What are the inside lag and the outside lag? Which has the longer inside lag—monetary
or fiscal policy? Which has the longer outside lag? Why?
2) Why would more accurate economic forecasting make it easier for policymakers to
stabilize the economy? Describe two ways economists try to forecast developments in the
3) Describe the Lucas critique.
4) How does a person’s interpretation of macroeconomic history affect his view of
5) What is meant by the “time inconsistency” of economic policy? Why might policymakers
be tempted to renege on an announcement they made earlier? In this situation, what is the
advantage of a policy rule?
Explain the Taylor Rule. Show the equation and explain the reasoning
Explain Inflation Targeting. Explain what this policy rule entails.
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