MacroEcons

Anonymous
timer Asked: Mar 23rd, 2017
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Question description

Short Answer Questions:

  • Consider the banking system. ‘Reserves are deposits that banks have received but have not loaned out’.
    • Banks must hold reserves. Why? (2 marks)
    • What are excess reserves? (1 mark)
    • How are excess reserves calculated? (1 mark)
    • What is the significance of excess reserves? (2 marks)
  • Consider the following statement in the short-run and the long-run: “The quantity theory of money (quantity equation) states than an increase in the money supply will lead to an equiproportionate increase in the price level”. Is this true or false? Explain. (4 marks)
  • A book, One World, Ready or Not - The Manic Logic of Global Capitalism, by William Greider, suggests that because of the rapid growth in productivity, output is increasing too fast - too fast, that is, for total demand to keep up. As a result, the economy could collapse as a result of overproduction.
    • Using the aggregate demand/aggregate supply diagram, illustrate the effect of increased productivity the short-run (holding the LRAS curve constant). (1 mark) (Be sure to add labels to indicate clearly the new equilibrium position)
    • What is the impact on unemployment and inflation as a result of the new equilibrium depicted in part a)? (1 mark)


Explain this adjustment process. (3 marks)

Illustrate here (Tips: to create new lines, simply copy the existing curves and move to the new locations)

SRAS

AD

Inflation rate

Quantity of output

LRAS



4. Imagine that your major trading partners impose high tariffs on all goods, services and resources entering their countries. (6 marks)

  • Illustrate the short-run impact on your own economy in the diagram below. (Be sure to add labels to indicate clearly the new short-run equilibrium position) (1 mark)
  • What is the effect on the unemployment rate and the inflation rate in your nation in the short-run? (1 mark)
  • Economists argue that the economy will automatically self-correct, adjusting to a new long-run equilibrium over time. Clearly explain this adjustment process. (Be sure to explain the adjustment not just state that a curve shifts to restore long-run equilibrium – ensure that this in your own words) (3 marks)

Illustrate here (Tips: to create new lines, simply copy the existing curves and move to the new locations)

SRAS0

AD

LRAS

Inflation rate

Quantity of output


3 Lecture Slides on the topic are attached as well. Thanks

Tutor Answer

Lessermaster
School: Boston College

Attached.

Macro1 (ECON1016), Sem1, 2017

MACRO1 (ECON1016) Assignment 2
(Chapter 29, 30 & 33)
Submit online by: 7PM (Singapore time) 26th March (Sunday)
(see‘Assessment Task’ in Blackboard)
Class Time and Day: ______________________________________________________________________________________
Student Name : ____________________________________________________________________________________________
Student ID: ________________________________________________________________________________________________

Short Answer Questions:
1) Consider the banking system. ‘Reserves are deposits that banks have received but have
not loaned out’.
a) Banks must hold reserves. Why?(2 marks)
Yes, banks should hold reserves because it is legal requirement. Within the limits
specified the law, board of governs has sole authority over changes in reserve
requirements hence banks should maintain them
b) What are excess reserves?(1 mark)
These are reserves that financial institutions hold in excess of what is required...

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Review

Anonymous
Thanks, good work

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