Econ 100 Final Readings

Econ 100 Final
Exam: Econ 100 Tuesday 12/14 10:30-12:00 same room
1. Text
 Ch. 13: Money, Banking and Monetary Policy
 Ch. 14: Activist-Nonactivist Debate
 Paul Krugman “ How Did Economists Get It So Wrong?”
particularly sections IV-VII (in the readings folder)
 Not required: but for a little more background on the Monetarists
thinking see Milton Friedman’s AEA presidential address, The
Role of Monetary Policy? (readings folder), particularly see Sec I
“What Monetary Policy Can’t Do” and Sec III “How Monetary
Policy Should Be Conducted”
What are the key points?
Ch. !3: Money, Banking and Monetary Policy
 Which governmental organization controls/manages monetary policy?
 What are the three instruments that we use to affect monetary policy
and how do they increase/decrease the money supply?
 How does monetary policy affect real GNP, unemployment and real
and nominal interest rates in
o Short-run
o Long-run
 What is the quantity theory of money?
o How does it explain the relationship between increases in the
money supply and real and nominal variables?
o Is it a long-run or short-run model?
o What is (are) the historical (data) evidence that this model is
correct and under what circumstances?
 When can expansionary monetary policy have effects on real
o What economic conditions can cause money to have a real
Ch. 14: Activists-Nonactivists Debate
 If we divide economists into (neo)Keynesians (Krugman’s salt
water economists) and Monetarists (Krugman’s freshwater
economists), then:
o Which group favors an activists approach, why and
what and how would they hope to accomplish (in real
economic variables)?
o Which group favors a non-activist approach, why and
what/how would they favor non-activism?
 If a recession happened:
o What would an activist propose to do and why (i.e.,
what would be the hoped for economic outcomes and
why would they occur according to their theory)?
o Why would a non-activist propose “doing nothing”, i.e.,
how would the economy eventually respond and how
would that take place?
Under what economic conditions would:
The monetarists likely to be correct?
The neo-Keynesians likely to be correct?
Congress is considering legislation which would a) extend the
Bush-era decrease in the marginal tax rate for individuals
earning more than $250,000 per year and b) extending
unemployment benefits for approximately 3 million people
who have been unemployed more than 26 weeks.
o Suppose you worked for the Congressional Budget
Office and were asked:
 To explain what the macroeconomic impacts of
both these proposals would be on the economy?
 That is, use the neo-Keynesian SR and
LR model to explain how each of the
programs could affect real GDP,
unemployment and inflation in both the
SR and LR
 What current economic conditions might
be important to consider in assessing the
relative impact of these two proposals?