{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Tutorial 4

# Tutorial 4 - (3[21 Marks Question 3 Using a diagram of the...

This preview shows pages 1–2. Sign up to view the full content.

ECO2004S TUTORIAL 4 4 September 2009 CHAPTER: 7 For Hand-in: Questions 1 - 4 Total Marks: 93 Question 1 a. Derive the AS relation with algebra and explain all the variables in the equation. (5) b. Which are the endogenous variables in this relation? Which are the exogenous variables? (3) c. Explain why the AS curve is upward sloping in max 50 words? (4) d. Explain what causes a shift of the AS curve in max 10 words? (2) e. Explain what happens to the AS curve if individuals revise their expectations of the price level upward in max 90 words? (5) f. At what level of output does P = P e ? Explain in max 30 words. (3) [22 marks] Question 2 a. Derive the AD relation graphically. (5) b. State the algebraic form of the AD relation and explain all the variables. (3) c. Which are the endogenous variables in this relation? Which are the exogenous variables? (3) d. What do all the points on a given AD curve represent? 10 words max. (2) e. Explain why the AD curve is downward sloping in max 80 words. (5) f. Explain what causes the AD curve to shift in max 30 words.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: (3) [21 Marks] Question 3 Using a diagram of the AS-AD model, explain what happens in the short and medium run when the government pursues an expansionary fiscal policy. (20) [20 marks] Question 4 Using a diagram of the AS-AD and IS-LM models, explain what happens in both the short and medium run when the central bank pursues a contractionary monetary policy. [30 marks] Question 5 (Not required for hand-in) Assume that the closed economy of Banaland is currently in recession (output is below the natural level). Fiscal and monetary authorities have decided that an expansionary stance is needed to bring an end to the recession. However, they are also concerned that the interest rate does not increase since this will have adverse effects on investment. Discuss the short and medium run effects of the appropriate actions that the government and the central bank should take using both IS-LM and AS-AD models. [30 marks]...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern