Macroeconomics

Author / Creator

Gordon, Robert J. (Robert James), 1940-

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Summary

Macroeconomics is widely praised for its ability to present theory as a way of evaluating key macro questions, such as why some countries are rich and others are poor. Sample questions asked in the...

Macroeconomics is widely praised for its ability to present theory as a way of evaluating key macro questions, such as why some countries are rich and others are poor. Sample questions asked in the 12th edition of Macroeconomics: The ideas of the Taylor Rule and inflation targeting were developed in the 1980s. Inflation targeting is a special case of a Taylor Rule. Evaluate the Fed’s conduct of monetary policy during 1994–2007 in terms of whether the Fed appears to have been targeting inflation or the output ratio or a weighted average of the two as implied by the Taylor Rule. Between June 2003 and June 2005, U.S. unemployment fell from 6.3 percent to 5.0 percent of the labor force. The Federal Reserve, the nation’s monetary policymaking authority, took active measures beginning in June 2004 to raise short-term interest rates. What might have motivated policymakers to raise interest rates and what were they hoping to accomplish? What is the most important implication of the Solow growth model? Does it imply that an increase in the rate of private saving is useless as a means to increase the standard of living in the long run? The amount of excess reserves held by U.S. banks in-creased to over a trillion dollars during the Global Economic Crisis. Explain what effect the increase in excess reserves had on the e (the fraction of deposits banks hold as reserves), the amount of high-powered money, and the money multiplier. Explain what mortgage-backed securities are and what the subprime mortgage market is. Discuss how the combination of these two financial innovations and low interest rates from 2001-04 contributed to the development of the housing bubble. Finally, explain why a rise in interest rates from 2004-06 burst the housing bubble and brought on the financial crisis of 2007-08. Use the interaction between the flexible accelerator and business confidence to explain why real private domestic investment fell so much relative to real GDP during the Great Depression. In addition, explain why real GDP rose while real private domestic investment fell during World War II.

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