REVIEW QUESTIONS FOR MIDTERM #2

   1. Outline the New Keynesian (NK) approach. What is it able to explain that the New Classical    
    (NC) and Real Business Cycle (RBC) approaches cannot explain? What are the primary
    explanations given for a) rigid wages and b) rigid prices? What role do "long term labor contracts"
    play in explaining employment fluctuations? Do both demand-side shocks and supply-side shocks
    play a role in generating NK cycles? Explain.

   2. Discuss the role of money in classical, modern mainstream and Post-Keynesian theory in the
    short- and long-run. Is money a real phenomenon? Explain.

   3. Discuss the Post Keynesian perspective on uncertainty and distinguish it from probabilistic risk.
    Why do Post Keynesians view the distinction as crucial to analyzing involuntary unemployment?   

   4. How does Paul Davidson characterize the Post Keynesian theory of choice? What is its
    theoretical foundation? How does the PK characterization differ from the mainstream ones?

    5. Discuss the Austrian approach to business cycle theory. How do Austrians deal with "time" and
    "uncertainty"? Compare and contrast their approach to the Post Keynesian approach.

    6. How do Austrians distinguish between an "artificial" and a "sustainable" boom? What brings
    each about? Why must a recession follow an artificial boom, according to Austrian theory? Explain
    carefully.

    7. What role does loanable funds theory play in the Austrian approach? In the Post Keynesian
    approach? Explain.

    8. Explain Minsky’s Financial Instability Hypothesis (FIH). What is the significance of the "two
    price" system in his framework?

    9. Explain the two fundamental tenets (or "laws") of Functional Finance. According to Lerner, what
    is the purpose of collecting taxes? What is the purpose of selling bonds? Why does Lerner argue
    that the size of the national debt is irrelevant?

    10. In his Functional Finance and the Federal Debt, Lerner suggested that the principles of
    functional finance should govern policymaking in all nations. Should he have been more careful in
    his statement? Use Mosler's analysis to examine the potential for Functional Finance under fixed
    exchange rates. Can nations without flexible exchange rates implement policy in accordance with
    Lerner's principles? Explain.

    11. How do Wray’s "Seigniorage vs. Sovereignty" arguments relate to Goodhart’s defense of
    Chartalist theory? Explain.