Macroeconomics Answers

Suppose the economy is initially at its long run equilibrium. If the nominal money supply increases, 

which of the following is a correct statement regarding how the economy will respond in the short-

run?

A. The unemployment rate will decline below the natural rate.

B. The economy will experience cost push inflation since firms face a higher cost of borrowing.

C. The unemployment rate will rise above the natural rate and inflation will fall.

D. The natural rate of unemployment will fall and the economy will experience demand pull 

inflation.

According to the short-run Phillips curve, which of the following will occur when the SARB increases 

the money supply?

A. Both the unemployment rate and the inflation rate will increase.

B. Both the unemployment rate and the inflation rate will decrease.

C. The unemployment rate will decrease.

D. The inflation rate will decrease.

The trade-off between inflation and unemployment:

i. Is depicted by the long-run Phillips curve.

ii. Is consistent with the theory of money neutrality.

iii. Shows the possible effects of monetary policy in the short-run.

A. Only ii is correct.

B. Only iii is correct.

C. i and iii are correct

D. ii and iii are correct.

A Phillips curve shows that in the:

A. long run there is a trade-off between unemployment and inflation.

B. long run there is a trade-off between GDP and prices.

C. short run there is a trade-off between unemployment and inflation.

D. short run there is a trade-off between unemployment and wages.

Consider an Economy in its medium run equilibrium. Now suppose that the government passes a stricter law against the exercise of market power leading to decline in mark-up over wages. Explain using IS-LM and AD-AS curves how it will affect price level, interest rate and output in the short run and in the medium run.

An Italian exporter exported sports apparel worth €300,000 to the UK, where the exchange rate is 0.85£/€ and billed @ 255000£ to be received after 6 months. Due to exchange fluctuations, the Italian trader received ( though received 2,55000£) in Euros only 270,000€, thus incurring a loss *

Evaluate government policies used to deal with cyclical unemployment. [15 marks]

CHAD: “None of the COVID-19 vaccines in Canada has full Health Canada approval, and if you get injured from the vaccines, then the pharmaceutical companies are not liable. Furthermore, the vaccines do not prevent against the spread of coronavirus, though they may reduce symptoms. However, their efficacy wanes after a few months.” VIRGO: “Vaccines have helped humanity to conquer diseases like typhus and smallpox. Why are you saying that vaccines don’t help at all?” Which logical fallacy does Virgo commit? (A) Argument from authority. (B) Ad Hominem. (C) Post Hoc Ergo Procter Hoc. (D) Straw Man