Economics 470/570
Monetary Theory and Policy
Homework 6
1. How does the effectiveness of monetary policy change when there is a decrease in the responsiveness of investment to the interest rate? What does this imply about the effectiveness of monetary policy over the business cycle?
2. Derive the SRAS and LRAS curves from labor supply-labor demand and production function diagrams (alternatively, do it mathematically as we did in class).
3. Use AD-AS and IS-MP diagrams to examine the short-run and long-run effects of an increase in business confidence.
4. Use AD-AS and IS-MP diagrams to examine the short-run and long-run effects of the Fed tightening monetary policy.
5. Use AD-AS and IS-MP diagrams to examine the short-run and long-run effects of a temporary increase in the price of oil. How does the result differ if the change in the price of oil is permanent?
6. Use AD-AS and IS-MP diagrams to examine the short-run and long-run effects of an increase in the capital stock.