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Tutorial 7_2011

# Tutorial 7_2011 - NOTE STUDENTS ARE REQUIRED TO SUBMIT...

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ECON1002 Introductory Macroeconomics, S1 2011 Tutorial Tasks 1 Reading Guide : Review Pages 287–291 and 300-329 of BOF as preparation for this tutorial. You should also look over your lectures notes for Week 7. Key Concepts: Policy Reaction Function; the Taylor Rule; Aggregate demand- aggregate supply diagram; sources of inflation; Disinflation. R EVIEW OF C ONCEPTUAL U NDERSTANDING These are to be attempted before the tutorial. They will not normally be covered in the tutorial, maybe, except for a quick review, time permitting. The answers are typically found in the textbook and lecture notes. 1. How has the way monetary policy is conducted in Australia evolved since 1990? Why? 2. What do you understand by the policy reaction function? 3. What do you understand by the concept of disinflation? How does a policy of disinflation affect the economy in the short run, and in the medium or long run? P ROBLEMS
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Unformatted text preview: [* NOTE : STUDENTS ARE REQUIRED TO SUBMIT WRITTEN ANSWERS TO PROBLEM(S) MARKED WITH ASTERISKS (*) IN THEIR DESIGNATED TUTORIAL CLASSES.] *1. Assume the following monetary policy reaction function. ( ) T r π − + = 5 . 02 . , where r is the interest rate, π is the inflation, and π T is the inflation target. (a) Assume that the inflation target is 3% or 0.03. Represent the reaction function graphically. (b) Now assume that the inflation target has been lowered to 1% or 0.01. Represent the reaction function under the new inflation target graphically. (c) How would you draw the reaction function if the inflation target is higher, say, at 5% or 0.05? (d) How would the changes in the inflation target affect the aggregate demand relation in the economy? Textbook pages 332-333 (end of Chapter 11): Problems 1, 3, 5, 8 and 9. T UTORIAL 7 (Week 8: beginning 18 th April)...
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