Slides2

Question 1

Is fiscal or monetary policy more effective in an open economy

Answer 1

Monetary policy as fiscal policy is weakened when counteracted by foreign influences

Question 2

Is fiscal or monetary policy more affective in stabilizing an economy with fixed exchange rate

Answer 2

Fiscal policy is more affective as there is basically no monetary policy, economy can be stabilized through spending, re and de valuation

Question 3

Assume that the interest parity condition holds. Also assume the us interest rate is 8% while the uk interest rate is 6%. How will the financial markets expect the pound to depreciate or appreciate

Answer 3

Appreciate by 2% so they become equal?

Question 4

Assume that the interest parity condition holds and that the dollar is expected to depreciate against the pound. What do we know about the us interest rate

Answer 4

That it is larger than the poundz

Question 5

A reduction in the real exchange rate will cause

Answer 5

A reduction in the quantity of imports

Question 6

What will happen to the investment, consumption and the domestic currency when the economy moves up and to the left of the IS curve if exchange rates are flexible

Answer 6

I and C decreases while e appreciates

Question 7

In an open economy how would decreased government spending affect imports

Answer 7

It would reduce it as the central bank lowers interest rates which makes domestic wares more attractive

Question 8

Assume simultaneous tax increase and monetary expansion, what would happen to the exchange rate

Answer 8

It would decrease, while output may stay the same

Question 9

What is the mission of a central bank in a fixed exchange rate regime

Answer 9

That i=i* is their target

Question 10

How will a higher savings rate affect a nation in the short run

Answer 10

Decreased consumption if no massive boost in confidence at decreased deficit

Question 11

How will higher savings affect a nations economy in the long run

Answer 11

Increased output but no sustained gain in growth rate, just a bump. Also higher consumption due to more capital per worker if at golden ratio

Question 12

What how does expectations affect monetary policy

Answer 12

Monetary policy is weaker if denizens think it is transitory

Question 13

Why would you argue that decreasing the deficit is good for consumption in the long run

Answer 13

If you think the multiplier is small the decreased effect on consumption of government spending will be dwarfed by the increase in output from improved expectation. If you believe it is large you likely think that consumption will decrease short term

Question 14

How does a reductions in expected future taxes affect the IS curve

Answer 14

It shifts it to the right as peoples expected total wealth increases leading to greater consumption

Question 15

When will a reduced money supply always decrease output

Answer 15

When accompanied by bad news

Question 16

What can the central bank do to the IS LM curves to change expectation

Answer 16

Move the LM curve

Question 17

What is the growth rate of effective labor

Answer 17

ga+gn aka the technological growth rate plus the growth rate of the population

Question 18

What is the most common measurement of changing living standards

Answer 18

The growth rate of real gdp per capita

Question 19

If output per capita grows at 6% per year how much will it have grown in 3 years

Answer 19

19%

Question 20

Assume that there is an increasing return to capital, increasing return to labor and constant return to scale. What will happen to output if both labor and capital decrease by 5%

Answer 20

It will decrease by 5%

Question 21

When using a logarithmic scale to plot output per capita over time an upward sloping curve that becomes increasingly steep indicates

Answer 21

Output per capita is growing by an increasing percentage each year

Question 22

Assume no population or technology growth, how do you calculate the change in capital stock

Answer 22

Investment minus depreciation

Question 23

In the production function a 20% increase in A will lead to what concerning labor

Answer 23

20% increase in effective labor

Question 24

What does constant return to scale imply for the production function

Answer 24

That when K and N or A increases by some % the entire function does so

Question 25

What increases output per effective worker

Answer 25

Increasing the savings rate

Question 26

How does capital grow when the economy reaches a balanced growth equilibrium

Answer 26

The growth rate of capital is equal to the growth rate of the effective workforce

Question 27

Is it possible to reduce unemployment with unexpectedly high inflation in medium run

Answer 27

No only in the short run as unemployment reverts to its nature in the medium run

Question 28

What is the danger with entrenched inflation

Answer 28

That it is hard to bring down again if the economic actors are adapted to it

Question 29

What happens with inflation during expansionary fiscal policy according to the Phillips curve

Answer 29

Inflation rises if interest rates are not brought down

Question 30

What happens to the PC curve with a monetary expansion in the medium run when the expectations are the same as the real rise in inflation

Answer 30

The PC curve moves upward which means higher inflation on all levels of output,

Question 31

Why does the central bank decide both future and current inflation policy

Answer 31

To influence long term interest rates and to stabilize inflation expectations

Question 32

What happens when businesses increase their profit margins

Answer 32

Real wages are lowered and equilibrium unemployment rises which leads to lower potential output

Question 33

What happens to the PC curve when potential output drops

Answer 33

It shifts to the left leading to the same inflation for lesser output

Question 34

How much do firms produce in perfectly competitive markets

Answer 34

Up to where their marginal costs equal product price

Question 35

How old is working age

Answer 35

15-74

Question 36

What are the criteria of being employed

Answer 36

Work one hour each week or bring on temporary leave or participating in some labor market program

Question 37

What demographics have higher unemployment

Answer 37

Young, foreign borne, women

Question 38

What demographics have lower participation rate

Answer 38

Young and old, Swedish, women

Question 39

What are sime reasons for unemployment

Answer 39

Frictional, structural, cyclical

Question 40

What are efficiency wages

Answer 40

Wages to motivate workers to stay longer and work harder

Question 41

What is the natural rate of unemployment

Answer 41

The unemployment rate at which there is balance in the labor market

1/(1+m)=f(u,z)

Question 42

Does price setting depend on unemployment

Answer 42

No only on profit margin as the function

P = (1+m)W entails

Question 43

Foes z affect real wages

Answer 43

No only unemployment (doubt) what affect real wages is m

Question 44

What happens to the wage curve when z increases

Answer 44

Real wages rise leading to a higher equilibrium unemployment

Question 45

What is a wage spiral

Answer 45

Expected inflation leads to higher wages that lead to higher prices etc

Question 46

What happens to the IS curve when the risk premium increases

Answer 46

It moves to the left

Question 47

What does RHS and LHS stand for

Answer 47

RHS is demand and LHS is output, there is equilibrium in the goods market when RHS=LHS Y=Z

Question 48

How does the central bank
control the overnight interest rate

Answer 48

No one will borrow for higher than the riksbanks repo rate and no one would lend for lower than the riksbanks deposit rate, thus the interest rate stays within the interest rate corridor

Question 49

What is variation around potential output called

Answer 49

Positive and negative output gaps, booms and busts