Answer to Question #282476 in Macroeconomics for ABEX

Question

1. In the traditional macroeconomic framework (under open or closed

economy), all macroeconomic variables can somehow be categorized as

part of the aggregate demand and aggregate supply with equilibrating

prices. List as many macroeconomic variables as possible and categorize them under sub-equilibrium and eventually under demand supply

framework. [Hint: Use the goods market, the money market, the labor

market equilibrium, and technology].

2. Transmission mechanism is the process by which changes in the monetary sector (money market) affects variables such as income in the real

sector (goods) market. Discuss.

Answer 1

1. There are 4 main macroeconomic variables that policymakers should try and manage: Balance of Payments, Inflation, Economic Growth and Unemployment.

2. This is the process through which monetary policy decisions affect the economy in general and the price level in particular. The transmission mechanism is characterised by long, variable and uncertain time lags.