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Under what circumstances would a rightward shift in the DAD curve lead to a permanent increase in real national income?
P.1
\r\nWhat would cause (a) a steep DAD curve; (b) a gently sloping DAD curve?
\r\nP.2
\r\nCompare the short-run and long-run effects of (i) a temporary adverse supply shock and (ii) a permanent supply reduction under each of (a) and (b).
What implications would a vertical short-run aggregate supply curve have for the effects of demand management policy?
Repeat the analysis undertaken in Figure 20.5 to consider the possible subsequent effects following a period of demand-pull deflation.
How would you attempt to assess whether a particular period of inflation was the result of cost-push or demand-pull pressures?
For what reasons might the long-run aggregate supply curve be (a) vertical; (b) upward sloping; (c) downward sloping?
Using the IS/LM model. under what circumstances will (a) a rise in investment and (b) a rise in money supply cause a large rise in national income?
What implication does the financial instability hypothesis have for the balance sheets of different sectors of the economy?
Using the IS/MP framework illustrate how the financial accelerator affects the extent of the rise in output following a positive demand-side shock.
Illustrate the impact on the IS curve of a general increase in interest-rate differentials following a credit market disruption like that experienced during the financial crisis of the late 2000s.
What impact does the financial accelerator have on the marginal propensity to consume domestically produced goods (mpcd)? How does this affect the IS curve?
Using the IS/MP model analyse how a lower bound on real interest rates might cause the economy to enter a deflationary spiral following a significant decrease in aggregate expenditure.
Using the IS/MP model analyse the possible effect of an increase in aggregate expenditure on output, the real interest rate and inflation.
What determines the shape and position of the MP curve?
What determines the shape and position of the IS curve?
Explain how financial crowding out can reduce the effectiveness of fiscal policy. What determines the magnitude of crowding out?
Explain how the holding of a range of assets in people’s portfolios may help to create a more direct link between changes in money supply and changes in aggregate demand.
Why does the exchange-rate transmission mechanism strengthen the interest-rate transmission mechanism?
What impact might the balance sheets of economic agents have on the influence of interest rates in affecting aggregate expenditure?
Why may an expansion of the money supply have a relatively small effect on national income? Why may any effect be hard to predict?
Controlling the money supply is sometimes advocated as an appropriate policy for controlling inflation. What implications do different assumptions about the relationship between M and V, and M and Y in the equation MV = PY have for the effectiveness of this policy?
Using one or more diagrams like Figures 19.2, 19.7, 19.8, 19.9 and 19.10, illustrate the following:
\r\n(a) The effect of a contraction in the money supply on national income. Refer to both the interest-rate and the exchange-rate transmission mechanisms and show how the shapes of the curves affect the outcome.
\r\n(b) The effect of a fall in investment on national income. Again show how the shapes of the curves affect the outcome. Specify your assumptions about the effects on the supply of money.
What effects will the following have on the equilibrium rate of interest? (You should consider which way the demand and/or supply curves of money shift.)
\r\n(a) Banks find that they have a higher liquidity ratio than they need.
\r\n(b) A rise in incomes.
\r\n(c) A growing belief that interest rates will rise from their current level.
Why might the relationship between the demand for money and the rate of interest be an unstable one?
If the government reduces the size of its public-sector net cash requirement, why might the money supply nevertheless increase more rapidly?
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