1.    Explain how the Phillips curve is derived from a model of relative price setting. What happens to the Phillips curve if firms expect inflation?
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2.    Explain why money is neutral in the long run but not in the short run.
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3.    Does government spending completely crowd out private investment and net exports in the long run? What about the short run? Why?
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4.    Why does the economy overshoot potential GDP when expectations of inflation depend on last yearâs inflation?
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5.    What would happen to inflation if policy makers attempted to hold unemployment below the natural rate year after year?
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6.    If firms expect the Fed to start fighting inflation with an aim of bringing it to zero, will their expectations of inflation suddenly drop to zero?
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7.    What are some possible reactions of the economy in the short run to an event that causes an aggregate demand shift? To an event that causes a price shock? What about the long run? What if both types of shocks occur at the same time?
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8.    Explain how the economy would respond to a negative price shock if there were no policy response.
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9.    Explain why an increase in government purchases decreases nongovernment purchases by the same amount.
Answers
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Posted 03 May 2017 07:05 AM
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