Economics 470/570
Summer 1996
Final Exam
I. Short Answer.
Answer FIVE of the following six questions. Each question is worth 5 points.
1. What is the natural rate of unemployment?
2. Define and explain the velocity of money.
3. What is the Lucas supply curve?
4. What are adaptive expectations?
5. What is debt monetization?
6. What is the policy ineffectiveness proposition?
II. Essay Questions.
Answer FIVE of the following six questions. Each question is worth 15 points.
1. Show that the Fed can control the monetary base better than it can control reserves. Can the Fed control the monetary base perfectly? Why or why not?
2. Derive the short-run and long-run supply curves under the assumption that price expectations are fixed in the short-run. Show how the short-run AS curve shifts when price expectations increase.
3. Do Monetarists and Keynesians agree with Friedman's contention that inflation is always and everywhere a monetary phenomena? Explain.
4. Examine the effects of anti-inflation policies on output and prices in the traditional, New Classical, and New Keynesian models.
5. Discuss the transactions, precautionary, and speculative motives for holding money in Keynes liquidity preference theory. When all three motives are put together, what theory of money demand results?
6. Explain the Monetarist and Keynesian views of aggregate demand. Explain why Monetarists do not believe that shifts in the IS curve affect aggregate demand.
