Review for first midterm is
here.
Review for second midterm is
here.
Review questions for material since the second midterm:
Definitions
Potential or natural rate of output
Short-run aggregate supply
Long-run aggregate supply
Debt monetization
Inflation
Cost push inflation
Demand pull inflation
Activist/non-activist
Data lag
Recognition lag
Legislative lag
Implementation lag
Effectiveness lag
Policy ineffectiveness proposition
Rational expectations
Price rigidity
Essay
1. Show that the Fed cannot continuously hit both a money supply target and an interest rate target, i.e. that it must choose one or the other.
2. Explain Poole's rules.
3. Do changes in the money supply and government spending affect output in the long-run? Explain using the IS-LM model.
4. Derive the aggregate demand curve from the IS-LM model and explain intuitively why it slopes downward. What factors cause the AD curve to shift? In what direction do they shift the AD curve?
5. Why does the short-run aggregate supply curve slope upward? What factors cause the aggregate supply curve to shift?
6. Is the economy self-correcting? What problems are encountered in the pursuit of activist policies?
7. What causes the LRAS curve to shift, i.e. what factors affect the natural rate of output? Explain.
8. (a) Do Monetarists agree with Friedman's contention that inflation is always and everywhere a monetary phenomenon? Explain using the AD-AS model. (b) 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. 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.
13. 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.
14. Suppose the monetary authority wants to stop 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?