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