Q1. Describe two ways through which the consolidated government (fiscal and monetary authorities) can finance a deficit.
Q2. The figure below shows the evolution of two different measures of inflation. Which of these series is showing the evolution of a measure of headline inflation, and which one is showing the evolution of a measure of underlying inflation? Justify your answer, and give an example of a measure of underlying inflation.
Q3. Consider the following quote by Ed Prescott: “The policy implication of [my] research is that costly efforts at stabilization are likely to be counterproductive.” Provide a brief justification of Prescott’s view based on the results of the Real Business Cycle Theory studied in class.
Q4.Provide one argument in favour and one argument against the following statement: “Ideally, it would be optimal to set the nominal interest rate to zero at all times.”
Q.5Evaluate the validity of the following claim: “Under a fixed exchange rate, the monetary authority looses its ability to implement independent
Q6.Are current account deficits necessarily undesirable? Provide a brief justification.
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