Economics 470/570
Summer 2000
Final Exam
I. Short Answer.
Answer FIVE of the following six questions. Each question is worth 5 points.
1. Discuss two properties that money must satisfy in order to be useful as a medium of exchange.
2. What is the definition of the monetary base? What are non-borrowed reserves?
3. What is debt monetization?
4. Explain the policy ineffectiveness proposition.
5. What factors affect the natural rate of output?
6. What is the credit view of the transmission mechanism?
II. Essay Questions.
Answer ALL of the following questions. Each question is worth 15 points.
1. Examine the effects of anti-inflation policies on inflation and output in the traditional Keynesian, New Classical, and New Keynesian models.
2. Use the IS-LM model to show that fiscal policy becomes more effective relative to monetary policy as investment becomes less sensitive to the interest rate. Explain the result intuitively. What does this tell us about the use of monetary policy in recessions?
3. Do Monetarists and Keynesians believe that inflation is always and everywhere a monetary phenomena? Explain.
4. According to Baumol and Tobin, the transactions demand for money depends upon the interest rate as well as nominal income. Explain why the transactions demand for money depends upon the interest rate. Why is this important?
5. Explain the Lucas critique of econometric policy evaluation.
