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business
macroeconomics principles
Macroeconomics 6th Edition Stephen D. Williamson - Solutions
Explain the concept of rational expectations.
What is the basic neo-Fisherian idea?
How does forward guidance help the central bank deal with a low natural real rate of interest?
If there is a decline in the natural rate of interest, what problem can this create for monetary policy?
Does the 2008–2009 recession mean that macroeconomists have failed and should start over?
In what ways was the 2008–2009 recession consistent or inconsistent with the two business cycle theories in this chapter?
Which is the better macro model, the real business cycle model or the coordination failure model? Explain.
Does the coordination failure model fit the data?
Why is money neutral in the coordination failure model?
What causes business cycles in the coordination failure model?
Describe an example of a coordination failure problem.
What are the important shortcomings of the real business cycle model?
Does the real business cycle model fit the data?
Should the government act to stabilize output in the real business cycle model?
How can the real business cycle model explain the behavior of the money supply over the business cycle?
Why is money neutral in the real business cycle model?
Plot the percentage changes in quarterly real GDP and in quarterly M2. Is there a tendency for changes in M2 to precede changes in the same direction in real GDP? Comment on what you see in your chart.Answer this question using the Federal Reserve Bank of St. Louis’s FRED database, accessible at
Plot the ratio of M2 to nominal GDP, and the 3-month Treasury bill rate. Do you see evidence of a money demand relationship? Explain.Answer this question using the Federal Reserve Bank of St. Louis’s FRED database, accessible at http://research.stlouisfed.org/fred2/
Plot the monetary base (M0) along with your choice of price index (consumer price index, implicit GDP deflator, for example). How do you square what you see in the chart with the long-run neutrality of money? Discuss.Answer this question using the Federal Reserve Bank of St. Louis’s FRED
Calculate the ratio of total real government purchases to real GDP, quarterly, from 1947 to 2015. Also calculate the real interest rate on a quarterly basis as a three-month Treasury bill rate minus the inflation rate. Plot these two variables as time series. The real intertemporal model predicts
Calculate the ratio of real investment expenditures to GDP, quarterly, for the period 1947–2015, and calculate the real interest rate as a three-month Treasury bill rate minus the inflation rate (be careful that you calculate the inflation rate as an annualized rate), then plot both of these
Plot a credit card loan interest rate, and an automobile loan interest rate, and compare the two. What do you think accounts for the difference between these two rates?Answer this question using the Federal Reserve Bank of St. Louis’s FRED database, accessible at
Calculate the difference between the interest rate on a three-month certificate of deposit (CD) and the three-month treasury bill rate, and plot this in a time series plot. What do you notice? In particular, are there any regularities associated with recessions, and the most recent (2008–2009)
There are several alternative measures of national housing prices available for the United States. Choose at least three of these measures, and compare and contrast what they tell us about the boom and bust in the housing market that occurred after 2000.Answer this question using the Federal
Plot the percentage change in the relative price of housing, along with the percentage change in real consumption of nondurables and services. Calculate the relative price of housing as the Case and Shiller 20-city home price index divided by the consumer price index. What do you see in the plot?
Calculate and plot the percentage change in federal government receipts (adjust for inflation by dividing receipts by the implicit GDP deflator), and the percentage change in real GDP. Does what you see in the chart conform to Ricardian equivalence? Explain why or why not.Answer this question using
Plot the ratio of aggregate consumption to GDP. Comment on the features of your time series plot. What principle of consumption behavior helps to explain what you see?Answer this question using the Federal Reserve Bank of St. Louis’s FRED database, accessible at
Suppose that we divide the countries of the world into three groups: low income per worker in 1960 (less than 33% of income per worker in the United States), middle income per worker in 1960 (between 33% and 67% of income per worker in the United States), and high income per worker in 1960 (greater
Calculate the standard deviation of income per worker for the countries of the world for 1960 and 2007. Does this indicate that convergence is occurring or not? For the same years, calculate the standard deviation of income per worker for the poor countries (less than 20% of income per worker in
The Solow growth model predicts that in the steady state, output per worker grows at the rate of growth in total factor productivity (TFP). Use the ratio of real GDP to total employment (from the current population survey) as a measure of output per worker, and plot this. At what rate does this
In the current population survey (CPS), there are measures of the total working-age population, the labor force, and total employment. Plot these time series in one chart. In the Solow growth model, the population, the labor force, and total employment are exactly the same thing. Do you think that
Construct time series plots of real GDP, the ratio of consumption to GDP, and the ratio of investment to GDP. In these plots, does what you see conform to the predictions of the Solow growth model? Explain why or why not.Answer this question using the Federal Reserve Bank of St. Louis’s FRED
Plot employment as measured in the current population survey, and as measured in the establishment survey. How are these measures different, and how do they behave differently?Answer this question using the Federal Reserve Bank of St. Louis’s FRED database, accessible at
Plot the separation rate (total nonfarm). How does the separation rate behave during recessions? What does this tell you about the source of decreases in employment during recessions?Answer this question using the Federal Reserve Bank of St. Louis’s FRED database, accessible at
Plot the 12-month percentage growth rates in total real government expenditures and in real government expenditures from 1948 to 2015. Calculate these growth rates from quarterly data. Do you think your plot shows any evidence that government spending crowds out private consumption? Why or why
Plot the 12-month percentage growth rates in real GDP and in total real government purchases from 1948 to 2015. Calculate these growth rates from quarterly data.(a) Does there appear to be any relationship between the growth rates in GDP and in government purchases?(b) What does your answer to part
Plot the average weekly hours of production and nonsupervisory employees (total private).(a) What do you notice about how this time series behaves around recession dates (the shaded areas)?(b) In our model, the representative consumer supplies labor time in the market, and this quantity of labor
The employment–population ratio, from the Current Population Survey, is a measure that might correspond to the concept of employment, N, in our model.(a) Plot the employment–population ratio for the years 1980–2016.(b) Given that the real wage in the United States increased from 1980 to 2016,
Calculate and graph the ratio of (i) real residential investment to real GDP; (ii) real non-residential investment to real GDP; and (iii) real inventory investment to real GDP.(a) Which of the components of investment shows the most (least) variability, in terms of its contribution to the
Some economists have thought that the money supply plays an important role in economic activity. Calculate and plot the 12-month growth rates in M1 (a measure of the money supply) and 12-month growth rates in real GDP.(a) Are growth in real GDP and in the money supply positively correlated or
Calculate the 12-month percentage increase in the consumer price index (CPI), and plot this, along with the unemployment rate. Do you observe a positive correlation, a negative correlation, or a correlation that is essentially zero? Can you find a Phillips curve relation or a reverse Phillips
The unemployment rate measures only the fraction of the labor force searching for work. Sometimes economists are interested in the length of time that the unemployed have been out of work. One convenient summary measure is the median duration of unemployment. Plot this variable, and comment on how
There exists a debate among monetary policymakers as to the appropriate inflation measure that should be used to guide policies. Four alternatives are the consumer price index, the consumer price index excluding food and energy prices, the personal consumption expenditures chain-type price index
Calculate consumption of durables, consumption of nondurables, and consumption of services as percentages of total consumption, and plot these time series. Comment on the changes that have taken place over time in the consumption of services relative to durables and nondurables.Answer the question
Produce a graph of the inflation rate and the money growth rate, as measured by the growth rate in M1. Use 12-month percentage changes to measure rates of increase in each case. Discuss what you see in the graph. Does this indicate a clear connnection between money growth and inflation?Answer the
Total government expenditures consist of expenditures by the federal government and by state and local governments. Calculate and graph the ratio of federal government expenditures to total government expenditures. Has the federal government become larger or smaller relative to state and local
Answer the question using the Federal Reserve Bank of St. Louis’s FRED database, accessible at http://research.stlouisfed.org/fred2/Graph gross domestic product (GDP) and gross national product (GNP) in 2009 dollars for 1947 and thereafter. Is there much difference in these two measures of
Explain what chain-weighting is.
What is investment?
Why is it useful to study different models of the business cycle?
What were the two main principles introduced in the rational expectations revolution?
Why might the effective lower bound not be zero?
List two unconventional monetary policy actions, and explain how each is supposed to work.
What is a liquidity trap, and how does monetary policy work in a liquidity trap?
How does conventional monetary policy work?
Explain how money can be nonneutral in the short run.
What are three ways the government could bring about a change in the money supply?
What are the effects of an increase in the money supply in the monetary intertemporal model?
What determines the demand for money in the monetary intertemporal model?
What are the alternatives to using currency in transaction in the monetary intertemporal model?
What is the real rate of interest on money?
How are the real interest rate, the nominal interest rate, and the inflation rate related to one another?
Why is money used in exchange when people could carry out transactions by trading goods or using credit?
List three monetary aggregates and the assets that these monetary aggregates include.
Explain how a sectoral shock is similar to, and different from, a total factor productivity shock.
How do credit market frictions affect aggregate economic activity? Explain how tax policy can mitigate credit market frictions.
Determine the equilibrium effects of an anticipated increase in future total factor productivity in the real intertemporal model. Explain why these effects are different from the effects of an increase in current total factor productivity.
What are the effects of an increase in total factor productivity on the real interest rate, aggregate output, employment, the real wage, consumption, and investment? Explain how these results relate to key business cycle facts and the causes of business cycles.
What are the effects of a decrease in the current capital stock on the real interest rate, aggregate output, employment, the real wage, consumption, and investment?
What are the effects of a temporary increase in government purchases on the real interest rate, aggregate output, employment, the real wage, consumption, and investment?
How are aggregate output and the real interest rate determined in competitive equilibrium?
What are the factors that shift the output demand curve?
What are the factors that shift the output supply curve?
What is the government’s budget constraint in the real intertemporal model? Can the government run a deficit or run a surplus in the current period?
Explain how credit market uncertainty affects the investment decision of the firm.
How is optimal investment affected by an increase in future total factor productivity?
How is optimal investment for the firm affected by an increase in the current capital stock?
What rule does the representative firm follow in determining its optimal level of investment?
What is the goal of the representative firm in the real intertemporal model?
What determines the current demand for labor?
What are three factors that determine current labor supply?
Explain how intertemporal substitution is important for current labor supply and for the current demand for consumption goods.
How does the government’s ability to commit matter for social security programs?
What are the effects of a fully funded social security system?
Under what conditions will a pay-as-you-go social security system improve welfare for those currently alive and for all future generations?
For a borrower who is collateral-constrained, what happens when the value of collateralizable wealth falls? How does this matter for the financial crisis?
If the default premium increases, what is the effect on the consumption and savings of an individual consumer?
Explain how a default premium can arise, and what would cause it to increase.
What are two sources of credit market imperfections?
Does the existence of credit market imperfections imply that there is a useful role for government tax policy?
What are the effects of a tax cut on consumption and savings in the presence of a credit market imperfection? Does Ricardian equivalence hold?
What effects do credit market imperfections have on the interest rates faced by lenders and borrowers?
Give four reasons that the burden of the government debt is not shared equally in practice.
How does the government finance its purchases in the two-period model?
What are the effects of an increase in the real interest rate on consumption in each period, and on savings? How does this depend on income and substitution effects and whether the consumer is a borrower or lender?
What does theory tell us about how the value of stocks held by consumers should be related to consumption behavior? Does the data support this?
What produces a larger increase in a consumer’s current consumption, a permanent increase in the consumer’s income or a temporary increase?
What are the effects of an increase in future income on consumption in each period, and on savings?
Give two reasons why consumption is more variable in the data than theory seems to predict.
What are the effects of an increase in current income on consumption in each period, and on savings?
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