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[answered] Business Cycles Aggregate Demand, Economic Activity and Emp


final exam question? please help me to answer. Thank you


Business Cycles

 

Aggregate Demand, Economic Activity and Employment

 

You will have to answer 2 questions out of 3. These are Sample Questions.

 

Think of the following as parts of questions.

 

There will be one question from Aggregate Demand, Economic Activity

 

and Employment; one question from Monetary Policy Setting and one

 

question combining Business Cycles (Q1 below) and Economic Growth Business Cycles

 

1. Based on your own and others? research, choose 3 leading indicators which

 

have been recognised with leading indicator properties. You must provide

 

theoretical, empirical and academic research evidence to support your

 

choice of indicators. What are these leading indicators suggesting now

 

about future economic activity in the US?

 

2. Distinguish between a Classical Business Cycle and a Growth Cycle.

 

3. According to Ng and Wright (2013) describe and explain the differences in

 

business cycles in the US pre 1985 and post 1985.

 

4. Distinguish between leading indicators and co-incident indicators of

 

economic activity, providing examples to support your definitions. Aggregate Demand, Economic Activity and Employment

 

1. The following is the expression for planned real expenditure: E=E(Y,r,G,T).

 

Derive and explain the determinants of the IS Curve. Explain the MP curve.

 

2. What is the multiplier? What affects the size of the multiplier?

 

3. You should be able to analyse the impact on the IS/MP curves of a change in

 

those factors that causes the IS/MP curves to shift, and that causes a

 

change in the slopes of the different curves.

 

4. See Question sheets ? Questions on Keynes theory of the Trade Cycle etc.

 

5. Why does Keynes say that fiscal policy is more important than monetary

 

policy in a slump?

 

6. Contrast the effect of a fiscal contraction on economic activity when: (i)

 

there is no crowding out ? old Keynesian Models (ii) when interest rates

 

respond (iii) when exchange rates change (iv) when exchange rates are

 

fixed (iv) when individuals are forward looking.

 

7. Explain each of the following equations. Derive and explain how

 

Consumption is determined using the following model

 

T U u (C t ) T T Ct A0 Yt t 0

 

t 0

 

And

 

Be able to use this model to analyse the effect of temporary/permanent

 

income changes, tax changes etc. Contrast your answer with the Keynesian

 

model, where consumers are myopic and short sighted.

 

8. Does this model in 7 hold empirically?

 

9. Explain the following equation for consumption and its derivation (You need

 

to be able to work through this model and understand the implications):

 

t 0 1 ct ct 1 1

 

(rt ) Where c is Consumption, r is the real interest rate, is the rate of time preference, is the

 

intertemporal elasticity of substitution.

 

Discuss in detail the conclusions of the model.

 

10. In developing a forecast of economic activity for a country of your choice,

 

you have been asked to estimate the factors that affect consumption.

 

Drawing from your theories of consumer behaviour, specify a model of

 

Consumption that you would estimate.

 

11. The objective of firms is to maximise profit. Derive and explain the relationship between real interest rates and the

 

capital stock in this model. What policies does this model suggest should be

 

used to promote Investment? Would you agree?

 

12. Explain each of the following models of Investment: the Accelerator

 

Model of Investment; Tobin?s Q model of Investment etc. Discuss the insights

 

provided by these models for our understanding of Investment today.

 

13. Using appropriate indicators, describe and explain the changes in

 

Consumption and Investment in the US since the beginning of 2016.

 

Consequently what can you conclude about the current state of the US

 

economy (income and employment)? Monetary Policy Setting and Inflation ? Short-Term Interest

 

Rate & Forward Guidance

 

1. How does a change in the policy rate affect economic activity? (This is the

 

Monetary Transmission Mechanism)

 

2. Distinguish between the Accelerationist Phillips Curve / Phillips Curve/

 

Expectations Augmented Phillips Curve and the New Keynesian Phillips

 

curve. Explain in detail how inflation is determined in each case.

 

3. Explain each of the following equations: Examine how an aggregate demand shock will affect economic activity in

 

this model. Comment on how your answer differs depending on whether

 

consumers are forward looking or not.

 

4. Explain each of the equations in the Canonical New Keynesian Model. Derive

 

and explain the conclusions of the model.

 

5. Examine the effect of different kinds of shocks, monetary, demand and

 

inflation shocks on economic activity and inflation in this model.

 

2 6. Outline extensions to this model, examining the implications of these

 

extensions.

 

7. Explain the following equation for Aggregate Supply: Examine whether there is a trade off between inflation and output in the

 

model. How has the model been changed to approximate the empirical

 

data?

 

8. Choosing the US/Euro-Area, are Inflation Forecasts currently anchored?

 

9. Using Economic Theory, what do you expect will happen to inflation in the

 

US, Euro-Area, UK? Support your answer with empirical and theoretical

 

evidence.

 

10. Discuss the challenges facing Central Bankers in setting Monetary Policy

 

over the next year.

 

11. Critically evaluate the current stance of Monetary Policy of any one of the

 

following Central Banks (i) ECB (ii) Federal Reserve (iii) Bank of England (iv)

 

People?s Bank of China.

 

12. Why are current short term interest rates so low? Is this a risk for the

 

world economy? Economic Growth

 

1. Explain Solow?s theory of Economic Growth

 

2. Explain how an increase in the Savings Rate will lead to Economic Growth

 

for some period of time.

 

3. Examine the consequences of a reduction in the Savings Rate on Capital Per

 

Worker and Output per Worker.

 

4. Evaluate whether increased Savings necessarily leads to economic growth.

 

Discuss providing both theoretical and empirical evidence to support your

 

answer.

 

5. Two reasons put forward for the low growth rates today are (i) Secular

 

Stagnation and (ii) Debt Supercycle (Debt Overhang from the Financial

 

Crisis). Outline the arguments for (i) Secular Stagnation and (ii) Debt

 

Supercycle as reasons for the stagnation of the world economy. Critically

 

evaluate each explanation. Which one do you think provides the best

 

explanation for the current low growth rates? Each suggests different policy

 

responses. Explain the policy that each explanation suggests. 3

 


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