Definitions
Potential or natural rate of output
Deficit
Debt
Debt monetization
Inflation
Activist/non-activist
Data lag
Recognition lag
Legislative lag
Implementation lag
Effectiveness lag
Policy ineffectiveness proposition
Rational expectations
Natural rate hypothesis
Essay
1. Explain the Monetarist view of aggregate demand. Explain why Monetarists do not believe that shifts in the IS curve affect aggregate demand.
2. Explain the Keynesian view of aggregate demand.
3. Why does the short-run aggregate supply curve slope upward? What factors cause the aggregate supply curve to shift?
4. Is the economy self-correcting?
5. What causes the SRAS curve to shift? Explain.
6. What causes the LRAS curve to shift, i.e. what factors affect the natural rate of output? Explain.
7. Do Monetarists agree with Friedman's contention that inflation is always and everywhere a monetary phenomenon? Explain using the AD-AS model.
8. Do Keynesians agree with Friedman's contention that inflation is always and everywhere a monetary phenomenon? Explain using the AD-AS model.
9. Explain how the pursuit of a high employment target by policymakers can lead to inflation.
10. Can budget deficits lead to inflation? Explain.
11. Why might governments choose to monetize the debt?
12. Explain the activist and non-activist positions on the use of government policy to stabilize macroeconomic variables such as real output. What problems are encountered in the pursuit of activist policies?
13. Explain and give an example of the Lucas critique. Why is this important?
14. What are the essential differences between the Classical, Keynesian, New Classical, and New Keynesian models?
15. Show that it is possible in a model with expectations (e.g. using the New Classical model) for an increase in the money supply to reduce output if the change in the money supply is smaller than expected.
16. Compare and contrast the effects of an unexpected increase or decrease in the money supply on prices and output in the traditional Keynesian, New Classical, and New Keynesian models.
17. Compare and contrast the effects of an expected increase or decrease in the money supply on prices and output in the traditional Keynesian, New Classical, and New Keynesian models.
18. Suppose the monetary authority wants to reduce the inflation rate. Compare the costs (in terms of output) of reducing inflation in the traditional Keynesian, New Classical, and New Keynesian models. Be sure to cover both an expected and an unexpected change in policy. Why is the credibility of policymakers important?