macroecons
macroecons
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 levelâ€. 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)
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SRAS |
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AD |
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Inflation rate |
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Quantity of output |
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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
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