Macroeconomics Answers

• Discuss about the importance of economic growth to a country, make reference to other studies/literature

The economy of Beta is in a recession.

(a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the initial short-run equilibrium as point X.

(b) Identify a combination of fiscal and monetary policy actions that can be used to restore full employment.

(c) Draw a correctly labeled graph of the money market and show the effect of the monetary policy action identified in part (b) on the equilibrium nominal interest rate.

(d) Based on the change in the equilibrium nominal interest rate identified in part (c), what will happen to aggregate demand in the short run? Explain.

(e) On your graph in part (a), label a point Z that shows the effect of the change in aggregate demand identified in part (d).

(f) Now assume the economy is in long-run equilibrium. If the central bank pursues a policy of increasing the money supply at an annual rate of 5 percent, what will happen to inflation and real output in the long run? Explain using the quantity theory of money.

b. Find the equilibrium level of income when

Co = 85, b = 0.75, Io = 30, t = 0.2, and T = 20

For this question, refer to the Bank of Ghana’s Monetary Policy Committee Press

Release of November 2015.

a) Explain the difference between monetary loosening and monetary tightening.

According to the statement, the MPC increased the monetary policy rate by 100 basis

points. Does this constitute a monetary loosening or monetary tightening? Explain.

b) When deciding whether to whether to tighten or loosen monetary policy, central

banks weigh the relative risks to price stability and growth. Mention two indicators that

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the MPC use to gauge the risk to inflation and two indicators the MPC use to gauge the

risk to growth.

c) Based on the information in the Press Release, in the thinking of the MPC did the

risk to growth outweighed the risk to inflation or vice versa? Refer to specific points

from the press release to back up your argument.

d) Using the money market diagram studied in class, explain the effect of this policy

measure on the real interest rate.

Explain how the rational expectation model is important in policy formations by any

government.

Explain three weaknesses that conflict with the predictions of the Solow Growth model. How do you think these can be eliminated

Does a change in producers’ technology lead to a movement along the supply curve or a shift in the supply curve? Does a change in price lead to a movement along the supply curve or a shift in the supply curve?