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How would your policy mix affect the components of GDP

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National Economic Policy Assignment -

Answer all the questions.

Questions -

1. Suppose policymakers in a closed economy are concerned about inflation and want to increase the interest rate without changing the level of real GDP. What kind of policy mix would you recommend and how would your policy mix affect the components of GDP? Explain your answer and the adjustment processes that take place with the help of an IS-LM diagram.

2. In the short-run, the effect of an expansionary fiscal policy on the output level is very large when money demand is relatively insensitive to the changes in the interest rate. Do you agree or disagree with this statement? Why? Use appropriate diagram(s) to explain your answer.

3. Suppose an economy characterized by flexible prices and rigid nominal wage in the short-run. Using Aggregate Demand-Aggregate Supply framework, discuss the short-run and long-run effects of a decrease in money supply on the price level, real GDP, nominal wage rate and real wage rate.

Reference no: EM131965956

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len1965956

5/2/2018 12:26:02 AM

This assignment is worth 20% of your overall assessment in this unit. Submission: Before commencing the assignment you must read the following notes and also at the end of this assignment. Answer all three of the following questions. You must not scan diagram from the textbook or any printed source, or copy from any electronic source. You must draw it. You can scan your own drawing, if required. Word limit is not binding. But please note that a long answer is not always a good answer; a good answer is concise and to the point. You must also read the following sections in the Unit Outline: Use Harvard style referencing.

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