Question on Brainards Model
Suppose that an economys output depends upon a particular policy instrument X.
y=aX+ v
The policymakers are uncertain about the parameter a, where a
Also v
( a , 2a).
(0, 2v) and Cov (a, v) =0
a) If the aim of the policymakers

ECON 361: Monetary Theory and Policy
Question on Monetary Policy
Qs 1)
Consider the following economy
yt = 100 6rt + vt
mt = 80 + 4yt 2rt + t
where v and are IS and LM shocks with the following properties v
The economy is subject to additive shocks.
(0, 1

afﬁniz 3 ECON 361, MONETARY THEORY AND POLICY, FALL 2014-
1 ‘
TIME ALLOWED: 30 MINUTES ROLL No:
Question 1: Suppose that the utility function of a certain consumer is given by
7».
U : 2R - 3R2
where R, is the return on the portfolio he holds in forms o

(0)
x KEY l
ECON 361, MONETARY THEORY AND POLICY, FALL 2014—15
If
ROLL No.: i
,2»
Quiz 2
TIME ALLOWED: '25 MINUTES
Question 1: The Tobin model that we considered in class treats n, the number of
trips, made to the bank1 as a continuous number. However,

Eff} ‘-
Quiz 4 ECON 361, MONETARY THEORY AND POLioY, FALL 2014-15
TIME ALLOWED: 40 MINUTES ROLL No.2
Question: Consider the following model
’9: = C0 + Clip: # 27:34) (1)
M 3 do “ @1th ' (p:+l,L-l ‘ Piteill + W (2)
m : be + 121+ biyf e W: + m (3)
(4)
m: =

PRACTICE SET 5
Qs1)
Consider a central bank with the following loss function:
Lt = t2
Assume that the central has full control over the short-term interest rate and it estimates that
the current inflation rate is given by:
t= ao + a1 t-1 + bit ,
which sho

PRACTICE SET 6
Qs1)
An economy has the following aggregate supply curve,
yt=
^y
where
+ (t - te) + t ,
^y
is the natural rate of output.
The Central Bank decides to penalize its employees, by way of reduced salary, for allowing
output to exceed the natura

PRACTICE SET 1
Qs 1)
In the economy of Mayfair, prices are perfectly flexible and output is always at its full
employment level, Y. The stock of money, M, growing at a constant rate, . Aggregate
Demand is given by Y d = a b(R e), where R is the nominal ra

ECON 361: Monetary Theory and Policy
Practice Set 4
Qs 1)
An economy has the following money demand and money supply relations
mt = pt + o+ 0.8log yt 2Rt + t
mt = bo + ht + 0.5 Rt + t
where mt, pt and ht are the logs of the stock of money, price level and

PRACTICE SET 2
Qs 1)
Consider an investor with preferences given by the utility function U = E(r) - .005A2 and the following
two portfolios:
Portfolio A
Portfolio B
E(r) = 6%
E(r) = 10%
(standard deviation) = 7%
(standard deviation) = 17%
a) Which portf

Practice Set 3
Qs1)
a) Suppose a bank has excess reserves of $800 and the reserve ratio is 10%. Jane
deposits $1,500 of cash into her checking account and the bank lends $600 to
Peter. How much additional can the bank loan out?
b) An another economy has $