Marginal Revolution: Practice questions for my macro class

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Practice questions for my macro class

The students themselves are to write the questions into the comments section. Do it soon, and yes that means you. Then the students should practice these questions in their spare time, with the clock ticking. Ideally each question, or at least some of them, should come as a surprise. Don't read them all until you are ready to give them a try.

Most people study to make themselves feel better about doing their work, and not to actually succeed in their chosen field of study. They spend hours staring blankly at sheets of paper. They should spend more time trying to solve problems or answer questions, usually under simulated exam conditions and with a clock ticking.

Tick, tick, tick...That's the way to go, and yes I know it hurts.

Posted by Tyler Cowen on November 27, 2005 at 09:41 AM in Education | Permalink

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Suppose there were no legal restrictions on the exchange of bonds. What would the implications be? How would this affect monetary and fiscal policy? How would this have affected the Argentinian Crisis?

Posted by: David at Nov 27, 2005 12:51:42 PM

In what ways might and open economy react differently to a large budget deficit than a closed economy? What are the pros and cons of their likely respective means of financing such a deficit? How important would the time preferences of the citizenry be in either scenario?

Posted by: Stephen at Nov 27, 2005 2:11:57 PM

Is zero inflation good, if not what would be a better inflation rate? Discuss the role of inflation using different monetary theories, including the quantity theory of money and the Austrian theory.

Posted by: Warren at Nov 27, 2005 2:54:21 PM

The United States, with a GDP of some $12 trillion a year, currently has a current-account deficit of $750 billion a year composed of a $750 billion trade deficit and a balanced flow of factor incomes. Making your own rough back-of-the-envelope projections of U.S. GDP growth and of real interest and profit rates over the next twenty years, answer the following question: If the trade deficit stays constant as a share of GDP over the next twenty years, how large--both in 2005 real dollars and as a share of U.S. 2025 GDP--will the current-account deficit be in 2025? Why might one argue that this trade deficit is "unsustainable"?

Posted by: Brad DeLong at Nov 27, 2005 3:45:57 PM

Let’s assume there is a middle-sized closed economy that is undergoing a financial crisis. The physical capital cannot be removed from the country and all people are still there ready to work. What causes the economic downturn? Is there any quick way out?

Posted by: Marek at Nov 27, 2005 5:13:10 PM

Brad DeLong is one of your students? Weird.

Posted by: Urple at Nov 27, 2005 8:38:57 PM

Austrian economists hold the entrepreneur in high regard. However, Austrian Business Cycle Theory involves failure of entrepreneurs on a massive scale. Under what assumptions would ABCT have good explanatory power? And how does it compare with other cycle theories under these assumptions?

Posted by: Jeremy H. at Nov 27, 2005 8:58:16 PM

Explain the mechanisms for and the effectiveness of domestic fiscal and monetary policy under floating, fixed, and gold standard exchange rates, and the interactions between domestic fiscal and monetary policy and exchange rates under each scenario. If you have time, consider different implementations of the different exchange rate regimes.

Posted by: Andrew Wise at Nov 27, 2005 9:45:03 PM

"Brad DeLong is one of your students? Weird."

Yeah and given his question I can tell you he's been skipping class.

Posted by: David at Nov 27, 2005 10:28:44 PM

Friedman (1969) argues that the optimal inflation rate should be negative and equal to value of the real interest rate so as to eliminate the cost of carrying money. The optimal policy under this rule calls for setting nominal interest rates on bonds to zero. Write your critique on this view.

Posted by: Yan Li at Nov 28, 2005 12:48:41 AM

How would the monetary transmission mechanism be different in an economy with fixed
exchange rates compared to a one with flexible rates? How would it be
different in a closed economy compared to an open economy situation?

Posted by: Amir at Nov 28, 2005 2:15:50 AM

Let us say the new president of Ecuador decline the dollarization policy.
Under what conditions might people be better off? In a monetarism model?
In a New Keynesian model?

Posted by: T. at Nov 28, 2005 7:34:39 AM

Given what you have learned regarding theories of exchange rates, including their relationship to interest rates, what do these various theories suggest would be the consequences for China, the U.S., and the rest of the world if China suddenly allowed their currency to freely float?

Posted by: Gerald at Nov 28, 2005 9:56:07 AM

Is a government net debt (cumulated trade deficits) of roughly the size of GDP "sustainable" or "unsustainable" for the US? Present both sides of the arguments.

Posted by: Yan Li at Nov 28, 2005 11:15:24 AM

Say something snarky about Brad Delong and your post will be taken down on this blog and his.

Posted by: Robert Schwartz at Nov 28, 2005 11:15:53 AM

1) Suppose that, due to financial market innovations, the demand for real money balances falls. Trace through the short-run and long-run effects of this innovation on interest rates, exchange rates, and the current account. You may assume perfect capital mobility and an open small economy.

2) True or False: A tax cut financed by government borrowing is good for the economy because it would stimulate consumer spending, and hence raise employment and output.

3) True or False: High real interest rates are good for the economy because with high real interest rates, savings are simulated, and a higher savings rate leads to more economic growth.

Posted by: Aly at Nov 28, 2005 11:20:41 AM

Asset bubbles (tulip mania, stocks, housing) have appeared throughout the economy over time. Some theories suggest bubbles are caused by inappropriate monetary policies. Other theories suggest that they are induced by the behavior of agents within the economy. What theories can be used to support each explanation? Are these explanations of bubbles mutually exclusive? Finally, can asset bubbles be modeled under rational expectations?

Posted by: Patches O'Houlihan at Nov 28, 2005 11:22:52 AM

Suppose the U.S. federal government takes action to immediately eliminate its budget deficit. What, if any, are the implications for the exchange rate and trade deficit? Use either the Neo-Classical or Keynesian perspective and then state how the answer would be different from the other perspective.

Posted by: Andrew S at Nov 28, 2005 12:06:18 PM

How would the appreciation of Chinese RMB affect the real sector and external sector in the US, China, and the rest of the developing Asia, and what are the major implications of such effects for monetary policy and fiscal policy in these countries from the Keynesia, new Keynesian, and new classical point of view?

Posted by: Larry cq at Nov 28, 2005 1:31:12 PM

Both Austrian and (many) Keynesian economists deny the neutrality of money. In what ways are they similar or different? What tricks might one paradigm (pick either Austrian or Keynesian) learn from the other?

Posted by: Adam Martin at Nov 28, 2005 2:00:46 PM

What are some problems that governments have with issuing money? What are some of the problems associated with private issue of money? List some of assumptions that are made when comparing these two alternatives. Is the type of commodity important?

Posted by: Michael at Nov 28, 2005 3:36:01 PM

Can CAPM be reconciled with Paul Blustein’s claim that the exaggerations by sell-side firms of Argentine economic and fiscal strength were a principal cause of the Argentine debt crisis? Don’t those exaggerations – or similar phenomena in US securities markets – present major arbitrage opportunities?

Posted by: ryan at Nov 28, 2005 4:31:32 PM

Name three defects of the IS-LM apparatus and how these might be rectified to yield a more realistic account of the interaction between the goods market and money market.

Posted by: Richard Salsman at Nov 28, 2005 4:55:05 PM

Assume that the Chinese government and central bank have preferences such that the specific fate of the Chinese macroeconomy is less important to them than the maintenance or expansion of government power, both domestically and abroad. Under this public choice-oriented assumption, offer a short explanation of China’s fiscal and monetary policy choices over the last 20 years. How does your explanation change if you remove your public choice hat and assume that China has been one indivisible actor concerned primarily with its economy?

Posted by: Jason Briggeman at Nov 28, 2005 5:09:49 PM

Argue the case for a return to Fiduciary Money.

Posted by: Ali at Nov 28, 2005 5:15:37 PM

How would an open economy behave in which every contract was strongly indexed both to price level and relevant exchange rates?

Posted by: noah at Nov 28, 2005 5:48:19 PM

Discuss some of the costs and benefits of floating vs. Fixed currency regimes. How does this change if capital movement restrictions are placed on the country in question? How is this effected by the fiscal policies of the country?

Posted by: Jimson at Nov 28, 2005 5:49:16 PM

True or false and why: proper currency boards, in which the domestic money supply is backed 100% by reserves of foreign currency, are economically inefficient because the reserves could be used to promote growth, rather than sit idly in a vault.

Posted by: Rich at Nov 28, 2005 6:01:19 PM

What aspects of Austrian business cycle theory do you find untenable? Are there any aspects you find useful? Compare and contrast ABCT with other theories (RBC, Keynes, etc.).

Posted by: kbrand at Nov 28, 2005 6:02:26 PM

Use game theory to analyze the plausibility of wage stickiness.

Posted by: will at Nov 28, 2005 6:13:14 PM

How is the aging baby boom generation affecting the following and why?

Savings rates

Interest rates (short and long term)

Fed policy

Inflation

Investment

Posted by: Paul at Nov 28, 2005 6:27:26 PM

What could be the cause(s) of the divergence of the Fed Funds Rate and 10 year US Treasury Note since the Fed started tightening interest rates up until May 2005( The Interest Rate Conundrum )? Alan Greenspan viewed this divergence as puzzle in his June 9, 2005 testimony before congress.

Posted by: Abdi at Nov 29, 2005 1:32:29 PM

Proposes two or more policies adopted by governments when they face a speculative attack on exchange and interest rates. Analyze their pros and cons.

Posted by: tianwen at Nov 29, 2005 2:21:09 PM

Propose two or more policies adopted by governments when they face a speculative attack on exchange and interest rates. Analyze their pros and cons.

Posted by: tianwen at Nov 29, 2005 2:21:51 PM

Should the US government rely more on fiscal or monetary policy? Which is more effective for short and long run goals? Why? Describe a case that would refute your answer.

Posted by: Liz at Nov 29, 2005 3:26:57 PM

What are the main arguments for inflation targeting vs. discretionary monetary policy? What could be the implications of either policy on risk premia and what are other main factors influencing risk premia? Why are risk premia across Europe so different and what would happen if the ECB followed through with its threat not to accept low-grade government bonds as collateral from some of the member countries?

Posted by: Diana at Nov 29, 2005 6:56:57 PM

What difference would a strong or weak form of rational expectations make on the desirability of monetary policy rule in targeting inflation rate?

Posted by: jong at Nov 29, 2005 7:01:20 PM

Solve the equity premium puzzle.

Posted by: Hero at Nov 29, 2005 8:05:06 PM

What would be the benefits if the entire world dollarized? What would be the costs? Would this lead to global economic growth? What other implications would there be?

Posted by: Brian at Nov 29, 2005 10:57:22 PM

Under what conditions are the twin deficits of the United States sustainable? In what way does a current account deficit have to be "paid back"? Assuming the current account deficit is a real problem what can policy-makers do about it? What other consequences would necessarily or likely follow with such a policy prescription?

Posted by: Matthew at Dec 1, 2005 3:29:45 PM

Do you side more with the Optimists or Pessimists? Why?

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Posted by: levan at Sep 5, 2006 7:23:58 AM

explain the relationship between the effectiveness of monetary policy and interest elasticity of money demand. will the monetary policy the more or less effective, the higher higher the interest elasticity of money demand?

Posted by: bassong at May 19, 2007 12:24:27 PM

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