Chapter 15, Stabilization Policy, Output, and Employment Video Solutions, US RDA TEST COPY RECORD GSLIS7 Macroeconomics : private and public choice

Problem 1

The chair of the Council of Economic Advisers has requested that you write a short paper explaining how economic policy can be used to stabilize the economy and achieve a high level of economic growth during the next five years. Be sure to make specific proposals. Indicate why your recommendations will work. You may submit your paper to your instructor.

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Problem 2

How does economic instability during the past sixty years compare with instability prior to World War II? Is there any evidence that stabilization policy has either increased or decreased economic stability during recent decades?

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Problem 3

State in your own words the adaptive-expectations hypothesis. How does the theory of rational expectations differ from that of adaptive expectations?

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01:00

Problem 4

What is the index of leading indicators? Why is it useful to macro policy makers?

Sujita Thavva

Numerade Educator

Problem 5

How would you expect the actual unemployment rate to compare with the natural unemployment rate in the following cases?
a. Prices are stable and have been stable for the last four years.
b. The current inflation rate is 3 percent, and this rate was widely anticipated more than a year ago.
c. Expansionary policies lead to an abrupt increase in the inflation rate from 3 percent to 7 percent.
d. There is an abrupt reduction in the inflation rate from 7 percent to 2 percent.

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02:44

Problem 6

Compare and contrast the impact of an unexpected shift to a more expansionary monetary policy under rational and adaptive expectations. Are the implications of the two theories different in the short run? Are the long-run implications different? Explain.

Tommy Nguyen

Numerade Educator

02:18

Problem 7

What are some of the practical problems that limit the effective use of discretionary monetary and fiscal policy as stabilization tools?

Md.Daniyal Arshad

Numerade Educator

02:27

Problem 8

Many central banks now indicate that their primary objective is to keep inflation at a persistently low rate. If the rate of inflation is persistently low, will this help reduce the ups and downs of the business cycle? Why or why not?

Oluwadamilola Ameobi

Numerade Educator

08:21

Problem 9

How did integration of expectations into the Phillips curve analysis and rejection of the view that higher inflation will reduce the unemployment rate affect macro policy in the last two decades?

Rashmi Sinha

Numerade Educator

00:45

Problem 10

Prior to the mid-1970s, many economists thought that inflation would lead to a lower rate of unemployment. Why? How does the modern view of the Phillips curve differ from the earlier view?

Erwin Antoni

Numerade Educator

02:43

Problem 11

Answer the following questions:
a. What is the most important thing the Fed can do to promote economic stability?
b. Can expansionary monetary policy reduce interest rates and stimulate a higher growth rate of real output in the long run?
c. If monetary policy is too expansionary, how will nominal interest rates and the general level of prices be affected?

Kaylee Mcclellan

Numerade Educator

11:03

Problem 12

Is a market economy inherently unstable? Historically, have policy errors been the primary source of economic instability? Cite empirical evidence to support your response to each of these questions.

Pragya Ahuja

Numerade Educator