Macroeconomics Assignment

10 Jul Macroeconomics Assignment

acro1 (ECON1016), Sem 1, 2017

MACRO1 (ECON1016) Assignment 2

(Chapter 29, 30 & 33)

Submit online by: 7PM (Singapore time) 26th March (Sunday)

(see ‘Assessment Task’ in Blackboard)

Class Time and Day: ______________________________________________________________________________________

Student Name : ____________________________________________________________________________________________

Student ID: ________________________________________________________________________________________________

This assignment covers the following topics:

· The monetary system (Chapter 29)

· Inflation: Its causes and costs (Chapter 30)

· Aggregate demand and supply (Chapter 33)

READ THE FOLLOWING FIRST (Very Important)

· This assignment contributes to 20% of the overall marks for the course.

· Use this Word template only for your submission (ie, write down your answers in the space provided in each question and submit) – any other form of the file is NOT accepted for e-submission.

· The recommended browser for submission is Chorme, Firefox or Explorer (some have suggested that Safari might not work well).

· The font size has to be at least 12.

· Explain your answers, but be succinct.

· Label and explain any diagrams, if any, that you use carefully (labelling each axis).

· Show all of your working in order to get partial credits

· Please ensure to attach the final version of the assignment.

· After the due, any late submission will be marked as ‘late’ (a penalty of 10% (ie, 2 marks) per day will apply).

· Make sure you have included student ID and name in the front page of the assignment

· Working with other fellow students is strongly encouraged. However, you cannot just copy your friend’s answers. If we find out this, you will be harshly punished for the academic plagiarism. See RMIT’s policy on this: http://www1.rmit.edu.au/browse;ID=sg4yfqzod48g1

Short Answer Questions:

1) Consider the banking system. ‘Reserves are deposits that banks have received but have not loaned out’.

a) Banks must hold reserves. Why? (2 marks)

b) What are excess reserves? (1 mark)

c) How are excess reserves calculated? (1 mark)

d) What is the significance of excess reserves? (2 marks)

2) Consider the following statement in the short-run and the long-run: “The quantity theory of money (quantity equation) states than an increase in the money supply will lead to an equiproportionate increase in the price level”. Is this true or false? Explain. (4 marks)

3) A book, One World, Ready or Not – The Manic Logic of Global Capitalism, by William Greider, suggests that because of the rapid growth in productivity, output is increasing too fast – too fast, that is, for total demand to keep up. As a result, the economy could collapse as a result of overproduction.

a) Using the aggregate demand/aggregate supply diagram, illustrate the effect of increased productivity the short-run (holding the LRAS curve constant). (1 mark) (Be sure to add labels to indicate clearly the new equilibrium position)

Explain this adjustment process. (3 marks)

Illustrate here (Tips: to create new lines, simply copy the existing curves and move to the new locations)

Inflation rate

Quantity of output

LRAS

SRAS

AD

b) What is the impact on unemployment and inflation as a result of the new equilibrium depicted in part a)? (1 mark)

4. Imagine that your major trading partners impose high tariffs on all goods, services and resources entering their countries. (6 marks)

a) Illustrate the short-run impact on your own economy in the diagram below. (Be sure to add labels to indicate clearly the new short-run equilibrium position) (1 mark)

Illustrate here (Tips: to create new lines, simply copy the existing curves and move to the new locations)

Inflation rate

Quantity of output

LRAS

SRAS0

AD

b) What is the effect on the unemployment rate and the inflation rate in your nation in the short-run? (1 mark)

c) Economists argue that the economy will automatically self-correct, adjusting to a new long-run equilibrium over time. Clearly explain this adjustment process. (Be sure to explain the adjustment not just state that a curve shifts to restore long-run equilibrium – ensure that this in your own words) (3 marks)

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