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Unformatted text preview: Question 2 (2 marks) Using the AS-AD and IS-LM models developed in lectures, show the effects of a decrease in business investment confidence on output, the interest rate and the price level in the short run and in Blanchard’s medium run. Explain concisely how the adjustments take place. Assume that, before the changes, the economy was at the natural level of output. Question 3 (5 marks) Assume the wholesale prices of gas and electricity in New Zealand have both risen significantly, and that simultaneously the $NZ has de preciated significantly against the $US. Show , using the wage setting-price setting (i.e. WS-PS) and AD-AS diagrams, what happens to a. the natural rate of unemployment and the natural level of output, and b. the output and the price level in the short run and Blanchard’s medium run. Explain concisely how the adjustments take place. Reading: Blanchard (5th ed), Macroeconomics , chapter 7...
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This note was uploaded on 05/24/2011 for the course ECON 201 taught by Professor Paulclacott during the Fall '10 term at Victoria Wellington.
- Fall '10