Question Sample related Introduction to Macroeconomics

ECO 104: Introduction to Macroeconomics

Section 2 & 17

Summer 2010

University X

Assignment 4

Full marks: 10

Time of Submission: Just A week After Assigning, at the end of the class time.

Person to be submitted to :ME

Answer all the questions. The parenthesis carries the credit for each question.

1)      Suppose the economy is in the long run equilibrium. Now, let’s assume, there was a rest of the world depression and the world economy is recovering.

a)      How would that impact on our economy? Are we at the full-employment level anymore?                                                                                                                (1)

b)      What happens to Aggregate Supply (Short-run and Long run)?                  (1)

c)      How is full employment level of output achieved without policy intrusion?    (2)

2)      Suppose the Central Bank increases the money supply by 5% and the economy is at the full employment level of output. Use diagrams to analyze the following situation with your analysis.

a)      What would be effect on interest rate?                                                   (1)

b)      How would the short run aggregate demand change?                             (1)

c)      How would the system auto correct itself?                                                         (1)

d)      What can the Government do to stabilize the situation?                          (1)

e)      Is the relationship between interest rate and inflation is consistent with the Fisher’s equation? If not, how can they conform to the rule?                  (1)