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macroeconomics

Questions and Answers of Macroeconomics

Why is the quantity of labor demanded inversely related to the real wage rate?
Is the quantity of labor supplied inversely related to the real wage rate? Why or why not?
Identify three things that can change labor demand or supply and reduce employment.How would each of these affect real wages?
What are the three categories of employment status? What movement between categories results from the existence of discouraged workers?
What is frictional unemployment? Why can it be beneficial for workers, firms, and the economy?
Why does structural unemployment occur?
Why does real wage rigidity contribute to unemployment? What are its causes?
What is the natural rate of unemployment? What has caused the natural rate to change over time?
Assume that the marginal product of labor is MPL = 0.65 × $13/L, where output is measured in trillions and L is the number of workers(in millions).a) Draw the MPL curve.b) Find the quantity of
Anthony currently earns $25 an hour and works forty hours a week. When his boss offers to pay him $28 per hour, Anthony decides to accept the offer and also decides to keep working forty hours. What
Using a graph, analyze the effect of technological advances that have increased workers’productivity in the last few decades (e.g., the Internet) on the labor market. What will be the effect on the
Using a graph, analyze the effect of a recession and an increase in day care costs on the real wage and employment.
For each of the following situations, explain how the labor force and the unemployment rate change.a) An individual quits his or her job and does not look for a job anymore.b) An individual who was
During recessions, it becomes increasingly difficult to find a job. How do you think the number of “discouraged workers” would be affected by a recession?
Discuss the effects of the Internet on frictional unemployment. How do you think websites that allow employees to search for job opportunities more efficiently impact frictional unemployment?
Suppose a country is rapidly making the transition from an agricultural-based economy to an economy in which most of GDP comes from manufacturing.a) How do you think structural unemployment will be
The following graph represents the labor market of a given country. Assuming the prevailing real wage is w1,a) measure unemployment using the graph.b) list three factors that might prevent this
The natural rate of unemployment is higher in France than in the United States. Suppose you are a recent college graduate and you are eager to find a job. Which country’s labor market seems more
Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV) and a measure of real wages in the non-farm business sector (COMPRNFB). Convert the employment measure
Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV), unemployed (UNEMPLOY), and not in the labor force (LNS15000000).a) Using the most recent data
Go to the St. Louis Federal Reserve FRED database, and find data on labor force participation and the unemployment rate for the groups listed below. For each pair of demographic groups, calculate the
Go to the St. Louis Federal Reserve FRED database, and find data on the civilian unemployment rate (UNRATE) and a measure of the natural rate of unemployment (NROU).a) Calculate the cyclical
How does the theory of rational expectations differ from that of adaptive expectations?
What is the significance of the Lucas critique of econometric policy evaluation?
What is the time-inconsistency problem, and what role does it play in the debate between advocates of discretion and advocates of rules in policy making?
What are the arguments for and against rules?
What benefits does a credible nominal anchor provide?
What has been the general experience of countries that have adopted inflation targeting?
What are the arguments for and against central bank independence?
Suppose that during the last ten years, Nicole tried to forecast future inflation rates to negotiate her salary. Every year, she used all available information and even incorporated news about the
Consider two individuals forming expectations about mortgage rates. Mark forms adaptive expectations, and looks only at past mortgage rates to form expectations about future rates. Gloria forms
Immediately after the central bank of New Zealand adopted inflation targeting in 1989, economic growth was low and unemployment increased for some time (until 1992), but later, economic growth
Comment on the impact on the Fed’s credibility of the appointment of a majority of governors who are reluctant to increase interest rates to fight inflation for fears of causing too much
Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI). Download the data, then calculate a series for inflation. For each
Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI). Convert the Units setting to “Percent Change from Year Ago” and
Go to the St. Louis Federal Reserve FRED database, and find data on the GDP deflator (GDPDEF) and the price of a barrel of oil (OILPRICE). For the GDP deflator, convert the Units setting to
What are the key ideas of the real business cycle model? How does it explain business cycle fluctuations?
How does the real business cycle model explain fluctuations in employment and unemployment?
What objections to the real business cycle model have been raised?
How do new Keynesian ideas about price setting and inflation expectations affect the shortrun aggregate supply curve?
How do new Keynesian ideas about expectations affect the IS and aggregate demand curves?
In the new Keynesian model, what shocks cause business cycle fluctuations? Does it matter whether these shocks are anticipated or unanticipated? Explain.
Compare the traditional Keynesian, new Keynesian, and real business cycle models in terms of expectations, price flexibility, and potential sources of business cycle fluctuations.
How do the traditional Keynesian, new Keynesian, and real business cycle models differ in their analysis of the effects of expansionary policy?
How do the traditional Keynesian, new Keynesian, and real business cycle models differ in their analysis of the effects of antiinflation policy?
How do the traditional, new Keynesian, and real business cycle models differ in their views about the efficacy of discretionary policy?
Assume the following production function: Yt = AKt0.4Lt0.6. The capital stock and output are measured in trillions of dollars, and the labor stock is measured in millions of people.a) Using the value
The graph shown below is based on quarterly data on unemployment and real output growth in the United States between 2006 (q1) and 2013 (q2). Are these data consistent with the real business cycle
The Bureau of Labor Statistics (BLS) tracks the numbers of workers who are employed part-time for economic reasons. The number typically increases sharply at the beginnings of recessions and
Using a graphical representation of the new Keynesian model, describe the effects of an unanticipated negative demand shock (label this equilibrium as point 2). Compare these effects to those of an
Suppose consumer confidence surges, making consumers more willing to spend. Use the New Keynesian model to describe the effects on output and inflation depending on whether the surge in consumers’
For each of the following cases, determine which would be the preferred macroeconomic model to analyze business fluctuations.a) Most wages are the result of collective bargaining and are therefore
Speeches made by Federal Reserve officials are an integral part of the Fed’s management of expectations strategy. In a speech made in November 2002, then-Fed Governor Ben Bernanke, when trying to
Suppose the U.S. Congress is forced to increase taxes to pay for the cost of health care reform in the United States. Describe the effects of such a policy, according to the three business cycle
Transparency and communication with the public by the Federal Reserve have increased significantly over the last decade. What does this say about the Federal Reserve’s view of the relevance of the
The table below shows the inflation rate and the level of real GDP under the anti-inflation policy known as the Volcker disinflation for two periods in the early 1980s.a) Use the data in the table to
Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1), the labor force (CLF16OV), and a measure of the capital stock, real consumption of fixed capital
Go to the St. Louis Federal Reserve FRED database, and find data on civilian employment (CE16OV) and the personal consumption expenditure price index (PCEPI). For both series, change the Units
Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1) and the GDP deflator (GDPDEF). Convert the deflator to the inflation rate by setting the Units setting to
Go to the St. Louis Federal Reserve FRED database, and find data on recession dating (USRECQ) and real GDP (GDPC1), real consumption (PCECC96), and real private domestic investment (GPDIC1).a) Using
Go to the St. Louis Federal Reserve FRED database, and find data on recession dating (USREC), the unemployment rate (UNRATE), nonfarm payroll employment (PAYEMS), and the mean duration of
Go to the St. Louis Federal Reserve FRED database, and find data on recession dating (USREC), consumer sentiment (UMCSENT), industrial production (INDPRO), and real retail and food service sales
Go to the St. Louis Federal Reserve FRED database, and find data on real GDP (GDPC1) and the GDP deflator price index (GDPDEF). Using the units setting, choose “Percent Change from Year Ago” to
What are the four components of planned expenditure, and why did Keynesian analysis emphasize this concept?
According to the consumption function, what variables determine aggregate spending on consumer goods and services? How is consumption related to each of these variables?
What are the two types of planned investment spending?
How and why do changes in the real interest rate affect planned investment spending?
How does an increase in financial frictions affect planned investment spending?
How and why do changes in the real interest rate affect net exports?
What condition is required for equilibrium in the goods market?
What happens to aggregate output if unplanned inventory investment is either positive or negative?
What does the IS curve show? Why does it slope downward?
What causes the IS curve to shift?
The Bureau of Economic Analysis valued nominal U.S. gross domestic product (i.e., actual expenditure) at $16,420 billion at the end of 2012. Suppose that consumption expenditure was $12,210 billion,
Calculate consumption expenditure using the consumption function (as described by Equation 2) and the following estimates: Autonomous consumption: Autonomous consumption: $1,450 billion Income:
Suppose the U.S. Congress declares China to be a “currency manipulator” and therefore legislates a tariff on Chinese goods.Considering only the decrease in imports,a) comment on the effect of
Part of the 2009 stimulus package ($93 billion)was paid out in the form of tax credits.However, even though interest rates did not change significantly during that year, aggregate output did not
After the press conference that followed the Federal Open Market Committee meeting on June 19, 2013, there were reports in the media that Chairman Bernanke’s comments were a signal that the Fed
Suppose you read in the newspaper that prospects for stronger future economic growth will lead the dollar to strengthen and stock prices to increase.a) Comment only on the effect of the strengthened
Referring to Problem 8, what is the combined effect of these two events on the IS curve?Data from Problem 8Suppose you read in the newspaper that prospects for stronger future economic growth will
Go to the St. Louis Federal Reserve FRED database, and find data on Personal Consumption Expenditures (PCEC), Personal Consumption Expenditures:Durable Goods (PCDG), Personal Consumption
Go to the St. Louis Federal Reserve FRED database, and find data on the most recent values for Personal Income (PINCOME), Disposable Personal Income (DPI), and Personal Consumption Expenditures
Go to the St. Louis Federal Reserve FRED database, and find data on Real Private Domestic Investment (GPDIC1); a measure of the real interest rate, the 10-year Treasury Inflation-Indexed Security,
What is the real interest rate? Why can the Fed control the real interest rate in the short run but not in the long run?
What is the monetary policy curve? Why does it slope upward?
How do changes in planned expenditures affect the aggregate demand curve?
In Keynes’s liquidity preference theory, what variables determine the demand for real money balances? How does the demand for real money balances respond to changes in each of these variables?
What are open market operations? How does the Fed use these operations to increase or decrease the money supply?
What condition is required for equilibrium in the money market? Why does the money market move toward equilibrium?
What can increase the equilibrium interest rate in the liquidity preference framework?
Assume the monetary policy curve is given by r = 1.5 + 0.75π.a) Calculate the real interest rate when the inflation rate is at 2%, 3%, and 4%.b) Plot the monetary policy curve and identify the
Refer to the monetary policy curve described in Problem 1.Assume now that the monetary policy curve is given by r = 2.5 + 0.75πa) Does the new monetary policy curve represent an autonomous
Suppose the monetary policy curve is given by r = 1.5 + 0.75π, and the IS curve is given by Y = 13 – r.a) Find the expression for the aggregate demand curve.b) Calculate aggregate output when the
What would be the effect on the aggregate demand curve of an increase in U.S. net exports? Would an increase in net exports affect the monetary policy curve? Explain why or why not.
Suppose U.S. aggregate output is still below potential by 2018, when a new Fed chair is appointed. Suppose his or her approach to monetary policy can be summarized by the following statement: “I
Assume the demand for real money balances is given by (an interest rate of 2% is entered into this formula as 2). Suppose Y = 12,900 billion, so that – 150i (in billions of $).a) Calculate the
Suppose the economy experiences a contraction in aggregate output. How would this event affect the demand curve for real money balances? On the graph from part (b) of Problem 6, draw the original and
Assume the demand for real money balances is given by a) Find the equilibrium interest rate if the money supply is $1,700 billion and output equals $12,900 billion.b) Find the new equilibrium
Consider the money market. Suppose the U.S. economy begins to boom and aggregate output increases. Describe the effect on the interest rate if the Federal Reserve decides to increase the money supply
What macroeconomic conditions, issues, and events can shape your future?

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