Assignment _2 - real economic activity in the short run...

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University of Calgary Department of Economics Economics 303(02&03) Assignment #2 F.J. Atkins Fall 2009 Due: Tuesday November 10, 4:00, Economics Main Office Instructions: Answer all 4 questions 1. In late 2001, and once again in the current economic environment, monetary policy was aimed at lowering short term interest rates. (a) Explain the rationale, given the economic environment at the time, for pursuing this policy (b) Using the standard IS/LM model, explain how the scope of monetary policy to lower interest rates depends in the interest elasticity of money demand. (c) Explain how the scope of monetary policy to lower interest rates becomes limited as the interest elasticity of money demand approaches infinity. Is this just a theoretical curiosity, or are there any real world situations where this might arise? (d) Using the standard IS/LM model, explain how the scope of monetary policy to change
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Unformatted text preview: real economic activity in the short run depends on the private sector reaction to interest rate changes. 2. Go to the CANSIM data base and retrieve data for the Canadian 90 day Treasury bill rate and real GDP over the period 1975 to the present. You will need to convert the monthly data on the interest rate to quarterly frequency. Plot the interest rate with the rate of growth of GDP and comment on the short run relationship be between these two variables. 3. Go to the CANSIM data base and retrieve data on the money supply as measured by M1B and the Consume Price Index. Calculate the real money stock and plot the growth rate of this variable variable. Can you relate this to any economic events, and to your discussion from question 2? 4. Do question Application Question #1, Chapter 11, pages 231-232 of the text book. ********...
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