CONSIDER AN ECONOMY CHARACTERIZED
BY THE FOLLOWING FACTS:
i. The debt-to-GDP ratio is 40%.
ii. The primary defi cit is 4% of GDP.
iii. The normal grow...

CONSIDER AN ECONOMY CHARACTERIZED
BY THE FOLLOWING FACTS:
i. The debt-to-GDP ratio is 40%.
ii. The primary defi cit is 4% of GDP.
iii. The normal growth rate is 3%.
iv. The real interest rate is 3%.
a. Using your favourite spreadsheet software, compute the
debt-to-GDP ratio in 10 years, assuming tha...

THE TWIN DEFICITS
a. Identify and name the following terms
i. r Bf
t Yt
ii. r Bf
t Yt Tt
iii. r Bf
t Yt Tt Ct
iv. Tt Gt
v. r Bf
t Xt Qt
...

THE TWIN DEFICITS
a. Identify and name the following terms
i. r Bf
t Yt
ii. r Bf
t Yt Tt
iii. r Bf
t Yt Tt Ct
iv. Tt Gt
v. r Bf
t Xt Qt
b. In an open economy, why might private investment, It,
remain unchanged when the government cuts taxes?
c. In an open economy, why might consumption...

ASSUME THAT THE DEMAND FOR CENTRAL BANK MONEY
TAKES THE FORM
H
P = Y 31 - (r + pe
)4 where Y 1000 and r 0.1.
a. Assume that, in the short run, pe
i...

ASSUME THAT THE DEMAND FOR CENTRAL BANK MONEY
TAKES THE FORM
H
P = Y 31 - (r + pe
)4 where Y 1000 and r 0.1.
a. Assume that, in the short run, pe
is constant and equal
to 25%. Calculate the amount of seignorage for each
annual rate of money growth,
H/H, listed below.
i. 25%
ii. 50%
iii. 75%
b. I...

BUDGET NUMBERS
Consider an economy where the offi cial budget defi cit is
4% of GDP; the debt-to-GDP ratio is 100%; the nominal
interest rate is 10%; ...

BUDGET NUMBERS
Consider an economy where the offi cial budget defi cit is
4% of GDP; the debt-to-GDP ratio is 100%; the nominal
interest rate is 10%; and the infl ation rate is 7%.
a. What is the primary defi cit/surplus?
b. What is the infl ation-adjusted defi cit/surplus?
c. Use the rule of thumb ...

TRUE/FALSE/UNCERTAIN
a. The best way to measure the government defi cit is as a
percent of GDP.
b. Government can never have a negative debt position....

TRUE/FALSE/UNCERTAIN
a. The best way to measure the government defi cit is as a
percent of GDP.
b. Government can never have a negative debt position.
c. The recession decreased the budget defi cit in most
OECD countries.
d. If Ricardian equivalence holds, an increase in taxes will
affect neither co...

INFLATION TARGETS AND THE TAYLOR RULE
Many countries around the world have set explicit infl ation targets for the central bank. Suppose the infl atio...

INFLATION TARGETS AND THE TAYLOR RULE
Many countries around the world have set explicit infl ation targets for the central bank. Suppose the infl ation target is p* and
the Phillips curve looks like the one described in the chapter:
pt = pt-1 + a(ut - un)
a. If the central bank is able to keep the i...

THE BANK OF CANADA
Access the website of the Bank of Canada ( www.
bankofcanada.ca).
a. Find the most recent targeting agreement and identify
the targ...

THE BANK OF CANADA
Access the website of the Bank of Canada ( www.
bankofcanada.ca).
a. Find the most recent targeting agreement and identify
the target for infl ation.
b. Read the most recent press release concerning a
change in interest rates and ask, ...

MONETARY POLICY IN ACTION
Using equation (24.1) , show three ways in which monetary
policy can decrease the interest rate, given the level of output. ...

MONETARY POLICY IN ACTION
Using equation (24.1) , show three ways in which monetary
policy can decrease the interest rate, given the level of output. In each case, explain how it works....