Assignment -

Part A - Macroeconomics of open economics

Question: US Federal Reserve has increased interest rate once this year and is planning to increase two more times by the end of this year. Please discuss how it will affect Australia in the short and long run, and what RBA could do to keep inflation at its target rate.

Question needs to be like an essay and must have an intro/body/conclusion respectively.

Use Harvard style referencing and Word limit 1000 words.

Part B - National Economic Policy

Answer all three questions.

Questions

1. Suppose policymakers in a closed economy are concerned about inflation and want to increase the interest rate without changing the level of real GDP. What kind of policy mix would you recommend and how would your policy mix affect the components of GDP? Explain your answer and the adjustment processes that take place with the help of an IS-LM diagram.

2. In the short-run, the effect of an expansionary fiscal policy on the output level is very large when money demand is relatively insensitive to the changes in the interest rate. Do you agree or disagree with this statement? Why? Use appropriate diagram(s) to explain your answer.

3. Suppose an economy characterized by flexible prices and rigid nominal wage in the short-run. Using Aggregate Demand-Aggregate Supply framework, discuss the short-run and long-run effects of a decrease in money supply on the price level, real GDP, nominal wage rate and real wage rate.

Word limit is not binding. But please note that a long answer is not always a good answer.