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经济代写|EC1B1 Macroeconomics

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Teacher responsible

Dr Jonathon Hazell, 32L.1.22


This course is available on the BSc in Econometrics and Mathematical Economics and BSc in Economics. This course is not available as an outside option nor to General Course students.


Students must have completed Economics (EC1P1) and Elementary Statistical Theory I (ST109).

Students must also either have completed Quantitative Methods (Mathematics) (MA107) or else be taking Mathematical Methods (MA100) alongside.


This course builds on the knowledge learned in EC1P1. You will learn why economic activity fluctuates over time (business cycles). We will discuss how government policy can affect short-term outcomes, such as unemployment, GDP and inflation. Other topics will include inequality and financial crises. We will apply the tools developed in the course to recent events, as well as historical events such as the Great Depression. An important aspect of the course is a coding exercise with data. This will help you acquire a deeper understanding of the material.

EC1B1, in combination with EC1A1, contributes towards certificate level exemptions from professional Chartered Institute of Management Accountants (CIMA) examinations.

This course, combined with EC1A1, contributes to the CB2 Exemption of the Institute and Faculty of Actuaries (IFoA).


问题 1.

What is the effect of increase in money supply, $m^s$, on GDP and the interest rate? Explain economic logic behind your answer.

Answer Note that IS curve does not depend on $m^s$ but LM curve depends on $m^s$. When money supply, $m^s$, increases, LM curve shifts down (see Figure 4). GDP increases but the interest rate decreases.
The economic logic for this result is as follows. From the LM curve (LM), the increase in the money supply lowers the market value of money, and therefore directly lowers the interest rate
m^s \uparrow \Rightarrow \rho \downarrow

However, the IS curve (IS) implies that a decrease in the interest rate directly increases the investment and GDP
m^s \uparrow \Rightarrow \rho \downarrow \Rightarrow i \uparrow \Rightarrow y \uparrow
The increase in GDP increases the demand for money. When the price level and money supply are constant, this actually increases the interest rate in the money market:
m^s \uparrow \Rightarrow \rho \downarrow \Rightarrow i \uparrow \Rightarrow y \uparrow \Rightarrow m^d \uparrow \Rightarrow \rho \uparrow
This indirectly decreases investment $i$ and GDP $y$ :
m^s \uparrow \Rightarrow \rho \downarrow \Rightarrow i \uparrow \Rightarrow y \uparrow \Rightarrow m^d \uparrow \Rightarrow \rho \uparrow \Rightarrow i \downarrow \Rightarrow y \downarrow
In this model, the direct effect dominates the indirect effect. Therefore, the increase in $m^s$ increases GDP but decreases the interest rate.

问题 2.

What is the limitation of IS-LM model?

Answer IS-LM model is static. In order to analyze long-term changes or effects by policies, we need a dynamic model. A static model cannot answer what is the temporal effect and what is the permanent effect for example.

问题 3.

A sticky nominal wage is considered as one of the source of an increasing aggregate supply curve. Explain its logic.

Answer Assume that the nominal wage is fixed in the short run: $W=\bar{W}$. Note that in the short run equilibrium,
w=\phi^{\prime}\left(l_e\right) T
where $\phi\left(l_e\right) \equiv F\left(1, l_e\right)$ and $\phi^{\prime}\left(l_e\right)>0, \phi^{\prime \prime}\left(l_e\right)<0$. Since labor demand curve is a decreasing in the real wage, if the nominal wage is rigid, labor demand must be increasing in $P$ :
P \uparrow \Rightarrow w=\frac{\bar{W}}{P} \downarrow \Rightarrow \phi^{\prime}\left(l_e\right) T \downarrow \Rightarrow l_e \uparrow .
Therefore, the sticky nominal wage is one of the source of an increasing aggregate supply curve.

问题 4.

An imperfect information can be considered as another reason for an increasing aggregate supply curve. Explain its logic.

Answer Assume that firms observe output price $P$, but workers cannot. Hence, workers must make information about price. Workers’ expected price is de noted as $P^e$. Then workers respond to $\frac{W}{P^e}$ :
h_e\left(\frac{W}{P^e}\right) & =h_e\left(\frac{W}{P} \frac{P}{P^e}\right) \
& =h_e\left(w \frac{P}{P^e}\right) .
Suppose that the overall price level $P$ goes up. However, workers do not know a change in aggregate price. Hence, $P^e$ stays the same. Hence, $\frac{P}{P^e}$ goes up and supply curve shifts to right.

数学代写|EC1B1 Macroeconomics


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