Some economists suspect that one of the reasons that economies in developing countries grow so slowly is that they do not have well-developed financial markets? Does this argument make sense? describe.
Assume the Bank of Canada announces that it will increase the money supply in future but doesn’t change the money supply today. By using the Fisher equation, describe what occurs to the nominal interest rate.
Can the Bank of Canada directly raise or reduce the money supply at will? Discuss critically.
The more risk adverse people are, the more likely they’re to diversify. Is this proclamation true, false or uncertain? Critically discuss your answer using the expected utility framework.
(Hint: Graphs will be extremely helpful in your investigation).
Discuss what is meant by the liquidity trap. Describe the problems which are posed by liquidity trap and optimal ways to escape from it.
Critically discuss why interest rates are pro-cyclical, by using the supply and demand for bonds framework.