Questions:

Read the interview with Janet Yellen published by the Minneapolis Fed. Janet Yellen has served on the Federal Reserve Board of Governors and has recently been appointed as the chair of the Council of Economic Advisors. (A Business Week article on this appointment can be found here.)

1. Discuss Yellen's views on discretionary fiscal and monetary policy.
2. Yellen is known, in part, for her work as a new Keynesian economist. Summarize her views on wage rigidity. How do these views differ from those of new classical economists?
3. Briefly discuss the efficiency wage argument. How does this relate to the concept of downwardly inflexible wages?