Intermediate
Macroeconomics
Review for Final
Policy Debate
1,Positive or passive?
Positive,fight shocks by fiscal/monetary policy
Passive,
1) Lags in implementation & effects of policies
2) Economic forecasting is difficult,
3) Ignorance,expectations,& the,Lucas Critique”
Conclusion? Historic data?
Policy Debate
2,Be conducted by rule or by discretion?
1) Why not by discretion?
a) Distrust of policy makers & the political process
b) Time inconsistency of discretionary policy
2) Possible rules for monetary & fiscal policies
Government Debt
1,Is budget deficit correctly measured?
1) Inflation
2) Capital Assets
3) Uncounted liabilities
4) Business cycle
Government Debt
2,Traditional view of govern,Debt
LR……classical model
SR……IS -LM model
Government Debt
3,Ricardian equivalence
1) Basic logic
2) Critiques from defenders of traditional view
a) Myopia
b) Borrowing constraints
c) Future generations
Government Debt
4,Other possible effects of govern,Debt
a) Effects on monetary policy
b) Debt and political process
c) International effects
The Open Economy
1,The international flows of capital & goods
1) National Identity
2) The capital & current account
3) Net Foreign Investment (NFI)
The Open Economy
2,Small open economy
r = r*
1) Model
2) Influence of home fiscal policies
3) Influence of foreign fiscal policies (large)
The Open Economy
3,Exchange rates
1) Measure (real v.s,nominal)
2) The real ex-rate and NX
3) Determinants of the real ex-rate
4) Effects of policies on real ex-rate (4)
5) Determinants of nominal ex-rate
The Open Economy
4,Large open economy
1) Model
--- loanable funds; NFI & r; ex-market
2) Effects of policies
--- fiscal @ home; trade
3) Other factors
--- D for I; shift in NFI (fiscal abroad; political)
The Open Economy in the SR
1,The Mundell-Fleming Model (IS*&LM*)
2,Model under a floating ex-rate (3 policies)
3,Model under a fixed ex-rate (3 policies)
4,Interest-Rate differentials (politics&expectations)
5,Debate over floating v.s,fixed ex-rate
6,With changing P level
7,Large Open Economy (3 markets; 3 policies)
About Final
? 30% true/false (5)
? 70% short answer questions (3)
? Office hours,
Dec,20 (10-12; 1-3) & Dec,22 (4-6)
? Exam,Dec,22 (7:00 – 9:00 pm )
Thank you !!!
See you next semester --- hopefully
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