Department of Economics
Assignment 2: Due Date April 4, in class
You are required to answer all of the following questions. Be sure to show all of
your work. Part marks will be given. No
Tutorial 2 Discussion Questions
1. How is the Phillips curve related to aggregate supply?
2. Why might inflation be inertial?
3. Explain the differences between demand-pull inflation and cost-push
4. Under what circumstances might it be possibl
Tutorial 4 Answers
1. A stock market crash implies that the market value of installed capital falls. Tobins qthe ratio
of the market value of installed capital to its replacement costalso falls. This causes
investment and hence aggregate demand to fall. T
Tutorial 5 Problems
In the sub-folder titled Data (in the folder Additional Readings) you will find the following data,
along with the Fiscal Reference Table:
(1) CPI 1914_2014
(2) Government of Canada Marketable Bond Yields (interest rate), 5-10 year bon
Tutorial 7 Problems
1. What are the inside lag and the outside lag of stabilization policy? Which has the longer
inside lagmonetary or fiscal policy? Which has the longer outside lag? Why?
2. What is meant by the time inconsistency of economic policy? Why
Tutorial 8 Problems
1. Why might a banking crisis lead to a fall in the money supply?
2. To increase tax revenue, the U.S. government in 1932 imposed a 2-cent tax on checks
written on bank account deposits. (In todays dollars, this tax would amount to abo
1. Chapter 17 uses the Fisher model to discuss a change in the
interest rate for a consumer who saves some of his first-period
income. Suppose, instead, that the consumer is a borrower. How
does that alter the analysis? Discuss the incom
Tutorial 3 Problems
1. Consider the Keynesian Consumption Function: = 600 + 0.85.
a. Plot the consumption function on a diagram.
b. A rise in household wealth increases autonomous consumption to 650.
Show the effect on the diagram in (a) above.
Tutorial 3 Problems
1. Suppose a wave of bank failures with origin in housing markets leads to a stock market
crash (as was the case in US in 2007). Utilize the q theory and the Aggregate DemandAggregate Supply Model to analyze the effects on i