Weekly Questions

(Updates likely, so check back)

These questions are intended to reinforce concepts and methods emphasized in the prior week's class.

Week 1 Questions

1. Express an equation that gives the major components of GDP from an expenditure perspective

2. Express an equation that gives the major components of GDP from an income perspective

3. Show how to compute annual percent changes and annualized percent changes in (quarterly) GDP estimates. How would a three-year growth rate (using annual data) be computed for rates of 0.10, and .05?

4. What are the current values of GDP, unemployment rates, wealth, population, and fed funds rate in the U.S.?

5. What are the averages for growth rates of GDP and real GDP along with their standard deviations?

Week 2 Questions

1. Express the equations in Prescott's model of the economy, the role of each equation in the model, and define the variables in each equation.

2. Using the household budget constraint, explain how spending can increase in the economy. Using this equation as the basis, s a budget constraint for the entire economy that incorporates two periods: now and future

3. From these equations, show how a household can increase their spending and explain Prescott's logic as to why labor hours diverged in the U.S. and Europe

4. Prescott derives tax rates on income across countries even though income is not the only item taxed; how does Prescott convert taxes on consumption into their income tax equivalent?

5. Make sure you can explain a simplified version of this kind of model in terms of consumption.

6. Open the file e503 prescott.pdf
-- Write out the equations that compute labor hours, consumption, and GDP (use meaningful names for variables, not the names given in the program)

-- Construct a flowchart that shows how changes in the tax rate influence labor hours through the equations in the simulation.
-- Give an example of a calibrated “parameter” in the model and a variable determined within the model

Week 3 Questions

1. Write out a Cobb-Douglas form of a production function and identify each of its main components; what are more detailed components of these? What are the key influences on growth and how might a prediction of country convergence of living standards emerge from such a model?

2. If a regression analysis is conducted with % Change Real GDP per capita = b0 + b1*Economic Freedom Index + b2*quantity of capital+ e, what is the nature of the identification problem? What other data problems arise in such a regression?

3. What does Acemoglu mean by the term, "natural experiment"? Express the logic of Acemoglu's natural experiments using North Korea and South Korea as well as in his "reversal of fortune" analysis

4. What does Acemoglu mean by "institutions" and how does he try to measure this concept?

5. What is meant by a "fundamental" factor on growth versus a "proximate" factor? Why might the identification of these two be a problem in empirical work and how does Acemoglu address that problem?

Week 4 Questions

Be able to summarize key points from the presentations

Week 5 Questions

1. What is the difference in a transitory and permanent shock to GDP? Draw a graphic indicating how these shocks work together to influence the observed performance of GDP. What regression-like evidence indicates a presence of a "unit root" in GDP and how is this related to the permanent/transitory distinction?

2. What is the source of fundamental, exogenous shocks to GDP in a simple RBC/DSGE model? Write out an equation that could be added to these basic equations that would reflect "frictions" in the model economy. How do these frictions change the source or the impact of shocks?

3. How would a basic set of ISLM equations differ from the simple DSGE ? What are the key exogenous shocks and endogenous relationships in this set of equations?

4. Simple seasonal variables (such as quarter "dummy" variables) can account for a very large amount of the variation in non-seasonally adjusted GDP. How does this relate to a simple RBC/DSGE model?

5. Summarize the nature of VAR evidence on the nature of shocks to GDP and consumption

6. The difference in shocks and amplifiers. Summarize the sources of shocks discussed in the Boston Fed article. Match specific episodes where the evidence appears to match up with these shocks?

Week 6 Questions

Be able to summarize key points from the presentations

Week 8 Questions

1. Express the equation of exchange and provide a brief explanation of it

2. Derive a formula for the rate of inflation from the equation of exchange

3. Use the equations from #2 to explain the quantity theory of inflation

4. Express the equation relating the real value of government liabilities to the present value of government budget surpluses; what does this equation imply will happen if government liabilities increases but expected surpluses remain the same? what does this equation imply will happen if the risk associated with government surpluses increases for a given size of liabilities?

5. How are movements in velocity in the equation of exchange linked to the PV of government liabilities equation?

Week 9 Questions

1. Express the Fisher Equation. Without regard to monetary policy, what determines the real rate of interest?

2. Express the Taylor Rule and explain its components. Using coefficients of 0.5, an inflation target of 1 percent, actual inflation of 3 percent, and an output gap of -1 percent, what would it indicate as the target Fed Funds rate?

3. Explain the problems associated with setting monetary policy based on the output gap and its measurement.

4. What is Fama's question about the interaction of Fed interest rate policy and market rates? Explain at least one of his empirical strategies to address this question. What are alternative empirical strategies to address this question

5. What is necessary for the Taylor Rule to be compatible with the Fisher Equation?

6. Express a monetary policy rule based on nominal GDP. Substitute it into the Taylor Rule and solve.

Week 10 Questions

1. What is a government spending multiplier? Using the household budget constraint in the basic macro model (Prescott), explain the mechanisms at work for an increase in government spending to raise overall macro spending and output.

2. Express the 3 main identification problems associated with measuring the impact of temporary government spending stimulus.

3. What is Ramey's strategy for resolving these identification problems and how does it differ from other approaches?

4. Express the main identification problems in measuring the impact of monetary stimulus.

Week 11 Questions

1. Express the factors that contribute to the success of a currency union under the conventional (Mundell) view.

2. Express Cochrane's alternative view as to the factors that contribute to the success of a currency union.

3. Express the equation that relates government liabilities to the present value of government surpluses. How does this relate to problems in the European Union

4. Express the equations for long run and short run debt sustainability

4. Northern Europe, and Germany in particular, is sometimes blamed for the problems of southern European countries because of the large trade surplus that it is running. Explain how the Southern European countries may actually be the fundamental contributors to this problem

Week 12 Questions

Be able to summarize key points from the presentations

Week 14 Questions

Be able to summarize key points from the presentations