Introductory Macroeconomics Assignment -

Questions

1. Suppose that the election of a popular candidate suddenly increases people's confidence in the future. Use the model of aggregate demand and aggregate supply to analyse the effects on the economy.

2. Suppose a wave of negative animal spirits overruns the economy, and people become pessimistic about the future. What happens to aggregate demand? If the Central Bank (or Fed) wants to stabilise aggregate demand, how shout it alter the money supply? If it does this, what happens to the interest rate? why might the Central Bank (or Fed) choose not to respond in this way?

Preparation - The slides and textbook readings will give you the basic framework of the ideas, theories and concepts you will need to complete the assignment. These notes may not be sufficient on their own. You will need to make use of additional reading and extra references in preparing your assignment. When you are taking notes for your assignment, try and 'translate' what the author is saying into your own words. Don't just copy out huge chunks from other people's work, otherwise they will probably end up in your assignment with very little of the wording changed.

Please answer both questions in different sections. Maximum word count should be no more that 1000 (approximately 4 pages).