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Chapter 20: Q 18. (page 547)
Why does the Keynesian view of the demand for money suggest that velocity is unpredictable?
According to Keynes, speed and velocity are unpredictable because interest rates, which change considerably, affect the purchasing power and so velocity.
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John Maynard Keynes is among the most well-known economic theorists. Go to http://en.wikipedia.org/wiki/ John_Maynard_Keynes and write a one-page summary of his life and contributions.
In the aftermath of the financial crisis in the United States, labor mobility has decreased significantly. How, if at all, might this affect the natural rate of unemployment?
What factors shift the short-run aggregate supply curve? Do any of these factors shift the long-run aggregate supply curve? Why?
Go to the St. Louis Federal Reserve FRED database, and find data on the budget deficit (FYFSD), the amount of federal debt held by the public (FYGFDPUN), and the amount of federal debt held by the Federal Reserve (FDHBFRBN). Convert the two 鈥渄ebt held鈥� series to 鈥淎nnual鈥� using the frequency setting. Download all three series into a spreadsheet. Make sure that the rows of data align properly to the correct dates. Note that for the deficit series, a negative number indicates a deficit; multiply the series by 鈥�1 so that a deficit is indicated by a positive number. Manipulate the three series so that all data are given in terms of the same units (either millions or billions of dollars). To do this, if a series is in millions and you are converting it to billions, divide the series by 1,000. Finally, for each year, convert the two 鈥渄ebt held鈥� series into one 鈥渃hanges in debt holdings by the public and the Federal Reserve鈥� series by calculating, for each year, the difference in bond holdings from the preceding year.
a. Create a scatter plot showing the deficit on the horizontal axis and the change in bond holdings by the public on the vertical axis, using the data from 1980 through the most recent period of data available. Insert a fitted line into the scatter plot, and comment on the relationship between the deficit and the change in public bond holdings.
b. Create a scatter plot showing the deficit on the horizontal axis and the change in bond holdings by the Federal Reserve on the vertical axis, using the data from 1980 through the most recent period of data available. Insert a fitted line into the scatter plot, and comment on the relationship between the deficit and the change in Federal Reserve bond holdings.
c. Now repeat part (b), but create separate scatterplots for the period of 1980 to 2007, and 2008 to the most recent year. Comment on how, if at all, the monetizing of the debt is exhibited in the data. Do you think the relationship between the deficit and the change in bond holdings of the Federal Reserve has changed since 2008? Why or why not?
In many countries around the world, the population is aging and large segments of the population are retiring or close to retirement. What effect would this have on a country鈥檚 long-run aggregate supply curve? What will happen to aggregate output as a result?
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