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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




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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