1-use IS-LM model to illustrate and explain the impact of an expansionary monetrary policy on the level of output and the rate of interest.make sure to explain how changes in the interest rate and output are brought about.
2-a 1-year Canadian bond with face value of $10,000 is purchased at $9,500.
a-calculate the interest in Canada.
b- if the Canadian dollar is expected to depreciate against the US dollar by 1 percent over the next year , calculate the current interest rate in US. (hint:use the interest parity relationship.)
c-How much could an American bond with the same face value as the Canadian bond sell in the market?
3-suppose the economy is currently in recession,and the exchange rate is fixed. Using the IS-LM model.
A)-explain and illustrate the economy's adjustement(in the medium run)with devaluation.
B)explain and illustrate the economy's adjustement(in the medium run)without devaluation.
4-Assume that the firms' mark-up over the cost is 20%. And the wage-setting equation is W=p(1-2u),where u is the unemployment rate.
a-find the real wage rate implied by the price-setting equation.
b-determine the natural rate of unemployment.
c-plot the wage-setting and price-setting relationships on properly labeled graph and identify the natural rate of unemployment on your graph.
5-carefully explain the''neutrality of money'' in the medium run.use an aggregate demand-aggregate supply diagram to illustrate your answer.
6-given the Phillip Curve πt =πt e +0.24 - 4 ut ,
a) plot the relationship when πte = 0
b) find the natural rate of unemployment ( NAIRO)
c) what is likely to happen to the curve if wage indexation becomes more widespread? Illustrate your answer on the graph.
7-consider the production function Y/N=f(k/N).
a-plot output per worker against capital per worker.
b-carefully explain what happens to output per worker as more capital per.
c-explain the steady-state condition and depicit it on your graph using appropriate graphs.
8-consider the aggregate production function Y=(K/N)
a-plot the function for values of K\N equal to 4,9,16and 25.
b-carefully explain what happens to output per worker as more capital per worker is used.
c- if the saving rate is 50% and the depreciation rate is 20%,locate the equilibrium (steady-state)in a proper graph.
d-what happens if the saving rate declines to 40%? Illustrate this on your graph and explain.
9-explain how policy mix (like the one used in 1990s)could help reduce______eliminate the budget deficit without having an adverse effect on the output illustrate your answer use IS-LM graph.
10-in an economy population (N)is growing at 2% and technology is improving at 3%. Calculate the rate growth of each of the following at the steady-state :
a-output.
b-output per worker.
c-output per effective worker.
d-capital.
e-capital per worker.
f-capital per effective worker
10-suppose the rate of interest on one-year government bonds in Canada is 3 percent. The same interest rate is 2 percent in Germany.
a) If the interest parity relation holds, what is the expected depreciation of Canadian dollar against the Euro?
b) If the expected exchange rate ( a year from now) is $Can 1.36/1 Euro, what should the current exchange rate be?
11-Use the income-expenditure model ( Y and ZZ lines) along with the net export(NX) graph to illustrate and explain the effect of an increase in exports(X) on the equilibrium domestic output (Y) and the trade balance. Assume that at the original output equilibrium trade is in balance.
- Return on bond: i =( face value - actual value) / actual value.
- Interest parity condition: it = it* + (Eet+1 - Et)/ Et where
it* is the foreign interest rate, and Et is the exchange rate.
- Price Setting Relationship: (W/P) = 1/(1+ mark-up)