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What is the relevance of Milton Friedman's phrase long and variable lags to this chapter?
What is the economic justification for the sticky inflation assumption? What role does this assumption play in the short-run model?
Show how to think about this event using the IS curve. Explain how actual output, potential output, and short-run output are affected in the short run, and why.
Which aggregate demand parameter is affected? How and why is it affected? How does this increase affect the graph of the IS curve?
Consider the following changes in the macroeconomy. Show how to think about them using the IS curve, and explain how and why GDP is affected in the short run.
What are three insights you gained from studying the micro foundations of the IS curve?
What are some examples of changes in the economy that would lead to movements along the IS curve? What are some changes that would shift the IS curve?
What role does the IS curve play in our short-run model? What kind of economic questions does it allow us to analyze?
What is the leverage ratio of the two companies you've chosen? For each $100 of assets, how much is financed with equity and how much with debt?
What about a key policy interest rate set by European Central Bank (ECB)? An extremely helpful resource for this exercise is ECB's Statistical Data Warehouse.
What does this tell you about how the economy has evolved in response to the financial crisis?
How severe was the Great Recession? What pieces of economic data would you cite to support your answer?
By roughly how much did housing prices fall during the financial crisis? What about the stock market?
Suppose the economy has a natural rate of unemployment of 6%. According to Okun's law, what unemployment rates would we expect to see in this economy?
Explain how the two economies respond differently to a boom and to a slump. What are some factors that might influence the slope of the Phillips curve?
What happens if policymakers try to stimulate the economy to keep output above potential by 3% every year?
What shocks appear to be most important in explaining fluctuations in economic activity for the countries you chose? Be sure to document your sources carefully.
What happens to the true amount of short-run output Y? What would be predicted to happen? Has this ever happened to the U.S. economy?
Suppose Congress and the president decide to increase government purchases today, say for national defense. Explain how this affects the IS curve.
The permanent-income theory of consumption: According to the permanenting come hypothesis, how does your consumption change in each of the following scenarios?
Using the IS-MP diagram, explain what happens to economic activity in the short run. What is the economics underlying the response in the economy?
Explain what happens to the economy in the absence of any monetary policy action. Be sure to include graphs showing how output and inflation respond over time.
According to the Fisher equation, what should the nominal interest rate be? Suppose bank A charges a nominal interest rate on loans equal to 8%.
Discuss the economic value of a college education. What is the present discounted value of your labor income if you forgo college and start work immediately?