Review Material for the Final
Economics 470/570
Fall 2011
There are three sets of questions for the final, those for Midterms 1 and 2, and the definitions/questions over the material since the second midterm that are given below.
Review material for Midterm 1
Review material for midterm 2
Definitions:
Natural rate of output and employment
Inflation, output, and interest rate targets
Taylor rule
Activists and non-activists
Data, recognition, legislative, implementation, and effectiveness lags
Federal reserve credibility
Questions:
1. Do monetary and fiscal policy become more or less effective when consumption, investment, or net exports become more responsive to changes in the interest rate? Explain.
2. Do monetary and fiscal policy become more or less effective when the MPC increases? Explain.
3. Do monetary and fiscal policy become more or less effective when the Fed raises interest rates more aggressively in response to changes in output? Explain.
4. Is the economy self-correcting? Explain.
5. 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?
6. Why does the SRAS slope upward? What causes the SRAS to shift?
7. Why is the LRAS vertical? What causes the LRAS to shift?
8. Show graphically that monetary and fiscal policy have no long-run effect on output when prices and wages are allowed to vary.
9. Show graphically how inflation and output adjust in the short-run and long-run in response to an improvement in technology.
10. Why does the Federal Reserve put so much emphasis on its credibility?
