ECON 105B UC Irvine Ch 16 & 17 Equilibrium Level of National Income Questions This course examines further issues on the determination of the equilibrium l

ECON 105B UC Irvine Ch 16 & 17 Equilibrium Level of National Income Questions This course examines further issues on the determination of the equilibrium level
of national income and its allocation among consumers, investors and government. Particular
attention will be paid to the role of government policy on macroeconomic equilibrium for an
open and closed economy. Additional issues to be discussed include government debt and
deficit, investment, money demand and money supply, unemployment, economic fluctuations,
and growth. We will also discuss business cycles: recessions, depressions, revivals, expansions. Mankiw Chapter 16
Questions for Review
1) What are the inside lag and the outside lag? Which has the longer inside lag—monetary
or fiscal policy? Which has the longer outside lag? Why?
2) Why would more accurate economic forecasting make it easier for policymakers to
stabilize the economy? Describe two ways economists try to forecast developments in the
economy.
3) Describe the Lucas critique.
4) How does a person’s interpretation of macroeconomic history affect his view of
macroeconomic policy?
5) What is meant by the “time inconsistency” of economic policy? Why might policymakers
be tempted to renege on an announcement they made earlier? In this situation, what is the
advantage of a policy rule?

Explain the Taylor Rule. Show the equation and explain the reasoning

Explain Inflation Targeting. Explain what this policy rule entails.
Mankiw Chapter 17
Questions for Review
3) Describe four problems affecting measurement of the government budget deficit.
4) According to the traditional view of government debt, how does a debt-financed tax cut
affect public saving, private saving, and national saving?
5) According to the Ricardian view of government debt, how does a debt-financed tax cut
affect public saving, private saving, and national saving?
6) Do you find the traditional or the Ricardian view of government debt more credible? Why?
7) Give three reasons that a budget deficit might be a good policy choice.
8) Why might the level of government debt affect the government’s incentives regarding
money creation?

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