EC111Class15Questions

EC111Class15Questions - D – r Investment: I = 25 – 2r...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
EC111 MACROECONOMICS Spring Term 2012 EC111 Class Exercise 15 1. Explain how the aggregate supply curve is derived when: (a) The nominal wage is fixed but the price level is flexible (the "Keynesian"case) (b) The nominal wage and the price level are perfectly flexible (the "Classical" case) How do shifts in the labour supply curve affect national income in the Keynesian and Classical economies? 2. Compare and contrast the effects of monetary and fiscal policies on national income and the interest rate when: (a) The nominal wage is fixed but the price level is flexible (the "Keynesian" case) (b) The nominal wage and the price level are perfectly flexible (the Classical case) 3. A macroeconomy is described by the following relationships: Consumption: C = 100 + .8Y
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: D – r Investment: I = 25 – 2r Government expenditure: G = 25 Disposable income: Y D = 0.5Y Money demand: M D /P= 100 + 6Y - 10r Money supply: M S = 40 100 for P > 1/30 Aggregate supply: Y = 3000P for P < 1/30 where Y is output, r is the interest rate, P is the price level. (a) Find and graph the Aggregate Demand Schedule for this economy. Is this a reasonable AD schedule for all possible prices? (b) Find the equilibrium for this economy. (c) Explain why you might describe this economy as a hybrid of a Classical and a Keynesian economy. (d) How might the aggregate supply be related to downward rigid wages? (e) What affect will expansionary fiscal and monetary policy have on the equilibrium output and inflation?...
View Full Document

This note was uploaded on 03/15/2012 for the course EC 111 taught by Professor Timhatton during the Spring '12 term at Uni. Essex.

Ask a homework question - tutors are online