Question 1

How has macro-policy changed since the 1970s? How have the views of economists on the trade-off between inflation and unemployment changed?

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Question 2

What are the macroeconomic policy implications of the rational expectations hypothesis? What should policy makers do and not do?

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Question 3

What are the proper monetary and fiscal responses to a recession under the activist view and the nonactivist view?

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Question 4

What will actual unemployment be (in relation to the natural rate) in each of the following cases? Use a graph of the modern Phillips curve in your answer.
a.Decision makers underestimate inflation.
b.Decision makers overestimate inflation.
c.Decision makers correctly forecast inflation.

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Question 5

Explain the three lags that make it difficult to time changes in discretionary policy properly.

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Question 6

Indicate what might be done to restrain the tendency of the democratic process to generate budget deficits.

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Question 7

What are the two theories about how expectations are formed? Discuss each.

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Question 8

What is the Phillips curve? What is the difference between the original Phillips curve and the "modern" view of the Phillips curve? What problems caused the abandonment of the ideas behind the original Phillips curve?

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Question 9

Explain two reasons why economic forecasting can only be of limited use.

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Question 10

Many people assert that the national debt is not a problem because "we owe it to ourselves." Is this true?

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Quiz 15: Stabilization Policy, Output, and Employment