1) Explain the relationship among savings, investment, and net capital outflow.
2) Describe the economic logic behind the theory of purchasing-power parity (PPP). What factors might prevent PPP from holding true?
3) Describe supply and demand in the market for loanable funds and the market for foreign currency exchange. How are these markets linked?
4) What is capital flight? When a country experiences capital flight, what is the effect on the country’s interest rate and exchange rate?
5) List and explain the three theories for why the short-run aggregate-supply curve is upward sloping.
6)What might shift the aggregate-demand curve to the left? Use the model of aggregate demand and aggregate supply to trace through the short-run and long-run effects of such a shift on output and the price level. Use the diagram at the following link to help explain your answer: (attached as Price Level Output (1)).
7) Suppose the Federal Reserve (the Fed) expands the money supply, but because the public expects this Fed action, it simultaneously raises its expectation of the price level. What will happen to output and the price level in the short run? Compare this result to the outcome if the Fed expanded the money supply but the public didn’t change its expectation of the price level. Use the diagram at the following link to explain your answer: Question 7 Diagram (attached as Price Level Output (2)).
8) What is the theory of liquidity preference? How does it help explain the downward slope of the aggregate-demand curve?
9) In 2008 and 2009, the U.S. economy experienced a severe downturn in economic activity due to a financial crisis. Relative to the price decline of the housing market, what are two repercussions that caused a sizable fall in aggregate demand?
10) Suppose that a survey measured consumer confidence indicating a wave of pessimism sweeping the country. If policymakers do nothing, what will happen to aggregate demand? Explain what the Fed should do if it wants to stabilize aggregate demand. If the Fed does nothing, explain what Congress might do to stabilize aggregate demand.
11) What is “natural” about the natural rate of unemployment? Explain why the natural rate of unemployment might differ across countries.
12) What causes the lags in the effect of monetary and fiscal policy on aggregate demand? What are the implications of these lags for the debate over active versus passive policy?
13) Some economists say that the government can continue running a budget deficit forever. How is that possible?
At a minimum, please utilize the reference:”Principles of Macroeconomics” Gregory N. Mankiw (2015)
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