Why Total Factor Productivity fluctuates? What is the Taylor rule?* . What is a
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Why Total Factor Productivity fluctuates? What is the Taylor rule?* . What is a liquidity trap and why is conventional monetary policy ineffective when the interest rate is near the zero lower bound? What is the role of uncertainty during business cycles? What is asymmetric information? How does it affect the credit mar- ket? (You can use an example to explain the effects on the credit market). In what sense is the 2008 recession different to recessions before 2000? What does the Real Business Cycle model can say about the Finan- cial Crisis? What is Quantitative Easing? Why did the FED used this "uncon- ventional policy during the Financial Crisis?* What's the Ricardian Equivalence? Is it satisfy in the data? Explain. ble frictions' that ca n limit the predictions in What are some possi the models studied in class? How can they change our results? Hint: how would they change the constraints or marginal conditions of firms and consumers? What are some possible macroeconomic effects of the 'Trade War?* What are some possible macroeconomic effects of the Tax Cuts'?* What are some possible macroeconomic effects of the FED's 'Exit Strategy?*Explanation / Answer
1. Total Factor productivity is procyclical and increases during the time of boom and reduces during the time of recession. This is because during the time of boom investment in research and development is high and techological growth is high. On the other hand, during the time of recession, technological growth declines which reduces investment in research and development and thus reduces Total Factor Productivity.
2. The Taylor rule was introduced by John Taylor and is based on the empirical study on the FED's monetray policy between 1987 and 1992. It is a simple rule of monetary policy to suggest a way of determing interest rates as the economic conditions and macro economic activities change over time. It defines inflation as the difference between the nominal and real interest rate.
3. The liquidity trap refers to the situation in which current interest rates are low and savings rates are high, rendering monetray policy ineffective. Monetary policy is ineffective in liquidity trap because consumer's preferences for liquid assets (cash) is greater than the rate at which quantity of money is growing.
4. The uncertianity plays an important role in business cycles. It increases during the time of recessions and reduces during the time of boom. This can in some cases aggravate the downfall in economic growth of the nation.
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