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macroeconomics principles

Questions and Answers of Macroeconomics Principles

What do Yap stones and the playing card money of New France have in common? What is different about these two forms of money?
What are five forms that money has taken historically?
In the model, is money neutral under a flexible exchange rate? Explain why or why not. Can we say that money is neutral under a fixed exchange rate? Explain.
In the model in this chapter, what are the effects on the domestic economy of an increase in the world real interest rate under a flexible exchange rate and under a fixed exchange rate?
What is a small open economy?
Explain what moral hazard is and why and how deposit insurance and the too-big-to-fail doctrine induce a moral hazard problem.
How can bank runs be prevented?
Why are there two equilibria in the Diamond–Dybvig banking model? How do the two equilibria compare?
What features of real-world banks does a Diamond–Dybvig bank have?
In the Diamond–Dybvig banking model, why does a consumer do better by depositing in a bank rather than investing on his or her own?
What is unusual about depository institutions relative to other financial intermediaries?
What are three types of financial intermediaries?
What are the four defining characteristics of a financial intermediary?
List four properties of assets, and explain why these properties are important.
Why don’t real-world central banks want to follow the Friedman rule?
Should the monetary authority manipulate the money supply to hold the price level constant over time?
What are the costs of anticipated inflation?
What are the effects of an increase in the money supply growth rate in the monetary intertemporal model?
What is the effect of an increase in anticipated future inflation in the basic New Keynesian model?
What is the effect of an increase in the central bank’s nominal interest rate target in the basic New Keynesian model?
How does the exchange rate regime matter for stabilization policy in the New Keynesian model?
Why is money nonneutral in the New Keynesian open-economy model?
Are capital controls effective in practice? Explain.
Are capital controls a good idea? Why or why not?
What do capital controls imply for the response of the economy to shocks?
Give two examples of countries where capital controls were imposed.
If the capital account surplus is positive, what can we say about the current account surplus?
What are the advantages and disadvantages of a common currency area or currency union?
Give two examples of fixed exchange rates within the United States.
List the key pros and cons of fixed versus flexible exchange rate regimes.
What are the effects of a devaluation of the domestic currency under a fixed exchange rate?
Explain why domestic monetary policy is not independent under a fixed exchange rate.
In the model constructed in this chapter, what are the effects on the domestic economy of an increase in the foreign price level under a flexible exchange rate and under a fixed exchange rate?
Describe the role of the International Monetary Fund.
How do we explain the post–1990 behavior of investment expenditures and the current account surplus in the United States?
What are the effects of an increase in current and future total factor productivity on output, absorption, and the current account surplus?
What are the effects of a temporary increase in government expenditure on output, absorption, and the current account surplus?
What are the effects of an increase in the world real interest rate on output, absorption, and the current account surplus?
What makes a country more likely to default on its international debt?
What can constrain borrowing in world markets by an individual country?
Why could it be a good thing for a country to run a current account deficit?
In the first model in this chapter, what are the determinants of the current account surplus, and how does each of these determinants affect it?
Why is it appropriate to use a small open-economy model to explain events in the United States?
Explain how the neo-Fisherian monetary policy rule acts to achieve good economic results.
What is the Taylor principle, and how does the Taylor principle go awry?
What is the form of the standard Taylor rule?
If the nominal interest rate increases permanently, what effect does this have in the NKRE model in the long run?
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
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.
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
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
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
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
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
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
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
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
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
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
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
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
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,
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?
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.

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