Cornell University Macroeconomics Discussion

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ECON1016 Macroeconomics 1
Assignment 3
Student name:
Student number:
Lecture group:
Date and time of Lecture:
Teacher’s name:
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This is an official university assessment document.
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has not been authorized and is strictly prohibited. Detection of the availability and usage of online versions
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SECTION A
[This section contains five questions. This section is worth 20 marks For each question, explain
whether the statement is True, False or Uncertain. Start your answer by stating your answer
(“True”, “False” or “Uncertain”) and then provide a clear explanation to support your answer.
Present your explanation in 100 words maximum for each question. Be sure that your answer
is based on the concepts that we have learnt in this course. Answer all questions.]
Question 1
[Consider the effects of an increase in the global price of oil. For a country such as Australia,
which is a net exporter of oil, this development will imply that the CPI will increase roughly by
the same amount as the increase in the GDP deflator. (100 words) (4 marks)]
Your answer: [True/False/Uncertain and explain why]
Question 2
[Consider a scenario where you start new job as an economist in 2021. You successfully
negotiate an employment contract with your employer where your salary is indexed to rise
by 2% each year for the next two years, in line with inflation expectations at the time. In 2022,
actual inflation turned out to be higher than expected. This has had the effect of increasing
your purchasing power, meaning you are able to afford a higher standard of living than in
previous years. (100 words) (4 marks)]
Your answer: [True/False/Uncertain and explain why]
Question 3
[Redistribution policies aim to address the problem of economic inequality, but there is a risk
that these policies have the effect of suppressing economic efficiency and growth. (100
words) (4 marks)]
Your answer: [True/False/Uncertain and explain why]
Question 4
[Suppose that the government allocates more funding to universities for vaccine research.
Assuming there is no change in government tax revenue, and holding constant all other
factors in the economy, this policy is likely to have a positive effect on private investment in
the economy. “Private investment” refers to investment in physical capital by firms and
2
This is an official university assessment document.
Dissemination, circulation or sharing in any form (including uploading this document onto online platforms)
has not been authorized and is strictly prohibited. Detection of the availability and usage of online versions
of this document will be investigated as a matter of a breach of academic integrity.
residential investment by households. (Hint: think about the effect of this policy in Loanable
Funds Market). (100 words) (4 marks)]
Your answer: [True/False/Uncertain and explain why]
Question 5
[Consider a small open economy such as Australia. If Australia’s saving rate (gross domestic
saving as a % of GDP) is 15% , while its investment rate (domestic investment as a % of GDP)
is 25%, the economy will experience a trade surplus, meaning that receipts from exports
exceed expenditure on imports. (100 words) (4 marks)]
Your answer: [True/False/Uncertain and explain why]
SECTION B
[This section is worth 30 marks. Provide a clear answer for each question, including a diagram
or numerical calculation if requested. Be sure that your answers are based on the concepts
that we have learnt in this course. Answer all questions.]
[Hint for diagrams: If asked to include a diagram, you may create your own diagram using the
appropriate tools within your software package. Alternatively, you may paste a relevant
already-made diagram into your document as an image, citing the source of your diagram.]
Question 1
[The Singapore Government has taken various fiscal policy measures to manage the economic
impacts of the COVID-19 pandemic and support the economy through the pandemic-induced
recession.]
(a) [We learnt in class that fiscal policy measures mainly work through the Aggregate Demand
side of the economy in the short run. Discuss two macroeconomic effects that affect the size
and the direction of the shift in Aggregate Demand (50 words total). Provide a diagram to
illustrate these effects. (4 marks)]
Your answer:
(b) Suppose that a country’s household saving rate (savings as % of GDP) increased from 54%
in 2019 to 55% in 2020. Explain whether this would strengthen or weaken the size of the
economy’s fiscal policy multiplier or leave it unchanged, and the reasons why? (50 words
3
This is an official university assessment document.
Dissemination, circulation or sharing in any form (including uploading this document onto online platforms)
has not been authorized and is strictly prohibited. Detection of the availability and usage of online versions
of this document will be investigated as a matter of a breach of academic integrity.
total) Next, use these figures presented in (b) to calculate the value of multiplier for 2020.
Present your calculation formula and all of your working. Write a clear sentence explaining
how to interpret the final number. (4 marks)]
Your answer:
(c) [Suppose the Singapore Government implements a fiscal stimulus package, through an
increase in government spending worth $120 billion in 2020. Using the information presented
in part (b) of this question, calculate your forecast of the overall impact of the government’s
stimulus package once the full effects are circulated throughout the economy. Be sure to
show all your working and calculation formula. You can round off the value of the multiplier
to 2 decimal places, and present your final answer rounded off to 2 decimal places. Write a
clear sentence explaining how to interpret this final number. (2 marks) ]
Your answer:
Question 2
[We learnt in the classes that fiscal and monetary policy measures are mainly implemented
to manage short-term economic fluctuations, known as business cycles. We also learnt that
policymakers are interested in bolstering the country’s economic long-term productive
capacity, which contributes towards stronger prosperity and wellbeing.]
(a) [A nation’s prosperity is strongly dependent on the productive capacity of its economy.
What are the main factors (or “ingredients”) that determine a country’s productive capacity
economy? Are there any limitations to these sources of growth and productivity? (100 words)
(4 marks) ]
Your answer:
(b) We know from our lectures that technological progress (innovation, ideas, knowledge
breakthroughs) can help overcome barriers to economic growth as discussed in part (a) of
this question. Explain the impact of innovation and technological progress on the economy
by using any two of the economic models discussed in the classes. For each model, provide a
clearly labelled diagram illustrating the effects of an improvement in technological progress
and innovation, accompanying by a brief explanation of the diagram (50 words for each of
your choice of 2 models). [Hint: The macroeconomic models we have learnt in class include:
the AD-AS model, Production Function model, and Business Cycle model] (4 marks)]
Your answer:
4
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Dissemination, circulation or sharing in any form (including uploading this document onto online platforms)
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(c) Give two examples of public policy measures that can foster long term economic growth?
(50 words total) (2 marks)]
Your answer:
Question 3
[Consider how the COVID-19 pandemic has caused major disruption in global supply chain
affecting the supply of critical inputs to production. This has negatively affected the supply
side of Singaporean economy on a large scale.]
(a) [Illustrate the impact of this supply-side disruption on the Singaporean economy using the
AD-AS model. Assume that the economy was initially in good shape and operating at its
potential represented by Y* (100 words) (4 marks).]
Your answer:
(b) [Following this shock to the economy, as described in part (a) of this question, indicate
what would be the response of the Central Bank for each of the scenarios below. Highlight
any trade-offs that the Central Bank must consider for each of these potential responses (100
words total) (4 marks)
Scenario (i) – Assume the Central Bank is most concerned about inflation.
Scenario (ii) – Assume the Central Bank is most concerned about unemployment.
Explain the policy action that the Central Bank would take under each assumption, and note
the potential trade-off associated with each policy action (100 words maximum for each
scenario). Include an AD-AS diagram for each to illustrate the effects on the economy.]
Your answer:
(c) [Suppose, instead of the policy actions described in part (b), that there is no policy
intervention to address the fallout of the shock described in part (a). In the absence of any
policy intervention (monetary or fiscal), what type of free market adjustment would need to
occur for the economy to eventually return to Y*? Include an AD-AS diagram to illustrate (100
words) (4 marks). (Hint: Start with the scenario you illustrated in your answer to part (a).]
Your answer:
5
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(End of assessment)
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macroeconomics

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