Get Essay Help on Macroeconomics Questions
QUESTION 5 – [25 marks] – Chapter 14
Suppose economy is in long run equilibrium. [Only one diagram is required for this question, draw and label clearly to show all relevant points and moves]
[4 marks] Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both-short run and long-run aggregate supply.
[4 marks] The central bank raises the money supply by 5%. Use the diagram you drew in part a) to show what happens to output and price level as the economy moves from initial equilibrium A to the new short-run equilibrium (call it point B).
[4 marks] Show how economy moves from the short run equilibrium (point B) to the new long-run equilibrium (call it C) and explain why it moves to C.
[4 marks] According to sticky wage theory of aggregate supply, how do nominal wages at point A, compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C?
[4 marks] According to sticky wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages compare to real wages at point C?
[5 marks] Judging by the impact of the money supply on nominal and real wages, is this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run?
QUESTION 3 – [15 Marks] Chapter 12
[2 marks] A case study in Chapter 12 analyzed purchasing power parity for several countries using the price of Big Macs. Go on the Website of “The Economist” newspaper at http://www.economist.com/content/big-mac-index and find the data on the Big Mac Index for January 2018 and save it to your computer. Print the January 17, 2018 article on the Big Mac Index and attach it to your assignment.
Price of a
(In local currency)
Rate (Per $US)
[7 marks] Using the data table from “The Economist”, fill in the data on local price of the Big Mac and actual exchange rate. Then compute the predicted exchange rate of the local currency per U.S. dollar. (Recall that the U.S. price of a Big Mac is $5.28). Make sure to show your calculations in the predicted exchange rate column. [Please don’t print the entire data table from the website.]
[3 marks] Summarize the article in one paragraph, highlighting the main points.
[3 marks] Looking at the exchange rates predicted by the Purchasing Power Parity, how well do you think does the theory of purchasing power parity explain exchange rates?
QUESTION 1 – [30 marks]
Access the Bank of Canada web site to answer the four parts below.
[5 marks] Visit the “Statistics” tab to locate data (under Indicators) on the recent history of the following groups of monetary variables: (i) inflation control target; (ii) policy instrument; and (iii) monetary aggregates. Present monthly data of each set of variables in tabular form from January 2017 to January 2018 inclusive. (Please do not print the table directly from the website, Make a neat and precise one page table for only the months required, An MS Excel table is ideal to do this neatly and compactly.)
[9 marks] Explain in detail what each variable represents, use Bank of Canada’s website to find the answer to this question.
[9 marks] Explain the economic reasons for the evolution in the variables from January 2017 to January 2018 inclusive.
[7 marks] Find the Bank’s latest press release (March 7, 2018) about overnight rates and explain why the Bank decided to change (or not to change) its target for the overnight rate. Attach the press release to your answer.
QUESTION 2 – [15 marks @ 5 each part] Chapter 11
Suppose that a country’s inflation rate rose sharply. What happens to the inflation tax on the holders of money? Why is wealth held in savings accounts not subject to change in inflation tax? Can you think of any way in which holders of savings accounts are hurt by the increase in inflation rate?
b. Explain what are the shoe-leather costs of going to the bank. How might you measure these costs in dollars? How do you think the shoe-leather costs of the president of your school differ from your own?
It is often suggested that Bank of Canada try to achieve zero inflation. If we assume that the velocity (V) is constant, does this zero inflation goal require that the rate of money growth equal zero? If yes, explain why. If no, explain what the rate of money growth should equal.
QUESTION 4 – [15 marks]- Chapter 13
Figure 13.4 shows the effect of an increase in the world interest rate on a small open economy with perfect capital mobility. We assumed there that the Net Capital Outflow (NCO) was positive.
For most of the past 40 years, however, Canada’s NCO has been negative.
[10 marks] Redraw the two panels of figure 13.4, but this time assume that NCO is negative at the world interest rate. Now suppose that the world interest rate increases. What happens to national saving (S)? What happens to domestic Investment (I)? What happens to NCO and the real exchange rate? Carefully label both diagrams and explain step by step what happens starting from the initial equilibrium in both markets. Make sure to include all the relevant details step by step or you will lose marks.
[5 marks] Does the conclusion we reached in figure 13.4 (that an increase in world interest rates causes the Canadian dollar to depreciate and net exports to increase) still hold? Explain why or why not.
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