Macro-economics



Macro-economics
GDP measure
Expenditure approach
Weakness of using GDP to measure wellbeing
CPI
Measure and its problem
Unemployment
Definition
friction, structural and cyclical unemployment
Inflation
In the long run, the increase in MS leads to inflation
Cost: Shoe leather cost, menu cost and tax distortion
AD-AS
Shape of AD and AS curves
Monetary policy
Open market operation
Contractionary and expansionary monetary policy
Draw graph to explain how monetary policy helps with inflation & recession
Fiscal policy
Definition
Instruments & graphing
Multiplier effect and crowding-out effect


For graphing question, please draw graph clearly and label properly, and give brief explanation
Graphing, labeling and explanations all carry marks.


Graphing to illustrate monetary policy (expansionary and contractionary)
China’s central bank tightened monetary policy by raising the interest rates it charges in open-market operations and on funds lent via its Standing Lending Facility.
What type of monetary policy did China’s central bank implement (expansionary or contractionary monetary policy)?
What will be the impact on the economy, all else being equal? Use graph to illustrate.

https://www.bloomberg.com/news/articles/2017-02-03/china-s-pboc-increases-interest-rates-in-open-market-operations





































MS2
Money
supply,
MS

A
D2

Y1
Y2




P2


Money demand
at price level
P

AD1
Quantity
of money
0
Interest
rate


r2


r1
(a) The money market
(b) The aggregate-demand curve
Quantity
of output
0
Price
level


3. ... which decreases the quantity of goods
and services demanded at a given price level.


2. ... the
equilibrium
interest rate
Increases...


1. When the RBA
Decrease the
money supply ...

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Graphing to illustrate fiscal policy
The above-mentioned moves underscore the leadership’s determination to push up funding costs of short-term tenors to rein in leverage and switch to the combination of less monetary stimulus and more fiscal support, after earlier easing fueled bubbles in bonds and the property market.
What types of fiscal support can the government give? Use graph to illustrate its impact.
https://www.bloomberg.com/news/articles/2017-02-03/china-s-pboc-increases-interest-rates-in-open-market-operations


















Quantity of
output
Price
level
0

Aggregate demand,
AD1

Increase government purchase or reduce tax rate

AD2
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Short answer question examples
Explain shoe leather cost.
It refers to the cost of converting between cash and other assets during high inflation.
Explain interest rate effect that is used to explain the downward sloping curve of AD
A lower price level reduces the interest rate, which encourages greater spending on investment goods.
This increase in investment spending means a larger quantity of goods and services demanded.
Explain sticky wage theory
Nominal wages are slow to adjust, or are ‘sticky’ in the short run.
Wages do not adjust immediately to a fall in the price level.
A lower price level makes employment and production less profitable.
This induces firms to reduce the quantity of goods and services supplied.
Is unemployment rate a perfect measure for unemployment? Justify your answer.
It is not perfect measure because at least two groups of people cannot be accurately classified.
Some people may claim to be unemployed in order to receive financial assistance, even though they aren’t truly looking for jobs. They are mistakenly classified as unemployed.
Discouraged workers, people who would like to work but have given up looking for jobs after unsuccessful search, don’t show up in unemployment statistics.