Problem_Set_3_Intro_to_Macro(1) - Attempt the following...

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Lahore School of Economics Spring Semester, 2012 Introduction to Macroeconomics BBA/B. Sc. I Problem Set 3 – Due 24 th March, 2012 Attempt the following question from the textbook, Chapter 36: Role of Money in Macroeconomics Q no. 1 Money demand is a function of three variables. List and explain them. Elaborate graphically as well. Q no. 2 Assume government expenditures increase. How would the interest rates and national income be affected? Explain the short run effects both graphically and intuitively in detail. Would you agree if it’s claimed that government is running a budget deficit in the short run (whereby government expenditures are greater than tax revenues) after the policy is implemented?
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Unformatted text preview: Attempt the following question from the textbook, Chapter 38: Monetary Policy Q. no. 3 Which factors limit the independence of monetary policy under fixed exchange rate regime? Q. no. 4 Why would the State Bank implement a contractionary monetary policy? Using the money market and IS-LM framework, explain how monetary contraction can bring a leftward shift in the AD curve. Q. no. 5 Suppose the IS curve is very unstable in an economy. In that case, is monetary targeting better or is interest rate targeting preferred by the authorities? Explain graphically as well....
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