Macroeconomics Answers

Using IS_LM model. Explain the analysis for the following: Use diagram where necessary.
i) When in an economy, if the interest rate does not affect investment in the goods market, then analyses the impact on the economy? Show by diagram
ii) Impact of increase in money supply in two identical economies having differences in MPCs.
i.e MPC1 > MPC2. Show what high MPC countries will experience.
iii). Rather than boosting, if there is drop in consumer confidence, although thereis increase in money supply.

There are various factors which affect the desired stock of capital. Discuss each and every one.

In January 2018, Australia had an unemployment
rate of 5.5%.
(h) Analyse how the Australian government might
reduce unemployment by using fiscal policy.

What will be transaction velocity of money when value of transaction is 15000 and money stack is 750?

Explain, with aid of diagrams, the effects of an expansionary fiscal policy under the classical theory and
the Keynesian model. Compare and contrast the effects under the two models. How would these
differences affect their conclusion on the role of government?

Suppose the economy is currently having an inflation expectation which equals to actual inflation.
Explain how the output level will be affected in the short-run and long-run if there is a demand shock that
drives the actual inflation to fall below expectation.

Explain the concept of “The Impossible Trinity”. Use the case of expansionary monetary policy to
illustrate your answer.

Assuming that central government decides to cut taxes by 100 billion to stimulate he economy. The relevant marginal propensity to consume is 0.6. What will be the impact of such fiscal policy on equilibrium GDP?

Answer each of the following questions. Use a graphical explanation if it is stated and explain each step of your answer. Answers without an explanation will lose points.
a) (4 pts) Suppose the government executes an expansionary fiscal policy. By using the
AS-AD graph explain under which conditions an expansionary fiscal policy works well and under which conditions it does not work well. Explain each step in your answer.
b) (3 pts) Explain the crowding-out-of-investment of a decrease in the tax rate.
c) (4 pts) When there is a binding situation for the interest rate, graph the Aggregate
demand (AD) curve and explain the shape of the AD curve.
d) (4 pts) Suppose central bank applies inflation targeting. What would be the central
bank’s interest rate response if there is an increase in output (Y)? Graph the Aggregate demand (AD) curve and explain the shape of the AD curve.