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Module 7A Macroeconomics Worksheet problems

Module 7A Macroeconomics Worksheet problems

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Q. If hyperinflation is defined as inflation more than 50% per month, which country experienced hyperinflation in the past couple of decades? If you take data of this country, what policies did it follow which led to runaway inflation? Plot the data of inflation with real GDP and check the correlation between the two variables.

Q. If the nominal interest rate is 8% and inflation is 4%, calculate ex-ante real interest rates for this country. Hint use Fisher Equation

Q. In order to discourage the use of pollutants and contain carbon emissions, a policy initiative is enacted to tax carbon emissions. The policy is designed to encourage the use of renewable sources of energy. After much deliberation, the government finally succeeds to pass the bill. The bill is expected to severely hit the automobile industry which runs on diesel and petrol. The government has a long-term view and understands in the short term this policy will increase inflation. Now based on the information given, infer the effect of this policy initiative on aggregate demand and aggregate supply. What will happen to both the AD and AS in the short run? Explain with graphs.

Q. In the long run the output is determined by factors of production and the level of technology. For two comparable countries, the factors of production are similar but they differ in the level of technology. Keeping other factors constant, which countries output is higher and why?

Q. Which of the following indicators is leading or laggard?
a. Case Shiller 20 city composite home price index
b. Real GDP
c. Yield Spread
d. Business confidence indices

Q. Change in AD (aggregate demand) impacts the price levels in the long run or short run? What happens to the output when the AD curve shifts?

Q. What are menu costs? Discuss effect of inflation on menu costs?

Q. The central bank increases the money supply within an economy. What will happen within the economy?

Q. The demand for liquidity of real money balances is a function of ______________________________
and income. How is the demand related to income and the other variable?

Q. An increase in the price levels leads to an increase in the wages in the long run. This is an example of ________________________________________.

Q. Calvin Coolidge once said that “inflation is repudiation. What might he have meant by this? Do you agree? Why or why not? Does it matter whether inflation is expected or unexpected? Mankiw

Q. Find two countries one should have higher inflation rate compared to the other. The countries should have a similar level of development. Now find the velocity of money for both these countries? Is the velocity of money supply stable. Look at the Great Recession and the pandemic. Find one country to analyze the growth in money supply i.e. M2. Now compare two countries one which did not use QE as a tool for stabilization and one which used QE as a tool for stabilization. What do you observe?

Q. Price in the short run is sticky. If the money supply within the economy increases, draw the corresponding change in the AD ? What happens to the output?


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