalties on early withdrawal from time deposits.b. The government forbids the use of money market funds for cheque-writing purposes.c. The government legislates a tax on all ATM
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The most important argument in favour of a positive rate of inflation in OECD countries is seignorage.b. The ECB should target M2 growth because it moves quite closely with
Games, pre-commitment and time inconsistency in the news Current events offer abundant examples of disputes in which the parties are involved in a game, try to commit themselves to lines of action in advance and face issues of time inconsistency.Examples arise in the domestic political process,
Deficit reduction as a prisoner’s dilemma game Suppose there is a budget deficit. It can be reduced by cutting military spending, by cutting social security, or by cutting both. Labour have to decide whether to support cuts in social security. The Conservatives have to decide whether to support
Political expectations, inflation and unemployment Consider a country with two political parties, Labour and Conservative. Labour care more about unemployment than Conservative, and Conservative care more about inflation than Labour. When Labour are in power, they choose an inflation rate of πL,
New Zealand rewrote the charter of its central bank in the early 1990s to make low inflation its only goal.Why would New Zealand want to do this?DIG DEEPER
Suppose the government amends the constitution to prevent government officials from negotiating with terrorists.What are the advantages of such a policy? What are the disadvantages?
Implementing a political business cycle You are the economic adviser to a newly elected prime minister. In four years she will face another election. Voters want a low unemployment rate and a low inflation rate. However, you believe that voting decisions are influenced heavily by the values of
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. There is so much uncertainty about the effects of monetary policy that we would be better off not using it.b. Elect a Labour government if you want low unemployment.c. There is
High inflation around the worlda. Go to the website of the IMF (www.imf.org) and find the current issue of the World Economic Outlook. In the Statistical Appendix, look at the table that lists inflation rates. Find countries that have inflation rates of 10% or higher. Which country has the highest
What is the rate of money growth that maximises seignorage in the economy described in problem 2(b)?(Hint: you learned in problem 2(b) that seignorage, in the medium run, is greater at money growth of 50% than at money growth of 25% or 75%. Start by calculating seignorage for money growth rates
You are the economic adviser to a country experiencing a hyperinflation. Politicians debating the proper course of stabilisation have advocated various positions, listed in statements (a) through (e). Discuss each statement in turn.a. ‘This crisis will not end until workers begin to pay their
How would each of the policies listed in parts (a) through(b) change the Tanzi–Olivera effect?a. requiring monthly instead of yearly income tax payments by householdsb. assessing greater penalties for under-withholding of taxes from monthly paychecksc. decreasing the income tax and increasing the
Assume that money demand takes the form= Y[1 − (r + πe)]where Y = 1000 and r = 0.1.a. Assume that, in the short run, πe is constant and equal to 25%. Calculate the amount of seignorage for each rate of money growth, ∆M/M, listed below.i. 25%ii. 50%iii. 75%b. In the medium run, πe = π =
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. In the short run, governments can finance a deficit of any size through money growth.b. The inflation tax is always equal to seignorage.c. Hyperinflations may distort prices,
Consider an economy where the ratio of debt to GDP is 40%, the primary deficit is 4% of GDP, the rate of growth is 3%and the real interest rate is 3%.a. Using a spreadsheet, calculate the debt ratio after ten years, assuming that the primary deficit remains at 4% of GDP each year as the economy
Consider the data of the previous year but assume that the country has primary surpluses of less than 2% of GDP instead of 1% of GDP.a. Calculate the debt ratio in 2006, 2007 and 2008.b. In light of the results, do you think that primary surpluses of 1% should be considered ‘good’ with a view
Consider the economy described in problem 2 and assume that there is a fixed exchange rate. Suppose further that financial investors fear that the debt level is too high, and that the government may have to devalue to stimulate production (and thus tax revenues) and reduce debt. Financial investors
Suppose that in a country’s public debt, inflation and the rate of GDP growth are all equal to zero, and that the interest rate is 5%. In year t, the country recorded a deficit of 10% of GDP, and in year t + 1 onwards eliminates the primary deficit.Calculate the deficit (as percentage of GDP) in
Consider an economy in which the official budget deficit is 4% of GDP, the debt-to-GDP ratio is 100%, the nominal interest rate is 10% and the inflation rate is 7%.a. What is the relationship between the primary balance and GDP?b. What is the balance adjusted for inflation as a percentage of GDP?c.
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The seigniorage (the profit that results from the difference in the cost of printing money and the face value of that money) is equal to real money balances multiplied by the
The external finance premium and the cost of bank loans Consider the following IS–LM model:C = 150 + 1/2YD T = 300 G = 300 I = 150 + 1/3Y − 10 000ρρ = i + x(M/P)d = 2Y − 20 000i M/P = 2600a. Imagine the external finance premium (x) is zero. Derive the IS relation.b. Derive the LM
Monetary policy in the presence of a liquidity trap Consider the following IS–LM model:C = 100 + 0.25YD T = 200 G = 350 I = 150 + 0.25Y − 500i(M/P)d = 2Y − 2000i M/P = 2000a. Derive the IS relation.b. Derive the LM relation.c. Solve for the equilibrium real output.d. Solve for the equilibrium
Leverage Suppose that Bank A has a500 of assets and a80 of capital.Bank B has a400 of assets and a100 of capital.a. Define and compute the leverage for Bank A and Bank B.b. Now suppose that the value of the assets falls by 100 for each bank. How does the leverage change for each of the two banks?c.
Active monetary policya. Consider an economy with output below the natural level of output. How could the central bank use monetary policy to return the economy to its natural lever of output?Illustrate your answer in an IS–LM diagram.b. Again suppose that output is below the natural level. This
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The origins of the recession which began in 2008 can be found in a financial crisis caused by poor functioning of the entire banking system.b. The boom in house prices since
Exchange rates and expectations In this chapter, we emphasised that expectations have an important effect on the exchange rate. In this problem, we use data to get a sense of how large a role expectations play. Using the results in Appendix 2 at the end of the chapter, you can show that the
Devaluation and credibility Consider an open economy with a fixed exchange rate, F.Suppose that, initially, financial market participants believe that the government is committed to maintaining the fixed exchange rate. Let UIP stand for the uncovered interest parity condition.Now suppose the
Self-fulfilling exchange rate crises Consider an open economy with a fixed exchange rate, F.Suppose that, initially, financial market participants believe that the government is committed to the fixed exchange rate.Suddenly, however, financial market participants become fearful that the government
Exchange rate overshootinga. Suppose there is a permanent 10% increase in M in a closed economy. What is the effect on the price level in the medium run? (Hint: if you need a refresher, review the analysis in Chapter 8.)In a closed economy, we said that money was neutral because, in the medium run,
Devaluation and interest rates Consider an open economy with a fixed exchange rate, F.Throughout the problem, assume that the foreign interest rate, i*, remains constant.(εe t+1 − εt)εt Ee t+1 − Et Eta. Suppose that financial market participants believe that the government is committed to a
Nominal and real interest parity In equation (6.4), we wrote the nominal interest parity condition as it ≈ i*t −In the appendix to this chapter, we derive a real interest parity condition. We can write the real interest parity condition in a manner analogous to equation (18.4):rt ≈ r*t −a.
Consider a country operating under fixed exchange rates, with aggregate demand and aggregate supply given by equations (19.1) and (19.2).AD: Y = Y , G, T AS: P = Pe(1 + µ)F 1 − , z Assume that the economy is initially in medium-run equilibrium, with a constant price level and output equal to the
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The UK’s return to the gold standard caused years of high unemployment.b. A sudden fear that a country is going to devalue may force an exchange rate crisis, even if the fear
Demand for US assets, the dollar and the trade deficit This question explores how an increase in demand for US assets may have slowed the depreciation of the dollar that many economists believe is warranted by the large US trade deficit. Here, we modify the IS–LM–UIP framework (where UIP stands
The exchange rate as an automatic stabiliser Consider an economy that suffers a fall in business confidence(which tends to reduce investment). Let UIP stand for the uncovered interest parity condition.a. Suppose the economy has a flexible exchange rate. In an IS–LM–UIP diagram, show the
Policy coordination and the world economy Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, government spending, and taxes are given by C = 10 + 0.8(Y − T), I = 10, G = 10 and T = 10 Imports and exports are given by IM = 0.3Y and X =
Multipliers, openness and fiscal policy Consider an open economy characterised by the equations below.C = c0 + c1(Y − T)I = d0 + d1Y IM = m1Y X = x1Y*The parameters m1 and x1 are the propensities to import and export. Assume that the real exchange rate is fixed at a value of 1 and treat foreign
Eliminating a trade deficita. Consider an economy with a trade deficit (NX < 0) and with output equal to its natural level. Suppose that, even though output may deviate from its natural level in the short run, it returns to its natural level in the medium run. Assume that the natural level is
The exchange rate and the labour market Suppose the domestic currency depreciates (E falls). Assume that P and P* remain constant.a. How does the nominal depreciation affect the relative price of domestic goods (i.e. the real exchange rate)?Given your answer, what effect would a nominal
Net exports and foreign demanda. Suppose there is an increase in foreign output. Show the effect on the domestic economy (i.e. replicate Figure 18.2).What is the effect on domestic output? On domestic net exports?b. If the interest rate remains constant, what will happen to domestic investment? If
Fixed exchange rates and foreign macroeconomic policy Consider a fixed exchange rate system, in which a group of countries (called follower countries) peg their currencies to the currency of one country (called the leader country). Since the currency of the leader country is not fixed against the
Flexible exchange rates and foreign macroeconomic policy Consider an open economy with flexible exchange rates. Let UIP stand for the uncovered interest parity condition.a. In an IS–LM–UIP diagram, show the effect of an increase in foreign output, Y*, on domestic output, Y. Explain in words.b.
Consider an open economy with flexible exchange rates.Suppose output is at the natural level, but there is a trade deficit. What is the appropriate fiscal-monetary policy mix?
In this chapter, we showed that a monetary expansion in an economy operating under flexible exchange rates leads to an increase in output and a depreciation of the domestic currency.a. How does a monetary expansion (in an economy with flexible exchange rates) affect consumption and investment?b.
Real and nominal exchange rates and inflation Using the definition of the real exchange rate (and Propositions 7 and 8 in Appendix 1 at the end of the book), you can show that In words: the percentage real appreciation equals the percentage nominal appreciation plus the difference between domestic
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. The current US trade deficit is the result of unusually high investment, not the result of a decline in national saving.b. The national income identity implies that budget
Deficits and interest rates The dramatic increase in the German budget position after 1990 ( from a surplus to a large and continuing deficit) has reinvigorated the debate about the effect of fiscal policy on interest rates. This problem asks you to review theory and evidence on this topic.a.
A new central bank chairman Suppose, in a hypothetical economy, that the chairman of the central bank unexpectedly announces that he will retire in one year. At the same time, the head of state announces her nominee to replace the retiring central bank chair. Financial market participants expect
The Clinton deficit reduction package In 1992, the US deficit was $290 billion. During the presidential campaign, the large deficit emerged as a major issue.When President Clinton won the election, deficit reduction was the first item on the new administration’s agenda.a. What does deficit
A new head of state, who promised during the campaign that she would cut taxes, has just been elected. People trust that she will keep her promise, but expect that the tax cuts will be implemented only in the future. Determine the impact of the election on current output, the current interest rate,
Consider the following statement.‘The rational expectations assumption is unrealistic because, essentially, it amounts to the assumption that every consumer has perfect knowledge of the economy.’Discuss.
For each of the changes in expectations in (a) through (d), determine whether there is a shift in the IS curve, the LM curve, both curves or neither. In each case, assume that expected current and future inflation are equal to zero and that no other exogenous variable is changing.a. a decrease in
During the late 1990s, many observers claimed that the USA had transformed into a New Economy, and this justified the very high values for stock prices observed at the time.a. Discuss how the belief in the New Economy, combined with the increase in stock prices, affected consumption spending.b.
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. Changes in the current one-year real interest rate are likely to have a much larger effect on spending than changes in expected future one-year real interest rates.b. The
Consumer confidence and disposable income Go to the Eurostat website (www.http://epp.eurostat.ec.europa.eu) and download data on the Consumer Confidence Indicator for the latest available years. We will use this data series as our measure of consumer confidence. Now find the percentage change in
The movements of consumption and investment Go to the Eurostat website (www.http://epp.eurostat.ec.europa.eu) and download data for the years 1980 to the present date for personal consumption expenditures and gross private domestic investment for your country.a. On average, how much larger is
Saving with uncertain future income Consider a consumer who lives for three periods: youth, middle age and old age. When young, the consumer earns b20 000 in labour income. Earnings during middle age are uncertain;there is a 50% chance that the consumer will earn b40 000 and a 50% chance that the
Borrowing constraints and aggregate capital accumulation Continue with the setup from problem 5, but suppose now that restrictions on borrowing do not allow young consumers to borrow. If we call the sum of income and total financial wealth‘cash on hand’, then the borrowing restriction means
Individual saving and aggregate capital accumulation Suppose that every consumer is born with zero financial wealth and lives for three periods: youth, middle age and old age. Consumers work in the first two periods and retire in the last one. Their income is b5 in the first period, b25 in the
Suppose that at age 22, you have just finished university and have been offered a job with a starting salary of b40 000.Your salary will remain constant in real terms. However, you have also been accepted onto a post-graduate course. The course can be completed in two years. Upon graduation, you
A potato crisp manufacturer is considering buying another crisp-making machine that costs b100000.The machine will depreciate by 8% per year. It will generate real profits equal to b18 000 next year, b18 000(1 − 8%) two years from now(that is, the same real profits but adjusted for depreciation),
A consumer has non-human wealth equal to b100 000.She earns b40 000 this year and expects her salary to rise by 5% in real terms each year for the following two years. She will then retire. The real interest rate is equal to 0% and is expected to remain at 0% in the future. Labour income is taxed
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. For a typical university student, human wealth and nonhuman wealth are approximately equal.b. Natural experiments, such as retirement, do not suggest that expectations of
Do a news search on the Internet about the most recent Governing Council of the ECB.a. What did the Governing Council decide about the interest rate?b. What happened to stock prices on the day of the announcement?c. To what degree do you think financial market participants were surprised by the
Go to the website cited in problem 8 and find the most recent observation on the term structure of interest rates ranging from three months to 30 years.Is the term structure upward-sloping, downward-sloping or flat? Why?
UK disinflation in the 1980s and the term structure At the end of the 1970s, the UK inflation rate reached double digits. On 4 May 1979 Mrs Thatcher won the general election and was appointed Prime Minister. To reduce the inflation rate, the government instituted a Medium Term Financial Strategy
Stock prices and the risk premium This problem is based on the appendix to this chapter.Suppose a share is expected to pay a dividend of b1000 next year, and the real value of dividend payments is expected to increase by 3% per year forever after.a. What is the current price of the stock if the
Interpreting the yield curvea. What is the current price of the stock if the real interest rate is expected to remain constant at 5%? at 8%?b. What does a steep yield curve imply about future inflation?
Money growth and the yield curve In Chapter 14, we examined the effects of an increase in the growth rate of money on interest rates and inflation.a. Draw the path of the nominal interest rate following an increase in the growth rate of money. Suppose that the lowest point in the path is reached
Using the IS–LM model, determine the impact on stock prices of each of the policy changes described in (a) through (c). If the effect is ambiguous, explain what additional information would be needed to reach a conclusion.a. An unexpected expansionary monetary policy with no change in fiscal
Suppose that the annual interest rate this year is 5%, and financial market participants expect the annual interest rate to increase to 5.5% next year, to 6% two years from now and to 6.5% three years from now. Determine the yield to maturity on each of the following bonds.a. A one-year bond.b. A
Determine the yield to maturity of each of the following bonds:a. A discount bond with a face value of a1000, a maturity of three years, and a price of a800.b. A discount bond with a face value of a1000, a maturity of four years, and a price of a800.c. A discount bond with a face value of a1000, a
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. Junk bonds are bonds nobody wants to hold.b. The price of a one-year bond decreases when the nominal one-year interest rate increases.c. Given the Fisher hypothesis, an
Inflation-indexed bonds Some bonds issued by the British Treasury make payments indexed to inflation. These inflation-indexed bonds compensate investors for inflation. Therefore, the current interest rates on these bonds are real interest rates – interest rates in terms of goods. These interest
When looking at the short run in Section 14.2, we showed how an increase in nominal money growth led to higher output, a lower nominal interest rate and a lower real interest rate.The analysis in the text (as summarised in Figure 14.7)assumed that expected inflation, Pe, did not change in the short
Approximating the price of long-term bonds The present value of an infinite stream of euro payments of bz (that starts next year) is bz/i when the nominal interest rate, i, is constant. This formula gives the price of a consol – a bond paying a fixed nominal payment each year, forever. It is also
Choosing between different retirement plans You want to save b2000 today for retirement in 40 years. You have to choose between two plans listed in (i) and (ii).(i) Pay no taxes today, put the money in an interestyielding account and pay taxes equal to 25% of the total amount withdrawn at
Nominal and real interest rates around the worlda. Can the nominal interest rate ever be negative? Explain.b. Can the real interest rate ever be negative? Under what circumstances can it be negative? If so, why not just hold cash instead of bonds?c. What are the effects of a negative real interest
Compute the real interest rate using the exact formula and the approximation formula for each set of assumptions listed in (a) through (c).a. i = 4%; πe = 2%b. i = 15%; πe = 11%c. i = 54%; πe = 46%
For which of the problems listed in (a) through (c) would you want to use real payments and real interest rates, and for which would you want to use nominal payments and nominal interest rates, to compute the expected present discounted value? In each case, explain why.a. Estimating the present
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. As long as inflation remains roughly constant, the movements in the real interest rate are roughly equal to the movements in the nominal interest rate.b. If inflation turns out
Growth accounting The Focus box ‘Constructing a measure of technological progress’ shows how data on output, capital and labour can be used to construct estimates of the rate of growth of technological progress. We modify that approach in this problem to examine the growth of capital per
Discuss the potential role of each of the factors listed in (a)through (g) on the steady-state level of output per worker. In each case, indicate whether the effect is through A, through K, through H, or through some combination of A, K and H.a. geographic locationb. educationc. protection of
Suppose that the economy’s production function is Y = K AN that the saving rate, s, is equal to 16%, and that the rate of depreciation, δ, is equal to 10%. Suppose further that the number of workers grows at 2% per year and that the rate of technological progress is 4% per year.a. Find the
Measurement error, inflation and productivity growth Suppose that there are only two goods produced in an economy: haircuts and banking services. Prices, quantities and the number of workers occupied in the production of each good for year 1 and for year 2 are given below:Year 1 Year 2 P1 Q1 W1 P2
For each of the economic changes listed in (a) and (b), assess the likely impact on the growth rate and the level of output over the next five years and over the next five decades.a. a permanent reduction in the rate of technological progress.b. a permanent reduction in the saving rate.
Sources of technological progress: economic leaders versus developing countriesa. Where does technological progress come from for the economic leaders of the world?b. Do developing countries have other alternatives to the sources of technological progress you mentioned in part (a)?c. Do you see any
R&D and growtha. Why is the amount of R&D spending important for growth? How do the appropriability and fertility of research affect the amount of R&D spending?How do each of the policy proposals listed in (b) through (e)affect the appropriability and fertility of research, R&D spending in the long
Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.a. Writing the production function in terms of capital and effective labour implies that as the level of technology increases by 10%, the number of workers required to achieve the
US saving This question follows the logic of problem 9 to explore the implications of the US budget deficit for the long-run capital stock. The question assumes that the USA will have a budget deficit over the life of this edition of the text.a. Go to the most recent Economic Report of the

Showing 1100 - 1200 of 5010

First
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Last

Step by Step Answers

Services

Sitemap
Fun
Definitions
Become Tutor
Used Textbooks
Study Help Categories
Recent Questions
Expert Questions
Campus Wear
Sell Your Books

Company Info

Security
Copyrights
Privacy Policy
Terms & Conditions
SolutionInn Fee
Scholarship
Online Quiz
Give Feedback, Get Rewards

Get In Touch

About Us
Contact Us
Career
Jobs
FAQ
Student Discount
Campus Ambassador

Secure Payment

Download Our App

© 2026 SolutionInn. All Rights Reserved