Difference between the keynesian and monetarist views

Reference no: EM13290831

Question 1:

(a) Explain the difference between the Keynesian and monetarist views on how an increase in the money supply causes inflation;

(b) Why is the shape of the aggregate supply curve important to the Keynesian-monetarist controversy?

Question 2:

(a) Consider this statement: 'Banks do not create money because this is the Central Rank's responsibility'. Do you agree or disagree? Explain.

(b) Suppose that you deposit your pay cheque drawn on another bank into your own bank account. Explain the impact on the overall money supply that this will have in the economy.

(e) Suppose that you remove S I000- from under your mattress and deposit it in the Westpack Bank. If the required reserve ratio is 10 per cent, what is the maximum amount the bank can lend from this deposit?

Question 3:

Using the aggregate demand - aggregate supply (AS-AD) diagram, show how the four unrelated economic events would affect economic activity and the price level. (Note: use a separate AS-AD diagram for each event);

(a) A significant destruction in an economy's capital stock because of an earthquake;

(b) An increase in personal income tax;

(d) An improvement in the marketing and selling skills of firm managers.

Question 4:

Which of the following would cause a growth in the money supply? Answer yes, no or possibly. And explain your reasoning for all choices.

(a) The selling of government securities to banks;

(b) A fall in interest rates;

(e) An increase in government expenditure, financed by borrowing from the banking sector; (d) The purchase of government securities by the central bank from the banking sector,

Question 5:

If the Central Bank (Reserve Bank of Australia) bought $100- million of government securities from private sector money markets, other things being equal, what would be the effect on the following? Please explain your answer (i.e. the reason why) •

(i) The economy's monetary base;

(ii) Short-term money market interest rates;

(iii) Longer maturity interest rates;

(iv) Aggregate demand, economic activity and inflation.

Question 6:

(a) Describe what is meant by the Marginal Propensity to Consume (mpc)and give its formula;

(b) Assume that GDP rises from $550bn to $650bn, and that this results in the consumption of goods and services rising from $340bn to $400bn. What is the mpc?

Note: this consumption in this calculation refers to the consumption. of domestic goods and services and hence excludes the^.consurnption of imported goods and services.

(d) If the Australian consumption of goods and services is $400bn, investment is $120bn, government expenditure is $150bn, exports of goods and services are $140bn, what is the level of aggregate expenditure (E)?

(e) Given your answer to (d), and assuming that GDP is currently $650bn, what will happen to GDP? .

(i) Rise / Fall / Stay the same;

(ii) Please explain your reasoning.

Question 7:

(a) Describe the relevant criteria That the Australian Bureau of Statistics use to determine whether a person is 'unemployed' and what problems do you see in using this measure?

(b) Why is frictional unemployment inevitable in an economy?

(d) How does structural unemployment differ from cyclical unemployment?

Question 8:

The following are the various elements of Australia's Balance of Payments account:

(i) Imports of goods (-)

(ii) Exports of goods (+)

(iii) Imports of services (-)

(iv) Exports of services (+)

(v) Other income outflows (-)

(vi) Other income inflows (+)

(vii) Capital transfers overseas from Australia (-)

(viii) Capital transfers to Australia from overseas (+)

(ix) Australian investment overseas (-)

(x) Investment in Australia from overseas (+)

(xi) Short-term financial outflows (-)

(xii) Short-terra financial inflows (+)

(xiii) Adding to reserves (-) (xiv) Drawing on reserves CO

• Into which of the above categories would you put the following?

(a) DVD recorders imported into Australia from Japan...................................................

(b) Insurance cover purchased in Australia by overseas residents..................................

(d) US car company sets up factory in Australia. ..........................................................

(e) Some of the nation's residents take a holiday in Bali..............................................

(f) Interest earned by Australian residents on overseas assets....................................

(g) Running down the stock of foreign exchange in the Reserve (Central) Bank of the nation

(h) Migrants to the nation transferring property to the nation......................................

(i) New deposits made in banks in the nation by overseas residents..........................

(j) The nation's palm oil is sold in the United Kingdom................................................

Question 9:

(a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation;

(b) Provide (describe) two (2) causes of each type of inflation;

Attachment:- MicroeconomicsAssignment.pdf

Reference no: EM13290831

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