Introductory Macroeconomics, Hilary Term 2024

Problem Set, Week 4

  1. Exercise 9.1 in CORE Team, The Economy

  2. Exercise 9.2 in CORE Team, The Economy

  3. Exercise 9.3 in CORE Team, The Economy

  4. The graph here shows the Eurozone monetary base (ECB assets, blue line) and a narrow measure of money supply (M1, red line) from January 2007 to January 2014. You will notice how in two episodes the monetary base moves without the money supply moving in the same way.

    1. Explain, using the algebra of the money multiplier, how we could account for this.

    2. What is a possible economic explanation of what was going on in these episodes?

  5. Brian's parents bought their home in the summer of 1971, when the average 30-year fixed rate mortgage had an interest rate of ca. 7.5% (source: FRED database used for the earlier graph). Do you think that over the next couple of decades they had reason to regret committing to such a high interest rate for such a long time? Why or why not?

  6. The table below displays values of prices indices in 1919 relative to 1913 values. (For Germany, the wholesale price index is reported; for all other countries, it is the GDP deflator.)

    1. Why was inflation so rapid everywhere during and immediately after the First World War? Use the quantity equation in your answer.

    2. What does this imply about who paid for the war?

    19131919
    Italy100350
    France100281
    Germany100470
    United Kingdom100225
    United States100173

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