Download Past Paper - Exam 2012

Exam Questions: Macroeconomics Honours, June 2012
Time: 3 hours, Answer all 8 questions
1.
Use the closed economy imperfect competition model to explain the
short-run and medium-run effects of a fiscal expansion where wages
and prices are assumed not to adjust in the short-run, but are assumed
to adjust in the medium-run.
[20]
2.
Use the closed economy IS-PC-MR model to explain the Central Bank’s
interest rate response to an unexpected fall in the rate of inflation.
Explain why the interest rate ceases to be an effective instrument if
deflation sets in?
[20]
3.
Using the planned leakages-planned injections approach to the open
economy to show how economic sanctions, which have the effect of
limiting a country’s exports, will ceteris paribus affect a country’s level
of output. If the economy enjoys balanced trade at the time that the
sanctions are introduced, show why the sanctions will result in a trade
deficit.
[20]
4.
Explain the argument by Calmfors and Driffill that “a low Equilibrium
Rate of Unemployment is consistent with either very decentralised
wage setting or very centralised wage setting”.
[20]
5.
Compare the short-run and medium-run effects on inflation and
output of a fiscal expansion with a fixed exchange rate versus a
flexible exchange rate? Comment on how the result differs from a
fiscal expansion in the closed economy model.
[20]
6.
Use the imperfect competition model to explain the reasons why the
problem of involuntary unemployment may occur. Why does
involuntary employment not occur in the perfect competition model?
[20]
7.
In the open economy imperfect competition model explain what will
happen to the price-setting (PS) curve if there is a depreciation of the
real exchange rate (θ = P*e/P). Use this relationship to derive the
Equilibrium Rate of Unemployment (ERU) curve representing the
supply side of the open economy model.
[20]
8.
Using the open economy AD-ERU-BT model discuss the effects of a
wage accord, which results in lower wage settlements.
[20]
Total = 160 marks