Assignment 2
Instructions: Please read the instructions below before attempting the assignment. Answer all questions. You must write your answers in this document and submit it as your
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http://www1.rmit.edu.au/browse;ID=sg4yfqzod48g1. Question 1 (2 + 2 + 2 = 6 marks)
The expectations augmented Phillips Curve has the form: e ¿ π =π ❑−ε (u−u ) . Suppose that e currently in the economy we have, ∆M
¿
=π =π =20 , u=u =5
M
❑ and some points along the expectations augmented Phillips Curve are illustrated in the table below.
Price Inflation ( π ) Exhibit A
% Unemployment Rate ( u ) 24
22
20
18
16
14 3
4
5
6
7
8 (a) Given the data in the table calculate the value of ε in the expectations augmented Phillips Curve. (b) The central bank would like to have, ∆M
=π =0 . Illustrate the gradualist and coldM turkey approaches to getting inflation down using the Phillips Curve assuming adaptive
expectations. In the case of the gradualist approach assume that ∆M
M is cut in two sets; first to 10% then to 0%. Identify the maximum unemployment rate that will be reached in
the case of the cold-turkey approach. (c) For the case of cold turkey, how would the adjustment process you outlined above differ if
economic agents had rational expectations? [Instructions: No diagrams should be used here.
Explain your answer in words. Maximum 100 words. You must enter the word count of your
answer.] (word count: ?) Question 2 (2 + 2 = 4 marks)
Suppose that the economy is at full employment and is hit by a negative supply shock such as a large
rise in oil prices.
(a) Illustrate this in an AD-AS diagram indicating the new level of prices and output. (b) Discuss and illustrate in an AD-AS diagram the short run and long run effects on the economy
of the central bank adopting the following policies. [Instructions: Maximum 50 words. You
must enter the word count of your answer.]
(i) doing nothing (word count: ?)
(ii) increasing the money supply (word count: ?)
Question 3 (2 + 2 = 4 marks)
Suppose that Trumponomics—the economic policy of new President of the United States, Donald
Trump—seems likely to involve cutting taxes and increasing government spending.
(a) Illustrate what you think the effects of such a policy are likely to be on price and potential
output in the long run using an AD-AS model in. [No discussion needed. Illustrate your
diagram clearly.] (b) Discuss how the nature of the changes you illustrate in (a) will depend upon exactly what
kind of tax cuts and spending increases are implemented. [Instructions: Maximum 150
words. You must enter the word count of your answer.] (word count: ?)
Question 4 (2 + 2 + 2 = 6 marks) In the following questions we are considering the neoclassical growth model.
(a) In a diagram illustrate an economy in a steady state. Identify the steady state level of output
per capita ( y ¿ ) and capital per capita ( k ¿ ). Also determine the growth rate in y , k , output ( Y ) and capital ( K ) at the steady state as a function of the model
parameters; the savings rate ( s ), the population growth rate ( n ) and the depreciation
rate ( d ). [Instructions: Maximum 100 words. You must enter the word count of your
answer.] (word count: ?)
(b) Suppose there is an increase in the population rate to
state equilibrium for output per capita ( y
(a). Also determine the growth rate in ¿ ' n >n . Illustrate the new steady ), capital per capita ( k y , k , Y and K ¿ ) relative to that in at the steady state as a function of the model parameters compared with that in (a). [Instructions: Maximum 100
words. You must enter the word count of your answer.] (word count: ?)
(c) Given your answer in (b) comment on the effectiveness of population growth as a driver of
increases in the steady state output per capita. Discuss other factors which could lead to
rises in steady state output per capita in the neoclassical growth model. [Instructions: No
diagram should be used here. Maximum 200 words. You must enter the word count of your
answer.] (word count: ?) Marking Rubric
Very Poor
(0 marks) Poor
(0.5 marks) Fair
(1 mark) Good
(1.5 marks) Very Good
(2 marks) Question 1(a) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 1(b) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 1(c) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 2(a) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 2(b) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 3(a) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 3(b) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 4(a) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 4(b) Fails to answer the
question in any
meaningful fashion. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner. Question 4(c) Fails to answer the
question in any
meaningful fashion. An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question.
An answer which
provides some
useful comments
but fails to address
the main thrust of
the question. Provides a
reasonable answer
to the question but
one which does not
address key issues. A sound answer to
the question but not
comprehensive or
insightful. Addresses the
question in a
comprehensive and
insightful manner.

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Status NEW Posted 03 May 2017 02:05 AM My Price 20.00

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