Think of z as unemployment benets if the government

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6. Think of z as unemployment bene°ts. If the government reduces unemplyment bene°ts,what will happen to the aggregate supply curve? Explain. [5 marks]
7. Now assume thatPe=P, what is the equilibrium condition in the labour market? [5marks]
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Question 2 (Topics 3, 4, 5, 8 and 10): [35 marks]A. Show the short run e/ects of an increase in money supply on an open economy thatis on a ²exible exchange rate.[Hint: In the short run, the actual exchange rate can bedi/erent from the expected exchange rate. Also, the equilibrium ouput can be di/erent fromthe natural level of output] To answer this question, draw the following °ve diagrams:1. The goods market, [4 marks]
2. The money market, [4 marks]
3. TheIS-LMcurves, [4 marks]
4. The interest parity condition, and [4 marks]
5. TheAS-ADcurves. [4 marks]
Clearly label the initial and new equilibrium points in each diagram.Provide briefexplanations for the changes. [5 marks]4

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