Reference no: EM13371442

1- explain how a policy mix (like the one used in the 1990s) could help reduce C eliminatethe budget deficit without having an adverse effect on the output illustrate your answer using an IS-LM graph.

2- A 1-year Canadian bond with a face value of $5000 can be purchased at $4800.

a) Calculate the nominal interest rate in Canada.

b) If the Canadian dollar is expected to depreciate against the US dollar by 1 percent over next year, calculate the current nominal interest rate in the US.

c) How much could an American bond with the same Face Value as the Canadian bond sell in the market?

3-suppose the economy is currently in recession, and the exchange rate is fixed.  Using the IS_LM,

a) explain and illustrate the economy's adjustment ( in the medium run) with devaluation.

b) Explain and illustrate the economy's adjustment ( in the medium run) Without devaluation.

4- Suppose the firms' mark-up over the cost is 10% and the wage-setting equation is W= p(1-u), where u is the unemployment rate.

a) find out the real wage rate implies by the price setting equation.

b) Determine the natural rate of unemployment.

c) Plot the wage-setting and price-setting equations on a properly labeled graph and identify the natural rate of unemployment.

5- carefully explain the neutrality of money in the medium run. Use aggregate Demand - aggregate supply diagram to illustrate your answer.

6- given the Phillip Curve π_t =π_t ^e +0.24 - 4 u_t ,

a) plot the relationship when π_t^e = 0

b) find the natural rate of unemployment ( NAIRO)

c) what is likely to happen to the curve if wage indexation becomes more widespread? Illustrate your answer on the graph.

7- consider the aggregate production function Y=(K/N)^1/2

a) plot the function for values of K/N equal to 4, 9, 16, and 25.

b) Carefully explain what happens to output per worker as more capital per worker is used.

c) If the saving rate is 50% and the depreciation rate is 20%. Locate the equilibrium (steady-state) in a proper graph.

d) What happens if the saving rate declines to 40%? Illustrate this on your graph and explain.

8-suppose the rate of interest on one-year government bonds in Canada is 3 percent. The same interest rate is 2 percent in Germany.

a) If the interest parity relation holds, what is the expected depreciation of Canadian dollar against the Euro?

b) If the expected exchange rate ( a year from now) is $Can 1.36/1 Euro, what should the current exchange rate be?

9- Use the income-expenditure model ( Y and ZZ lines) along with the net export(NX)  graph to illustrate and explain the effect of an increase in exports(X) on the equilibrium domestic output (Y) and the trade balance. Assume that at the original output equilibrium trade is in balance.