Final Exam -- Possible Questions -LM-BP Model theory vs reality In the theoretical IS-LM-BP model, the mechanism that ensures a movemer back to equilibrium is a floating exchange rate and its impact on NX. Explain how this process works in the model assuming the use of expansionary monetary policy. In the real world, does a depreciation of the $ lead to a correction of the trade deficit? Explain In the theoretical IS-LM model, the LM curve is derived based on the assumption that the FED has complete control over the money supply. Explain how the Fed is supposed to control the money supply in theory. In the real world, can the Fed control the money supply? Explain. 3. In order to develop macroeconomic theories of consumption, mainstream economists use the assumption that behavior can be captured with a single representative, forward-looking household (Life-Cycle Hypothesis). Is this assumption adequate for evaluating aggregate consumption behavior? Explain, and include an explanation for the alternative model. 4. The US government is $30 trillion in debt. As discussed in class, there are three views regarding whether or not public debt can be a burden: the hysterical view, the traditional view; and MMT. Explain these 3 views. [make sure to include a discussion on the stability condition]