PART 1

1) (a) Analyse both the conventional and unconventional tools used by central banks.

(b) In a 2012 study the International Monetary Fund (IMF) reported that the fiscal multiplier for the periphery of the Eurozone was roughly equal to 0.5. One year later, IMF recognised its mistake reporting that the fiscal multiplier was approximately equal to 1.7.

Discuss the above statement explaining what the fiscal multiplier is.

2) (a) Discuss the different types of unemployment.

(b) According to The Office for National Statistics UK, unemployment is reduced with optimistic prospects for 2014.
Which type of unemployment is responsible for this reduction in the unemployment rate? Explain your answer.

(c) Imagine yourself as Chief Economists of World Bank at their London headquarters. One morning you are informed that the OPEC countries made and agreement according to which they are going to reduce the produced quantity and to increase the price.

What impact such agreement would you expect to have on the UK economy? In your analysis use a diagram.

PART 2

1) (a) Discuss the advantages and disadvantages of free international trade.

(b) Assume that two countries are competitors in the international trade markets. The two governments are thinking about whether it is profitable to adopt a free trade policy or not. The entries in the table below are showing (in millions of pounds) the gains of each policy. Find the Nash equilibrium. Analyse how you conclude to your answer.

(c) Modify your answer when the table of gains are changed as:

2) (a) Imagine that you are Minister of Finance in a country which is in the middle of a recession. Discuss the economic policies that you can implement to improve the economy and the consequences of such policies if you identify yourself as:

(i) Keynesian giving emphasis in the demand-side of the economy

(ii) Monetarist

(iii) An economist giving emphasis only to the supply side of the economy

(b) Explain why under fixed exchange rates the monetary policy is not effective.