Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

LUBS2610

Intermediate Macroeconomics

Semester 1 2021/2022

1.  Consider an IS-LM-PC model where output is equal to its natural rate and the real policy interest rate is positive and equal to its natural rate ( = n ). Due to a short-term global energy shock, there is a rise in the mark-up of firms (m) for two years. After two years (i.e. in the medium term) the mark-up falls again as the global energy shock passes.

Explain the central bank’s response and resulting economic outcomes in the following scenarios:

a)  If inflation expectations are anchored and the central bank immediately  responds to short-term shocks to keep inflation at its target rate versus if the central bank only responds to shocks that last at least three years.    Critically discuss the costs and benefits of both approaches.

(25 marks)

b)  If inflation expectations are adaptive and the central bank immediately responds to short-term shocks to stabilise inflation versus if the central bank only responds to shocks that last at least three years. Critically    discuss the costs and benefits of both approaches .

(25 marks)

For each part of your answer use a three-panel graph of the IS-LM-PC model and a graph of inflation over time to help explain your answer.

2.  Before the industrial revolution global per capita income levels were relatively stagnant. Over the last two-hundred years global per capita income levels       have increased rapidly. Using diagrams, explain how you could most easily     model this using the Solow growth model. Critically discuss whether modelling growth in this way can help forecast future growth of global per capita income levels.

(50 marks)