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1、精选优质文档-倾情为你奉上 CHAPTER 8Solutions to the Problems in the Textbook:Conceptual Problems:1.The first question you should ask yourself as a policy maker is whether a disturbance is transitory or persistent. You should then ask yourself how long it would take to put a suggested policy measure into effect
2、and how long it will take for the policy to have the desired effect on the economy. In addition, you need to know how reliable the estimates of your advisors are about the effects of the policy. If a disturbance is small and probably transitory, you may be best advised to do nothing, because any mea
3、sure you take is likely to have its effect after the economy has recovered. Therefore your action might only further aggravate the problem.2.a.The inside lag is the time it takes after an economic disturbance has occurred to recognize and implement a policy action that will address the disturbance.
4、2.b.The inside lag is divided into three parts. First, there is the recognition lag, that is, the time it takes for policy makers to realize that a disturbance has occurred and that a policy response is warranted. Second, there is the decision lag, that is, the time it takes to decide on the most de
5、sirable policy response after a disturbance is recognized. Finally, there is the action lag, that is, the time it takes to actually implement the policy measure.2.c.Inside lags are shorter for monetary policy than for fiscal policy since the FOMC meets on a regular basis to discuss and implement mon
6、etary policy. Fiscal policy, on the other hand, has to be initiated and passed by both houses of the U.S. Congress and this can be a lengthy process. The exceptions are the so-called automatic stabilizers; however, they only work well for small and transitory disturbances2.dAutomatic stabilizers hav
7、e no inside lag; they are endogenous and function without specific government intervention. Examples are the income tax system, the welfare system, unemployment insurance, and the Social Security system. They all reduce the amount by which output changes in response to an economic disturbance.3.a.Th
8、e outside lag is the time it takes for a policy action, once implemented, to have its full effect on the economy. 3.b.Generally, the outside lag is a distributed lag with a small immediate effect and a larger overall effect over a longer time period. The effect is spread over time, since aggregate d
9、emand responds to any policy change only slowly and with a lag. 3.c.Outside lags are longer for monetary policy since monetary policy actions affect short-term interest rates most directly, while aggregate demand depends heavily on lagged values of income, interest rates, and other economic variable
10、s. A change in government spending, however, immediately affects aggregate demand.4.Fiscal policy has smaller outside lags, but significant inside lags. Monetary policy, on the other hand has smaller inside lags and longer outside lags. Therefore large open market operations should be undertaken to
11、get an immediate effect, but they should be partially reversed over time to avoid a large long-run effect. If the shock is sufficiently transitory and small, policy makers may be best advised not to undertake any policy change at all. 5.a.An econometric model is a statistical description of all or p
12、art of the economy. It consists of a set of equations that are based on past economic behavior.5.b.Econometric models are generally used to forecast the behavior of the economy and the effects of alternative policy measures.5.c.There is considerable uncertainty about how well econometric models actu
13、ally represent the workings of the economy. There is also great uncertainty about the expectations of firms and consumers and their reactions to policy changes. Any policy is bound to fail if the information on which it was based is poor. 6. The answer to this question is student specific. The main
14、difficulties of stabilization policy arise from three sources. First, policy always works with lags. Second, the outcome of any policy depends on the way the private sector forms expectations and how those expectations affect the publics behavior. Third, there is considerable uncertainty about the s
15、tructure of the economy and the shocks that hit it. It can be argued that a monetary policy rule would greatly reduce uncertainty about the Feds policy responses. If the government behaved in a consistent way, then the private sector would also behave more consistently and economic fluctuations coul
16、d be greatly reduced. A monetary growth rule would also reduce any political pressure the administration might exert on the Fed. It is often initially unclear whether a disturbance is temporary or persistent and a monetary policy rule would prevent policy mistakes in cases where the disturbance is,
17、in fact, temporary. If active monetary policy is applied to a temporary disturbance, then the lags involved will guarantee that the economy will actually be destabilized.On the other hand, the workings of the economy are not completely understood and events cannot always be predicted. Thus it is dif
18、ficult to argue for a fixed policy rule. Unanticipated large disturbances warrant an activist policy, especially if they appear to be persistent. It is also possible to construct a more activist monetary growth rule. For example, Equation (8) suggests that the annual monetary growth rate should be i
19、ncreased by two percent for every one percent that unemployment increases above its natural rate. Such a rule is based on the quantity theory of money equation (which relates money supply growth to the growth of nominal GDP) and on Okuns law (which relates the unemployment rate to economic growth).
20、Obviously, because of the long lags for monetary policy, any monetary growth rule will work much better in the long run than in the short run. Fiscal policy rules may make more sense than monetary policy rules, since fiscal policy has long inside lags but shorter outside lags. In a way, built-in sta
21、bilizers, although generally not considered rules, already provide some stability without any inside lag. Many of the arguments against monetary policy rules are also valid for fiscal policy rules and many economists oppose them. The frequently proposed constitutional amendment requiring an annually
22、 balanced budget is an example of a fiscal policy rule. There are significant problems associated with such an amendment, since it would greatly limit the governments ability to undertake active fiscal stabilization policy.7. The arguments for a constant growth rate rule for money are based on the q
23、uantity theory of money equation, that is, MV = PY.From this equation we can derive %DP = %DM - %DY + %DV. If the long-run trend rate of real output (Y) and the long-run trend of velocity (V) are assumed to be fairly stable, and if wages and prices are sufficiently flexible, then a constant monetary
24、 growth rate (M) would insure a constant rate of inflation, that is, a constant rate of change in the price level (P). Also, since monetary policy has long outside lags, active monetary policy can actually be more destabilizing than stabilizing. In addition, since we do not know exactly how the econ
25、omy works or may react to specific policies, it is best to follow a rule rather than undertake actions that have uncertain outcomes. However, rules are not without problems, as they would not allow flexibility in responding to major disturbances. 8.Dynamic inconsistency occurs if, after having commi
26、tted themselves to a specific policy action designed to achieve a long-run objective, policy makers find themselves in a situation where it seems advantageous to abandon their original policy, in order to achieve a short-run goal. Such action will impede the long-run objective. 9.Real GDP targeting
27、is the best option if the primary policy goal of monetary policy is to achieve full employment. If policy makers forecast potential GDP correctly, then full employment combined with low inflation can be achieved. However, real GDP targeting bears the greater risk that the secondary goal of achieving
28、 a low inflation rate will be missed. If the rate at which potential GDP grows is overestimated, then policy makers may stimulate the economy too much. In this case, they will not be successful in achieving price stability. By targeting nominal GDP, the central bank creates a policy tradeoff between
29、 inflation and unemployment. If the rate at which potential GDP grows is overestimated and policy makers stimulate the economy too much, we will get less growth but also less inflation than under real GDP targeting. Which targeting approach should be chosen depends greatly on how steep or flat the P
30、hillips curve is perceived to be. Technical Problems: 1. If actual GDP is expected to be $40 billion below the full-employment level and the size of the government spending multiplier is 2, then government spending should be increased by $20 billion over its current level. For the next period, when
31、actual GDP is expected to be $20 billion below potential, government spending should be cut by $10 billion from its new level, that is, to $10 billion over its original level. In period three, when actual GDP is expected to be at its full-employment level, the level of government spending should aga
32、in be cut by $10 billion from the last periods level to bring it back to the original level of Period 0.2.a.If there is a one-period outside lag for government spending, then nothing can be done to close the current GDP-gap. The government should decide to spend $10 billion more for the next period
33、and reduce spending again to its original level after that. 2.b.Graph I below shows the path of GDP for Problem 1 with no outside lag and Graph II shows the path of GDP for problem 2.a. with a one-period outside lag. In each of the graphs the path of actual GDP is shown, first assuming that no polic
34、y action takes place and then assuming that the policies proposed in Problems 1 and 2.a. are undertaken. Graph IGDPGDP potential GDP potential GDP 0 time 0 timeGDP with fiscal policyGDP without fiscal policyGraph II GDPGDPpotential GDP potential GDP 0 time 0 timeGDP with fiscal policyGDP without fis
35、cal policy3.a.Since the government multiplier for the first period is 1, the level of government spending must be increased by DG = $40 billion to close the GDP-gap of $40 billion. But since the government multiplier in the next period for the amount spent in this period is 1.5, the effect of an inc
36、rease in government spending in the first period by $40 billion would be an increase in GDP by $60 billion in the second period. 3.b.For the second period a GDP-gap of $20 billion is expected. However, as we saw in 3.a., GDP will increase by $60 billion in the second period if the government increas
37、es spending by $40 billion in the first period. Therefore, the government has to reduce spending in the second period by $40 billion from its new level (back to its original level), since the multiplier for a spending change in the same period is 1. 3.c.In this problem, fiscal policy has an outside
38、lag. This means that the effect of an increase in government spending is felt both in the period in which the spending increase takes place and (to an even larger degree) in the following period. The increase in government spending needed to close the GDP-gap in the first period is guaranteed to ove
39、rshoot the desired goal in the next period. Thus the government will be forced to reverse its increase in spending to the original level in the second period to offset the destabilizing effect. In a case like this, the government has to be much more active in its fiscal policy than in a situation wh
40、ere no distributed lag exists. 4. If there is uncertainty about the size of the multiplier, then fiscal policy becomes much more complicated. If the multiplier is 1, then an increase in government spending by $40 billion will close the GDP-gap in the first period. If the multiplier is 2.5, we will o
41、vershoot potential GDP by $60 billion. An increase in spending by 40/2.5 = $16 billion is optimal if the multiplier is 2.5. Thus a cautious government will probably increase spending by no more than $16 billion in the first period, and then reduce the level of spending by $8 billion in the next peri
42、od ($8 billion above the original level). Such a policy action is designed to close the GDP-gap to some degree over the first two periods while never overshooting potential GDP. In Period 3 we will again be back at the full-employment level. The extent to which a less cautious government might excee
43、d these suggested spending increases depends largely on that governments level of concern about unemployment versus inflation.5.To follow an established rule for its policy, the Fed needs to know the source of each disturbance. If a disturbance comes from the goods sector, it is better to have a mon
44、etary growth target; if the disturbance comes from the money sector, it is better to have an interest rate target. 专心-专注-专业a.Assume a disturbance comes from the money sector. If an increase in money demand increases the interest rate, the Fed should try to maintain a constant interest rate by increa
45、sing the supply of money. This will re-establish the old equilibrium values of the interest rate and output and effectively offset the disturbance.b.Assume a disturbance comes from the goods sector. If an increase in autonomous investment increases the interest rate, then it is not advisable to main
46、tain a constant interest rate. Trying to lower the interest rate again by increasing the money supply would aggravate the disturbance. On the other hand, maintaining a constant money supply, while not offsetting the disturbance, will at least not make things worse.6.a.Students will have to check the
47、 Federal Reserve Bulletin in early 2000 and compare the forecasts of the Federal Reserve Board with the actual performance of the economy in 1999.6.b.Regardless of how detailed it is, no econometric model can accurately represent the economy, since we do not completely understand the way the economy
48、 works. Therefore, we can never expect perfect forecasts. It is impossible to incorporate all the relevant information on which individuals and firms base their expectations about the future and to determine how these expectations affect actions in any given situation. Forecasts are generally based on the information available at the time, which may be flawed or outdated. In addition, any unexpected change, such as a supply shock, an unanticipated international change, or a