BUS 1104 - Global Economic Environment, Macroeconomics
Added on 2020-03-04
17 Pages2686 Words46 Views
Running head: MACROECONOMICSMacroeconomicsName of the StudentName of the UniversityAuthor Note
1MACROECOMICSTable of ContentsMCQ:...............................................................................................................................................2Investment Spending:......................................................................................................................3Question 3:.......................................................................................................................................6Burst in Inflation:.............................................................................................................................8Shocks to trade:..............................................................................................................................12References......................................................................................................................................15
2MACROECOMICSMCQ: Answer a: False [Reason: At a stable steady state in the Solow Growth Model, the growth of output or GDPdepends on the Total Factor Productivity Growth only. In this case, the TFP is zero. Therefore,the statement is False (Solow 2016).] Answer b: True [Reason: The relative purchasing power parity shows the relationships between two countries’inflation rates and the changes in their exchange rates over a particular period. If the relative PPPholds, if Britain has a higher inflation rate than that of the USA, then, the value of pounddepreciates against US dollars in terms of exchange rates (McKinnon and Ohno 2016).] Answer c: False [Reason: In case of a large and open economy, if the national investment increases in the homecountry, this leads to an increase the national interest rate, thereby, making the financial accountbalance positive for the home country. This in its turn makes the financial account balance for
3MACROECOMICSthe rest of the world either zero or negative. Therefore, the above statement is false. (Solow2016).]Answer d: True [Reason: According to the Fisher’s Equation: Nominal interest rate – Inflation = Real interest rate This implies, if people expect inflation to be less than the nominal interest rate, then the realinterest rate becomes positive (Alimi and Ofonyelu 2013) .] Investment Spending: Answer a: In this case, due to a fall in the tax rate on capital, Investment expenditures increasing,shifting the IS curve rightwards, which can be seen with the help of the following diagram: r FE LM1 r1 E1 E2 LM0 r0 E0
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