Econ 501: Macroeconomics Analysis and Policy Problem Set 4
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Fall 2022
Econ 501: Macroeconomics Analysis and Policy
Problem Set 4
Question 1 - 30 pts
a) Refer to the importance of primary data for public policy analysis and design.
b) Discuss the pros and cons of using primary and secondary data for research purposes.
c) Mention and briefly explain the steps for collecting primary data.
d) Discuss main methodological differences you would consider between collecting primary data for an education program and for an employment program.
Question 2 - 35 pts
a) Discuss the relationship between a structural fiscal deficit and long-term government debt.
b) How can government debt lead to a fiscal crisis?
c) How did the housing market affect production during the 2008 recession? Explain the mechanism.
d) How is the case of the fiscal in Costa Rica different from the Great Recession? How are the cases alike?
Question 3 - 35 pts
a) How can commodity money and fiat money create inflation? Explain the differences.
Consider an economy that behaves as in the Kydland and Prescott Model with the following Social Loss Function: L = 0.5(y − y*)2 + 0.5a(π − π*)2
b) How would the Central Bank optimize inflation if the choice of π is credible and if it is not? (Show all steps)
c) What would the inflation be in equilibrium? (Show all steps)
d) Graph the equilibrium for this economy. How would the solution change if parameters a & b increase simultaneously?
2022-11-28