ECON204 Week 12 Tutorial 10 - Semester 2 2012 ECON204 Macroeconomic Analysis Tutorial 10 Week 12 1 Using the IS-LM model with expectations of future

ECON204 Week 12 Tutorial 10 - Semester 2 2012 ECON204...

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Semester 2, 2012 ECON204 Macroeconomic Analysis Tutorial 10, Week 12 1.Using the IS-LM model with expectations of future variables, explain how the policymakers might respond to the following shocks: a.A collapse in consumer confidence. (Consider the cases when the central bank maintains (i) the interest rate, (ii) the money supply, (iii) the level of output) b.A fall in stock-market prices expected to correct itself within weeks. 2. Consider two bonds, one issued in euros in Germany, one issued in Australian dollars in Australia. Assume that both government securities are one-year bonds— paying the face value of the bond one year from now. The exchange rate, E, stands at 1A$ = 1.05 Euros. The face values and prices on the two bonds are given by Face Value Price Australia

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