Economics 470
Fall 2011
Homework 6
Due Thursday 12/1
1. Does monetary policy become more or less effective when consumption is more responsive to changes in the interest rate? Explain.
2. Does fiscal policy become more or less effective when consumption is more responsive to changes in the interest rate? Explain.
3. Does monetary policy become more or less effective when the Fed raises interest rates more aggressively in response to changes in output? Explain.
4. Why does the SRAS slope upward? What causes the SRAS to shift? Why is the LRAS vertical?
5. Show graphically that monetary and fiscal policy have no long-run effect on output when prices and wages are allowed to vary.
6. Show graphically how inflation and output adjust in the short-run and long-run in response to an improvement in technology.
[I may add a few more questions on Tuesday 11/29.]
