Classes and Lectures

Size: px
Start display at page:

Download "Classes and Lectures"

Transcription

1 Classes and Lectures There are no classes in week 24, apart from the cancelled ones You ve already had 9 classes, as promised, and no doubt you re keen to revise Answers for Question Sheet 5 are on the module website There is no EC1001 lecture this Friday 11 May. There will be 2 revision-based lectures in week 24 (17 and 18 May)

2 The Euro (Chapter 38 in Mankiw and Taylor) Plus in this lecture we will run through the AD/SRAS,LRAS model again since this should have come up in your assessed essay and you need to know this model for the exam

3 But first, as this is important looking forward to the exam, we ll run through the coursework essay In particular, we will re-consider the AD/SRAS,LRAS model and consider how it lets us distinguish the likely short and long run effects of QE

4 How can the Bank of England increase the money supply? OMOs: buy government bonds (outright) Refinancing (repo) rate: An OMO but not outright; a loan. Decrease this rate encourages banks to borrow from the money market Reserve requirements (money multiplier). Decrease the reserve requirement (if they exist) to increase the money created by bank QE: involves purchase of longer-dated bonds than traditional OMOs. Also wider set of assets bought

5 How precisely can the Bank of England increase the money supply? Cannot control the broad money supply perfectly Money multiplier is not under the BoE s control, in a fractional reserve banking system The BoE does not control the amount of currency that households choose to hold relative to deposits If households decide to hold relatively more currency, banks have fewer reserves and the money supply decreases The BoE cannot control the amount banks choose to hold as excess reserves If bankers decide to lend out less of their deposits, the money supply will decrease Currently banks are rebuilding their balance sheets

6 What should we expect to be the macroeconomic consequences of the quantitative easing recently undertaken by the Bank of England? Make a short versus long run distinction Use economic models to formalise your argument QE designed to boost nominal AD Transmission mechanism is it encourages banks and others who receive this central bank money to lend it out (loanable funds increase) and thereby stimulate AD (improve banks balance sheets, their liquidity) Focus on macro not finance implications

7 Long run (LR) Quantity Theory (Friedman) effect on inflation. One-for-one if V (velocity of circulation) constant. Could use MS/MD graph, with P or 1/P on y-axis Classical dichotomy and Monetary Neutrality : Money increase has no effect on real variables, including real GDP, unemployment, real wages and real interest rates (but via the Fisher effect the nominal rate increases) Exchange rate effects: PPP inflation leads to depreciation

8 Short run (SR) IS/LM (interest rates and real income, as LM shifts to the right) AD-SRAS curve (real output, prices, extent depending on slope of SRAS curve) SR Phillips Curve (unemployment as inflation ) Also open economy effects, as QE leads to exchangerate depreciation, via uncovered interest rate parity in SR and PPP (and inflation) in the LR Use graph in Mankiw & Taylor p.695 which sees supply of loanable funds increase (in book it decreases, so reverse the conclusions), hence with r lower, NCO is higher so real exchange rate falls

9 Integrated analysis: AD/SRAS,LRAS model The short run effects may be quite persistent (i.e. the long run effects maybe a long time coming) in the current climate, given the economy is in recession and arguably there s lots of spare capacity in the economy (so the SRAS curve is pretty flat) A SR effect on real output depends on inflation being higher than expected (surprise/unexpected inflation) Due to sticky wages, sticky prices or misperceptions Shifts AD to the right, along SRAS curve for fixed inflationary expectations; explained by LM curve shifting to the right along a given IS curve (so r lower and y higher)

10 QE is expected to boost AD, to some degree A Monetary Injection Interest (a) The Money Market rate Money supply, MS 1 r 1 MS 2 1. When the BoE increases the money supply... Price level P (b) The Aggregate-Demand Curve r the equilibrium interest rate falls... Money demand at price level P Quantity of money Quantity of output In panel (a), an increase in the money supply from MS 1 to MS 2 reduces the equilibrium interest rate from r 1 to r 2. Because the interest rate is the cost of borrowing, the fall in the interest rate raises the quantity of goods and services demanded at a given price level from Y 1 to Y 2. Thus, in panel (b), the aggregate-demand curve shifts to the right from AD 1 to AD 2. 0 Y 1 Y 2 AD 2 Aggregate demand, AD which increases the quantity of goods and services demanded at a given price level.

11 The likely short and long run effects of QE An increase in Aggregate Demand Price Level Long-run aggregate supply AS but over time, the shortrun aggregate-supply curve shifts up as P expectations Short-run aggregate supply, AS 1 P 3 P 2 A C B and output returns to its natural rate. P 1 1. An increase in aggregate demand... AD 1 AD 2 Y 1 Y 2 Quantity of Output causes output to rise in the short run... A rise in aggregate demand is represented with a rightward shift in the aggregate-demand curve from AD 1 to AD 2. In the short run, the economy moves from point A to point B. Output rises from Y 1 to Y 2, and the price level rises from P 1 to P 2. Over time, as the expected price level increases, the short-run aggregate-supply curve shifts to the left from AS1 to AS 2, and the economy reaches point C, where the new aggregate-demand curve crosses the long-run aggregate-supply curve. In the long run, the price level rises to P 3, and output returns to its natural rate, Y 1 as the Quantity Theory and monetary neutrality imply

12 Similar story with short and long run Phillips Curves Surprise AS curve: Quantity of output supplied = = Natural rate of output + a(actual price level Expected price level)

13 European Monetary Union 1. The Euro 2. The benefits and costs of a common currency 3. The theory of optimum currency areas 4. Is Europe an optimum currency area? 5. Fiscal policy and common currency areas

14 The Euro The euro officially came into existence on 1 January 1999 and on 1 January 2002 the first euro notes and coins began to circulate EA countries adopted fixed (in principle irrevocably) exchange rates Why did they give up their own currencies? Economic as well as political arguments

15 The benefits and costs of a common currency

16 The Benefits of a Single Currency The transaction cost involved in converting currencies is a deadweight loss, so reducing these costs by adopting a single currency provides a clear gain to society It is less likely that there will be price discrimination between countries because a single currency makes it more difficult to disguise price differences Price discrimination again involves a deadweight loss to society

17 The Benefits of a Single Currency Reduction in foreign exchange rate fluctuations that create uncertainty for businesses engaging in trade between EMU countries Businesses could always deal with such uncertainty by engaging in forward foreign exchange contracts with their banks, but the banks charge for this service and a single currency eliminates this (deadweight) cost (loss) Encourages trade and investment as the absence of exchange rate fluctuations makes business planning easier and may boost investment, with benefits for long-run economic growth

18 The Costs of a Single Currency The major cost is that a country joining a currency union gives up: 1. its freedom to set its own monetary policy (interest rate) 2. and the possibility of macroeconomic adjustment through movements in the external value of its currency

19 The Costs of a Single Currency Suppose there is a shift in consumer preferences away from German goods and in favour of French goods The aggregate demand curve will shift to the left in Germany and to the right in France, leading to increased unemployment and downward pressure on prices in Germany, and lower unemployment and upward pressure on prices in France

20 Figure 1 A Shift in Consumer Preferences Away from German Goods Towards French Goods If the governments do nothing then the economies will, in the long run, return to their natural rates of unemployment as wages and prices fall (relatively) in Germany and SRAS shifts

21 The Costs of a Single Currency But if the two countries had retained separate currencies then the short-run fluctuations in aggregate demand would have been alleviated by a movement in the exchange rate i.e. AD can shift as the real exchange rate changes, reflecting changes in the relative demand for the two currencies

22 Figure 2 A Shift in Consumer Preferences with Flexible Exchange Rates Copyright 2004 South-Western

23 The Costs of a Single Currency Without this adjustment mechanism, German policy makers may wish to see a cut in interest rates to boost aggregate demand, while French policy makers will be more likely to favour a rise in the interest rate to contain inflation The ECB would be unable to satisfy both countries Euro implies a one size fits all monetary policy

24 Optimum Currency Area Theory An optimum currency area is a group of countries for which it is optimal to adopt a common currency and form a currency union OCA theory attempts to specify criteria for the optimality of a currency union for a given group of countries The qualifier optimal is used loosely and should be taken to refer to the ability of the countries concerned to limit the costs of monetary union and enhance the benefits

25 OCAs: Characteristics That Reduce the Costs of a Single Currency There s only a short run trade-off between unemployment and inflation, so the more quickly an economy moves to its long-run equilibrium after a shock the better A high degree of real wage flexibility so that wages respond strongly to fluctuations in unemployment will ensure that long-run equilibrium will be restored quickly following any macroeconomic disturbance A high degree of labour mobility between the member countries of a currency union will also ensure macroeconomic stability In the earlier example, the migration of labour from Germany to France would alleviate inflationary pressure in France and keep down unemployment in Germany

26 OCAs: Characteristics That Reduce the Costs of a Single Currency A high degree of capital mobility can also help alleviate the problems of asymmetric shocks Residents of a country experiencing recession may borrow money from residents of a country experiencing a boom to make up for their temporary fall in income - without domestic interest rates rising Clearly if the demand shocks hitting the EA are symmetric there is no problem

27 OCAs: Characteristics that Increase the Benefits of a Single Currency A high degree of trade integration among a group of countries will lead to greater benefits should those countries establish a currency union As there s more of a gain from both no transactions costs and the reduction in exchange rate volatility

28 Is Europe an Optimum Currency Area? There is lots of within-europe trade (we can think of the ratio of intra-eu exports and imports to GDP as a measure of trade integration) But labour and wage flexibility are low in the EA So, as we have seen recently, if strong differences emerge between the EA countries the lack of independent monetary and exchange rate policy do matter Think of Greece Perhaps EA will not survive

29 Fiscal Policy and Common Currency Areas While monetary union prevents independent monetary policy, countries might retain control of fiscal policy and use it to ameliorate the loss of monetary policy So Germany could expand AD and France reduce it Need to think about this possibility both in a fiscal union and when countries have independent fiscal policies Fiscal federalism involves a common fiscal budget and system of fiscal transfers across countries If a currency union had a common fiscal policy then fiscal policy in the currency union would work much as fiscal policy in a single national economy works The problem might be that taxpayers in one country may not be happy to see their taxes spent on transfers to residents of another country

30 Fiscal Policy and Common Currency Areas When countries conduct independent fiscal policy there is a potential free rider problem in a currency union A government issuing a large amount of government debt pays a lower interest rate on it than it would have outside the union As the other (solvent) countries are seen by the markets to underwrite the profligate country s debt Unless there was a credible no bail-out agreement, so that the markets do charge the profligate countries higher interest rates And other countries pay higher interest rates For this reason currency unions may impose rules on national fiscal policies ongoing debate in EA

31 Summary A common currency area (a.k.a. currency union or monetary union) is a geographical area through which one currency circulates and is accepted as the medium of exchange

32 Summary The formation of a common currency area can bring significant benefits to the members of the currency union, particularly if there is already a high degree of international trade among them (i.e. a high level of trade integration) This is primarily because of the reductions in transaction costs in trade and the reduction in exchange rate uncertainty

33 Summary There are, however, costs of joining a currency union, namely: the loss of independent monetary policy and the loss of the exchange rate as a means of macroeconomic adjustment These adjustment costs will be lower the greater is the degree of real wage flexibility, labour mobility and capital market integration across the currency union, and also the less the members of the currency union suffer from asymmetric demand shocks

34 Summary A group of countries that has a high level of trade integration, high labour mobility and real wage flexibility, a high level of capital market integration and whose member countries do not suffer from asymmetric shocks, is termed an optimum currency area (OCA) An OCA is most likely to benefit from currency union

35 Summary It is possible that a group of countries may become an OCA after becoming a currency union, as having a common currency may further enhance trade integration, thereby helping to synchronise members economic cycles, and having a single currency may also help to foster increased labour mobility and capital market integration

Lecture 22. Aggregate demand and aggregate supply

Lecture 22. Aggregate demand and aggregate supply Lecture 22 Aggregate demand and aggregate supply By the end of this lecture, you should understand: three key facts about short-run economic fluctuations how the economy in the short run differs from the

More information

Midsummer Examinations 2013

Midsummer Examinations 2013 Midsummer Examinations 2013 No. of Pages: 7 No. of Questions: 34 Subject ECONOMICS Title of Paper MACROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates This paper is in two sections.

More information

ECON 1002 E. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.

ECON 1002 E. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work. It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hour(s). Work on your own. Keep your notes and textbook closed. Attempt every question.

More information

Notes From Macroeconomics; Gregory Mankiw. Part 4 - BUSINESS CYCLES: THE ECONOMY IN THE SHORT RUN

Notes From Macroeconomics; Gregory Mankiw. Part 4 - BUSINESS CYCLES: THE ECONOMY IN THE SHORT RUN Part 4 - BUSINESS CYCLES: THE ECONOMY IN THE SHORT RUN Business Cycles are the uctuations in the main macroeconomic variables of a country (GDP, consumption, employment rate,...) that may have period of

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Econ 330 Spring 2017: FINAL EXAM Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Tobin's q theory suggests that monetary

More information

BUSI 101 Capital Markets and Real Estate

BUSI 101 Capital Markets and Real Estate BUSI 101 Capital Markets and Real Estate PURPOSE AND SCOPE The Capital Markets and Real Estate course (BUSI 101) is intended to acquaint the student with the basic principles of macroeconomics and to give

More information

Midterm 2 - Economics 101 (Fall 2009) You will have 45 minutes to complete this exam. There are 5 pages and 63 points. Version A.

Midterm 2 - Economics 101 (Fall 2009) You will have 45 minutes to complete this exam. There are 5 pages and 63 points. Version A. Name Student ID Section day and time Midterm 2 - Economics 101 (Fall 2009) You will have 45 minutes to complete this exam. There are 5 pages and 63 points. Version A. Multiple Choice: (16 points total,

More information

: Monetary Economics and the European Union. Lecture 8. Instructor: Prof Robert Hill. The Costs and Benefits of Monetary Union II

: Monetary Economics and the European Union. Lecture 8. Instructor: Prof Robert Hill. The Costs and Benefits of Monetary Union II 320.326: Monetary Economics and the European Union Lecture 8 Instructor: Prof Robert Hill The Costs and Benefits of Monetary Union II De Grauwe Chapters 3, 4, 5 1 1. Countries in Trouble in the Eurozone

More information

Introduction to Economic Fluctuations

Introduction to Economic Fluctuations Chapter 9 Introduction to Economic Fluctuations slide 0 In this chapter, you will learn facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an

More information

3. If the price of a British pound increases from $1.50 per pound to $1.80 per pound, we say that:

3. If the price of a British pound increases from $1.50 per pound to $1.80 per pound, we say that: STUDY GUIDE FINAL ECO41 FALL 2013 UDAYAN ROY Ch 13 National Income Accounting See the questions in Homework 7 and Homework 8. CHAPTER 14 Exchange Rates and Interest Parity 1. How many dollars would it

More information

Chapter 9 Chapter 10

Chapter 9 Chapter 10 Assignment 4 Last Name First Name Chapter 9 Chapter 10 1 a b c d 1 a b c d 2 a b c d 2 a b c d 3 a b c d 3 a b c d 4 a b c d 4 a b c d 5 a b c d 5 a b c d 6 a b c d 6 a b c d 7 a b c d 7 a b c d 8 a b

More information

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Spring Semester

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Spring Semester Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2015-16 Spring Semester Duration: 90 minutes ECON102 - Introduction to Economics II Final Exam Type A 2 June 2016

More information

Boğaziçi University, Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS FINAL , Saturday 10:00 TYPE A

Boğaziçi University, Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS FINAL , Saturday 10:00 TYPE A NAME: NO: SECTION: Boğaziçi University, Department of Economics Spring 2016 EC 102 PRINCIPLES of MACROECONOMICS FINAL 21.05.2016, Saturday 10:00 TYPE A Turn off your cell phone and put it away. During

More information

The Influence of Monetary and Fiscal Policy on Aggregate Demand. Lecture

The Influence of Monetary and Fiscal Policy on Aggregate Demand. Lecture The Influence of Monetary and Fiscal Policy on Aggregate Demand Lecture 10 28.4.2015 Previous Lecture Short Run Economic Fluctuations Short Run vs. Long Run The classical dichotomy and monetary neutrality

More information

Macroeconomics. Introduction to Economic Fluctuations. Zoltán Bartha, PhD Associate Professor. Andrea S. Gubik, PhD Associate Professor

Macroeconomics. Introduction to Economic Fluctuations. Zoltán Bartha, PhD Associate Professor. Andrea S. Gubik, PhD Associate Professor Institute of Economic Theories - University of Miskolc Macroeconomics Introduction to Economic Fluctuations Zoltán Bartha, PhD Associate Professor Andrea S. Gubik, PhD Associate Professor Business cycle:

More information

Module 19 Equilibrium in the Aggregate Demand Aggregate Supply Model

Module 19 Equilibrium in the Aggregate Demand Aggregate Supply Model What you will learn in this Module: The difference between short-run and long-run macroeconomic equilibrium The causes and effects of demand shocks and supply shocks How to determine if an economy is experiencing

More information

III. 9. IS LM: the basic framework to understand macro policy continued Text, ch 11

III. 9. IS LM: the basic framework to understand macro policy continued Text, ch 11 Objectives: To apply IS-LM analysis to understand the causes of short-run fluctuations in real GDP and the short-run impact of monetary and fiscal policies on the economy. To use the IS-LM model to analyse

More information

Chapter 9 Introduction to Economic Fluctuations

Chapter 9 Introduction to Economic Fluctuations Chapter 9 Introduction to Economic Fluctuations facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an introduction to aggregate supply in the

More information

Lecture 12: Economic Fluctuations. Rob Godby University of Wyoming

Lecture 12: Economic Fluctuations. Rob Godby University of Wyoming Lecture 12: Economic Fluctuations Rob Godby University of Wyoming Short-Run Economic Fluctuations Economic activity fluctuates from year to year. In some years, the production of goods and services rises.

More information

CIE Economics A-level

CIE Economics A-level CIE Economics A-level Topic 4: The Macroeconomy f) Money supply (theory) Notes Quantity theory of money (MV = PT) The Quantity Theory of Money states that there is inflation if the money supply increases

More information

Introduction to Economic Fluctuations. Instructor: Dmytro Hryshko

Introduction to Economic Fluctuations. Instructor: Dmytro Hryshko Introduction to Economic Fluctuations Instructor: Dmytro Hryshko 1 / 32 Outline facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an introduction

More information

MACROECONOMICS. Aggregate Demand I: Building the IS-LM Model. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich

MACROECONOMICS. Aggregate Demand I: Building the IS-LM Model. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich 11 : Building the IS-LM Model MACROECONOMICS N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2013 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN: the IS curve and its relation

More information

Macroeconomics. Aggregate Demand and Aggregate Supply. Introduction. In this chapter, look for the answers to these questions: N.

Macroeconomics. Aggregate Demand and Aggregate Supply. Introduction. In this chapter, look for the answers to these questions: N. C H A T E R 15 Aggregate Demand and Aggregate Supply B R I E F R I N C I L E S O F Macroeconomics N. Gregory Mankiw remium oweroint Slides by Ron Cronovich 2010 South-Western, a part of Cengage Learning,

More information

ECON 3010 Intermediate Macroeconomics Final Exam

ECON 3010 Intermediate Macroeconomics Final Exam ECON 3010 Intermediate Macroeconomics Final Exam Multiple Choice Questions. (60 points; 3 pts each) 1. The returns to scale in the production function YY = KK 0.5 LL 0.5 are: A) decreasing. B) constant.

More information

Objectives AGGREGATE DEMAND AND AGGREGATE SUPPLY

Objectives AGGREGATE DEMAND AND AGGREGATE SUPPLY AGGREGATE DEMAND 7 AND CHAPTER AGGREGATE SUPPLY Objectives After studying this chapter, you will able to Explain what determines aggregate supply Explain what determines aggregate demand Explain macroeconomic

More information

Disposable income (in billions)

Disposable income (in billions) Section 4 version 2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. An increase in the MPC: A. increases the multiplier. B. shifts the autonomous investment

More information

2.2 Aggregate demand and aggregate supply

2.2 Aggregate demand and aggregate supply The business cycle Short-term fluctuations and long-term trend Explain, using a business cycle diagram, that economies typically tend to go through a cyclical pattern characterized by the phases of the

More information

Chapter 10 Aggregate Demand I CHAPTER 10 0

Chapter 10 Aggregate Demand I CHAPTER 10 0 Chapter 10 Aggregate Demand I CHAPTER 10 0 1 CHAPTER 10 1 2 Learning Objectives Chapter 9 introduced the model of aggregate demand and aggregate supply. Long run (Classical Theory) prices flexible output

More information

Final Exam - Economics 101 (Fall 2009) You will have 120 minutes to complete this exam. There are 105 points and 7 pages

Final Exam - Economics 101 (Fall 2009) You will have 120 minutes to complete this exam. There are 105 points and 7 pages Name Student ID Section day and time Final Exam - Economics 101 (Fall 2009) You will have 120 minutes to complete this exam. There are 105 points and 7 pages Multiple Choice: (20 points total, 2 points

More information

Chapter 11 Aggregate Demand I: Building the IS -LM Model

Chapter 11 Aggregate Demand I: Building the IS -LM Model Chapter 11 Aggregate Demand I: Building the IS -LM Model Modified by Yun Wang Eco 3203 Intermediate Macroeconomics Florida International University Summer 2017 2016 Worth Publishers, all rights reserved

More information

Aggregate Demand and Aggregate Supply

Aggregate Demand and Aggregate Supply C H A P T E R 33 Aggregate Demand and Aggregate Supply Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning, all

More information

The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F. N. Gregory Mankiw. Introduction

The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F. N. Gregory Mankiw. Introduction C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F Economics N. Gregory Mankiw Introduction This chapter focuses on the short-run effects of fiscal

More information

1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the

1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the 1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the money supply constant. Figure 1 (B) shows what the model looks like if the Fed adjusts the money supply to hold

More information

Homework 4 of ETP Economics

Homework 4 of ETP Economics Homework 4 of ETP Economics Winter Term 2014 Due: May 28 1.When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an a.

More information

Dunbar s Big Review Sheet AP Macroeconomics Exam Content Area [Hubbard Textbook pages] (percentage coverage on AP Macroeconomics Exam) I.

Dunbar s Big Review Sheet AP Macroeconomics Exam Content Area [Hubbard Textbook pages] (percentage coverage on AP Macroeconomics Exam) I. Dunbar s Big Review Sheet AP Macroeconomics Exam Content Area [Hubbard Textbook pages] (percentage coverage on AP Macroeconomics Exam) I. Basic Economic Concepts (8-12%) Three Fundamental Questions [8]:

More information

Econ 102 Exam 2 Name ID Section Number

Econ 102 Exam 2 Name ID Section Number Econ 102 Exam 2 Name ID Section Number 1. In a closed economy government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $110 billion this year. Investment spending

More information

FETP/MPP8/Macroeconomics/Riedel. General Equilibrium in the Short Run II The IS-LM model

FETP/MPP8/Macroeconomics/Riedel. General Equilibrium in the Short Run II The IS-LM model FETP/MPP8/Macroeconomics/iedel General Equilibrium in the Short un II The -LM model The -LM Model Like the AA-DD model, the -LM model is a general equilibrium model, which derives the conditions for simultaneous

More information

Intermediate Macroeconomic Theory II, Fall 2006 Solutions to Problem Set 4 (35 points)

Intermediate Macroeconomic Theory II, Fall 2006 Solutions to Problem Set 4 (35 points) Intermediate Macroeconomic Theory II, Fall 2006 Solutions to Problem Set 4 (35 points) 1. (16 points) For all of the questions below, draw the relevant curves. (a) (2 points) Suppose that the government

More information

ECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder

ECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder ECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose the economy is currently

More information

This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON

This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON ~~EC2065 ZB d0 This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZB BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences,

More information

9. ISLM model. Introduction to Economic Fluctuations CHAPTER 9. slide 0

9. ISLM model. Introduction to Economic Fluctuations CHAPTER 9. slide 0 9. ISLM model slide 0 In this lecture, you will learn an introduction to business cycle and aggregate demand the IS curve, and its relation to the Keynesian cross the loanable funds model the LM curve,

More information

Mankiw Chapter 10. Introduction to Economic Fluctuations. Introduction to Economic Fluctuations CHAPTER 10

Mankiw Chapter 10. Introduction to Economic Fluctuations. Introduction to Economic Fluctuations CHAPTER 10 Mankiw Chapter 10 0 IN THIS CHAPTER, WE WILL COVER: facts about the business cycle how the short run differs from the long run an introduction to aggregate demand an introduction to aggregate supply in

More information

Suggested answers to Problem Set 5

Suggested answers to Problem Set 5 DEPARTMENT OF ECONOMICS SPRING 2006 UNIVERSITY OF CALIFORNIA, BERKELEY ECONOMICS 182 Suggested answers to Problem Set 5 Question 1 The United States begins at a point like 0 after 1985, where it is in

More information

Introduction. Aggregate Demand and Aggregate Supply. In this chapter, look for the answers to these questions:

Introduction. Aggregate Demand and Aggregate Supply. In this chapter, look for the answers to these questions: 33 Aggregate Demand and Aggregate Supply R I N C I L E S O F ECONOMICS FOURTH EDITION N. GREGOR MANKIW remium oweroint Slides by Ron Cronovich 2008 update 2008 South-Western, a part of Cengage Learning,

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Econ 330 Spring 2015: FINAL EXAM Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose a report was released today that

More information

FINAL EXAM (Two Hours) DECEMBER 21, 2016 SECTION #

FINAL EXAM (Two Hours) DECEMBER 21, 2016 SECTION # COURSE 180.101 MACROECONOMICS FINAL EXAM (Two Hours) DECEMBER 21, 2016 NAME TA Part I (20 points) SECTION # 1 POINT EACH QUESTION 1. China s GDP appears to be roughly 55% of U.S. GDP, if we use what currency

More information

6. The Aggregate Demand and Supply Model

6. The Aggregate Demand and Supply Model 6. The Aggregate Demand and Supply Model 1 Aggregate Demand and Supply Curves The Aggregate Demand Curve It shows the relationship between the inflation rate and the level of aggregate output when the

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. ECON 3312 Mcroeconomics Exam 2 Fall 2016 Prof. Crowder Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If output is currently 1000 below full

More information

THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND

THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND 20 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory

More information

ECONOMIC GROWTH 1. THE ACCUMULATION OF CAPITAL

ECONOMIC GROWTH 1. THE ACCUMULATION OF CAPITAL ECON 3560/5040 ECONOMIC GROWTH - Understand what causes differences in income over time and across countries - Sources of economy s output: factors of production (K, L) and production technology differences

More information

Economics of the European Union

Economics of the European Union Economics of the European Union EC 2057 Lecturer: Dr Jan Fidrmuc Contact Information Office: SS 255 Email: Jan.Fidrmuc@brunel.ac.uk Phone: 01895-266-528 (or ext. 66528) Office hours: Wed/Thu 10.30-11.30,

More information

Homework Assignment #2, part 1 ECO 3203, Fall According to classical macroeconomic theory, money supply shocks are neutral.

Homework Assignment #2, part 1 ECO 3203, Fall According to classical macroeconomic theory, money supply shocks are neutral. Homework Assignment #2, part 1 ECO 3203, Fall 2017 Due: Friday, October 27 th at the beginning of class. 1. According to classical macroeconomic theory, money supply shocks are neutral. a. Explain what

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. These 101 questions have been randomly selected (for the chapters eligible for examination) by the computer from the test bank that accompanies your text. Your prof. has not seen these questions, so as

More information

Leandro Conte UniSi, Department of Economics and Statistics. Money, Macroeconomic Theory and Historical evidence. SSF_ aa

Leandro Conte UniSi, Department of Economics and Statistics. Money, Macroeconomic Theory and Historical evidence. SSF_ aa Leandro Conte UniSi, Department of Economics and Statistics Money, Macroeconomic Theory and Historical evidence SSF_ aa.2017-18 Learning Objectives ASSESS AND INTERPRET THE EMPIRICAL EVIDENCE ON THE VALIDITY

More information

VII. Short-Run Economic Fluctuations

VII. Short-Run Economic Fluctuations Macroeconomic Theory Lecture Notes VII. Short-Run Economic Fluctuations University of Miami December 1, 2017 1 Outline Business Cycle Facts IS-LM Model AD-AS Model 2 Outline Business Cycle Facts IS-LM

More information

Exam. Name. E) indeterminable from the information provided.

Exam. Name. E) indeterminable from the information provided. Exam Name 1) Macroeconomics is mainly concerned with the study of A) large economic units such as General Motors or Molson Breweries B) individual households and how they deal with problems like inflation

More information

Test 2 Economics 322 Chappell March 22, 2007

Test 2 Economics 322 Chappell March 22, 2007 Test 2 Economics 322 Chappell March 22, 2007 Name Last 4 Digits This test has two parts. There are 20 multiple choice questions at 3 points each (60 points total). There are three analytical questions,

More information

11 EXPENDITURE MULTIPLIERS* Chapt er. Key Concepts. Fixed Prices and Expenditure Plans1

11 EXPENDITURE MULTIPLIERS* Chapt er. Key Concepts. Fixed Prices and Expenditure Plans1 Chapt er EXPENDITURE MULTIPLIERS* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded. As a result: The price

More information

Principles of Macroeconomics December 17th, 2005 name: Final Exam (100 points)

Principles of Macroeconomics December 17th, 2005 name: Final Exam (100 points) EC132.02 Serge Kasyanenko Principles of Macroeconomics December 17th, 2005 name: Final Exam (100 points) This is a closed-book exam - you may not use your notes and textbooks. Calculators are not allowed.

More information

macro macroeconomics Aggregate Demand I N. Gregory Mankiw CHAPTER TEN PowerPoint Slides by Ron Cronovich fifth edition

macro macroeconomics Aggregate Demand I N. Gregory Mankiw CHAPTER TEN PowerPoint Slides by Ron Cronovich fifth edition macro CHAPTER TEN Aggregate Demand I macroeconomics fifth edition N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2002 Worth Publishers, all rights reserved In this chapter you will learn the IS curve,

More information

The answer lies in the role of the exchange rate, which is determined in the foreign exchange market.

The answer lies in the role of the exchange rate, which is determined in the foreign exchange market. In yesterday s lesson we saw that the market for loanable funds shows us how financial capital flows into or out of a nation s financial account. Goods and services also flow, but this flow is tracked

More information

The Influence of Monetary and Fiscal Policy on Aggregate Demand. Premium PowerPoint Slides by Ron Cronovich

The Influence of Monetary and Fiscal Policy on Aggregate Demand. Premium PowerPoint Slides by Ron Cronovich C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part

More information

PART XII: SHORT-RUN ECONOMIC FLUCTUATIONS AGGREGATE DEMAND AND AGGREGATE SUPPLY. Chapter 33

PART XII: SHORT-RUN ECONOMIC FLUCTUATIONS AGGREGATE DEMAND AND AGGREGATE SUPPLY. Chapter 33 1 PART XII: SHORT-RUN ECONOMIC FLUCTUATIONS AGGREGATE DEMAND AND AGGREGATE SUPPLY Chapter 33 What did we learn so far? Macroeconomics studies the economy as a whole It aims to explain economic events that

More information

ECON 3010 Intermediate Macroeconomics Final Exam

ECON 3010 Intermediate Macroeconomics Final Exam ECON 3010 Intermediate Macroeconomics Final Exam Multiple Choice Questions. (60 points; 3 pts each) #1. An economy s equals its. a. consumption; income b. consumption; expenditure on goods and services

More information

TOPIC 1: IS-LM MODEL...3 TOPIC 2: LABOUR MARKET...23 TOPIC 3: THE AD-AS MODEL...33 TOPIC 4: INFLATION AND UNEMPLOYMENT...41 TOPIC 5: MONETARY POLICY

TOPIC 1: IS-LM MODEL...3 TOPIC 2: LABOUR MARKET...23 TOPIC 3: THE AD-AS MODEL...33 TOPIC 4: INFLATION AND UNEMPLOYMENT...41 TOPIC 5: MONETARY POLICY TOPIC 1: IS-LM MODEL...3 TOPIC 2: LABOUR MARKET...23 TOPIC 3: THE AD-AS MODEL...33 TOPIC 4: INFLATION AND UNEMPLOYMENT...41 TOPIC 5: MONETARY POLICY AND THE RESERVE BANK OF AUSTRALIA...53 TOPIC 6: THE

More information

Macroeconomics Prelims Hilary Term 2006

Macroeconomics Prelims Hilary Term 2006 Hilary Term 2006 This course covers the macroeconomic theory that you will need for Prelims. The course is also intended to make you think carefully about the microeconomic foundations of macroeconomics,

More information

Principles of Macroeconomics December 15th, 2005 name: Final Exam (100 points)

Principles of Macroeconomics December 15th, 2005 name: Final Exam (100 points) EC132.01 Serge Kasyanenko Principles of Macroeconomics December 15th, 2005 name: Final Exam (100 points) This is a closed-book exam - you may not use your notes and textbooks. Calculators are not allowed.

More information

Lecture 4. Short run economic fluctuations.

Lecture 4. Short run economic fluctuations. MACROECONOMICS 2 Lecture 4. Short run economic fluctuations. The AD/AS model a short reminder. Joanna Siwińska - Gorzelak Time horizons in macroeconomics Time horizons in macroeconomics Long run: Prices

More information

Murrieta Valley Unified School District High School Course Outline June 2013

Murrieta Valley Unified School District High School Course Outline June 2013 Murrieta Valley Unified School District High School Course Outline June 2013 Department: Course Title: Social Science Advanced Placement Macroeconomics Grade Level: 12 Course Number: 1705 Prerequisite:

More information

Lecture 4. Short run economic fluctuations.

Lecture 4. Short run economic fluctuations. MACROECONOMICS 2 Lecture 4. Short run economic fluctuations. The AD/AS model a short reminder. Joanna Siwińska - Gorzelak Time horizons in macroeconomics Time horizons in macroeconomics Long run: Prices

More information

Chapter 9. Introduction to Economic Fluctuations

Chapter 9. Introduction to Economic Fluctuations Chapter 9 Introduction to Economic Fluctuations 0 1 Learning Objectives difference between short run & long run introduction to aggregate demand aggregate supply in the short run & long run see how model

More information

Review. Question 1. Answer 1. Question 2. Answer 2. Question 3. Exam Review (Questions Beyond Test 1) True or False? True or False?

Review. Question 1. Answer 1. Question 2. Answer 2. Question 3. Exam Review (Questions Beyond Test 1) True or False? True or False? Question 1 Review Exam Review (Questions Beyond Test 1) An increase in income causes the IS curve to shift to the right. Answer 1 When income changes we move along the IS curve. Income itself is not an

More information

Lesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand

Lesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand Lesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand Henan University of Technology Sino-British College Transfer Abroad Undergraduate Programme 0 In this lesson, look for the answers

More information

Archimedean Upper Conservatory Economics, October 2016

Archimedean Upper Conservatory Economics, October 2016 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The marginal propensity to consume is equal to: A. the proportion of consumer spending as a function of

More information

Copenhagen Business School, Birthe Larsen, Exam in Macroeconomics, IB and IBP, Answers.

Copenhagen Business School, Birthe Larsen, Exam in Macroeconomics, IB and IBP, Answers. Copenhagen Business School, Birthe Larsen, Exam in Macroeconomics, IB and IBP, Answers. 4hoursclosedbookexam. 18 March 201 Question A Regard the following model for a closed economy 1. E = C + I + G, 2.

More information

Macroeconomics Mankiw 6th Edition

Macroeconomics Mankiw 6th Edition N. Gregory Mankiw Lecture notes, ECON 1150 Macroeconomics Mankiw 6th Edition 21 & 22 The Influence of Monetary and Fiscal Policy on Aggregate Demand Premium PowerPoint Slides by Ron Cronovich 2012 UPDATE

More information

Before discussing these, lets understand the concept of overnight interest rate.

Before discussing these, lets understand the concept of overnight interest rate. LECTURE 8 Hamza Ali Malik Econ 3215: Money and Banking Winter 2007 Chapter # 17: Tools of Monetary Policy There are at least three tools that the Bank of Canada can use to manipulate market interest rates

More information

Module 44. Exchange Rates and Macroeconomic Policy. What you will learn in this Module:

Module 44. Exchange Rates and Macroeconomic Policy. What you will learn in this Module: Module 44 Exchange Rates and Macroeconomic Policy What you will learn in this Module: The meaning and purpose of devaluation and revaluation of a currency under a fixed exchange rate regime Why open -economy

More information

10. Oferta y demanda agregada

10. Oferta y demanda agregada 10. Oferta y demanda agregada In this chapter, look for the answers to these questions: What are economic fluctuations? What are their characteristics? How does the model of aggregate demand and aggregate

More information

Aggregate Demand and Aggregate Supply

Aggregate Demand and Aggregate Supply Aggregate Demand and Aggregate Supply Chapter 19 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,

More information

FINAL EXAM STUDY GUIDE

FINAL EXAM STUDY GUIDE AP MACROECONOMICS-2017 Name: FINAL EXAM STUDY GUIDE Instructions: DUE: Day of FINAL EXAM => Friday 12/22 nd (1 st & 2 nd Periods) Thursday 12/21 st (4 th period) Section 1: PRODUCTION POSSIBLITIES FRONTIER

More information

EC202 Macroeconomics

EC202 Macroeconomics EC202 Macroeconomics Koç University, Summer 2014 by Arhan Ertan Study Questions - 3 1. Suppose a government is able to permanently reduce its budget deficit. Use the Solow growth model of Chapter 9 to

More information

download instant at

download instant at Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The aggregate supply curve 1) A) shows what each producer is willing and able to produce

More information

THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND

THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND 21 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory

More information

AQA Economics AS-level

AQA Economics AS-level AQA Economics AS-level Macroeconomics Topic 2: How the Macroeconomy Works 2.2 Aggregate demand and aggregate supply analysis Notes Aggregate demand is the total demand in the economy. It measures spending

More information

Objectives of Macroeconomics ECO403

Objectives of Macroeconomics ECO403 Objectives of Macroeconomics ECO403 http//vustudents.ning.com Actual budget The amount spent by the Federal government (to purchase goods and services and for transfer payments) less the amount of tax

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Final Exam Practice Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In an economy with no government or foreign sector, it is always true

More information

Macroeconomics Sixth Edition

Macroeconomics Sixth Edition N. Gregory Mankiw Principles of Macroeconomics Sixth Edition 21 The Influence of Monetary and Fiscal Policy on Aggregate Demand Premium PowerPoint Slides by Ron Cronovich 2012 UPDATE In this chapter, look

More information

Webnote 228. Aggregate demand (AD) U-tube. Item hl sl Must Know Must know very well! Here are the details of what you need to know.

Webnote 228. Aggregate demand (AD) U-tube. Item hl sl Must Know Must know very well! Here are the details of what you need to know. Webnote 228 2.2 Aggregate demand and Big Questions: 1. What factors cause changes (shifts + movements) in AS and AD? 2. What can the AS/AD model show in the macro economy?. Draw + explain the 2 schools

More information

Macroeconomics CHAPTER 10. Aggregate Supply and Aggregate Demand

Macroeconomics CHAPTER 10. Aggregate Supply and Aggregate Demand Macroeconomics CHAPTER 10 Aggregate Supply and Aggregate Demand What you will learn in this chapter: How the aggregate supply curve illustrates the relationship between the aggregate price level and the

More information

Lecture 5: Flexible prices - the monetary model of the exchange rate. Lecture 6: Fixed-prices - the Mundell- Fleming model

Lecture 5: Flexible prices - the monetary model of the exchange rate. Lecture 6: Fixed-prices - the Mundell- Fleming model Lectures 5-6 Lecture 5: Flexible prices - the monetary model of the exchange rate Lecture 6: Fixed-prices - the Mundell- Fleming model Chapters 5 and 6 in Copeland IS-LM revision Exchange rates and Money

More information

Exam #3 Section # 11, 12 or 13 December 2012

Exam #3 Section # 11, 12 or 13 December 2012 Economics 211 Macroeconomic Principles Exam #3 Section # 11, 12 or 13 December 2012 Name The value of this exam is 102 points plus 10 points for the Bonus Question. Instructor: Brian B. Young Please show

More information

ECON 1000 D. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work.

ECON 1000 D. Come to the PASS workshop with your mock exam complete. During the workshop you can work with other students to review your work. It is most beneficial to you to write this mock midterm UNDER EXAM CONDITIONS. This means: Complete the midterm in 2.5 hours. Work on your own. Keep your notes and textbook closed. Attempt every question.

More information

Introduction. Over the long run, real GDP grows about 3% per year on average.

Introduction. Over the long run, real GDP grows about 3% per year on average. Introduction Over the long run, real GDP grows about 3% per year on average. In the short run, GDP fluctuates around its trend. Recessions: periods of falling real incomes and rising unemployment Depressions:

More information

Question 5 : Franco Modigliani's answer to Simon Kuznets's puzzle regarding long-term constancy of the average propensity to consume is that : the ave

Question 5 : Franco Modigliani's answer to Simon Kuznets's puzzle regarding long-term constancy of the average propensity to consume is that : the ave DIVISION OF MANAGEMENT UNIVERSITY OF TORONTO AT SCARBOROUGH ECMCO6H3 L01 Topics in Macroeconomic Theory Winter 2002 April 30, 2002 FINAL EXAMINATION PART A: Answer the followinq 20 multiple choice questions.

More information

Macroeconomics 1 Lecture 11: ASAD model

Macroeconomics 1 Lecture 11: ASAD model Macroeconomics 1 Lecture 11: ASAD model Dr Gabriela Grotkowska Lecture objectives difference between short run & long run aggregate demand aggregate supply in the short run & long run see how model of

More information

14 MONETARY POLICY Part 2

14 MONETARY POLICY Part 2 14 MONETARY POLICY Part 2 The Conduct of Monetary Policy The Fed s Decision-Making Strategy The decision to change the target Federal Funds rate begins with an assessment of the current state of the economy.

More information

Midsummer Examinations 2012

Midsummer Examinations 2012 Midsummer Examinations 2012 No. of Pages: 6 No. of Questions: 34 Subject ECONOMICS Title of Paper MACROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates This paper is in two sections.

More information

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Influence of Monetary and Fiscal Policy on Aggregate Demand Chapter 32 The Influence of Monetary and Fiscal Policy on Aggregate Demand Test B 1. Of the effects that help explain why the U.S. aggregate demand curve slopes downward the a. wealth effect is most important

More information

Luiggi Donayre Summer 2009 Department of Economics Economics 104 Washington University Session 2. Exam 3

Luiggi Donayre Summer 2009 Department of Economics Economics 104 Washington University Session 2. Exam 3 Luiggi Donayre Summer 2009 Department of Economics Economics 104 Washington University Session 2 Exam 3 Name (Print Clearly!) This is a 115 point exam. There are 25 multiple choice questions worth 2 points

More information