Problem 1: The United states has been experiencing very low or even negative savings rates during the recent past. If this situation persists what does it mean for future generations?
Problem 2:
a. What determines whether a small open economy will have a trade surplus or a trade deficit? Distinguish between the effect of an increase in domestic saving and an increase in domestic investment on the trade balance and net capital outflows?
b. A negative trade balance indicates a net capital inflow (i.e. a negative net capital outflow), meaning that foreigners are buying more Australian assets than foreign assets bought by Australians. Describe the positive and negative effects of such a situation.
Problem 3:
Keynes consumption function appears to explain consumption behaviour in the short run but not consumption over the long run. Discuss.
| Date |
RealGDP(Billions of $) |
Unemployment(%) |
Inflation (%) |
Stock Prices Index |
| Jan |
10100 |
4.5 |
3.4 |
8800 |
| Feb |
10500 |
4.7 |
3.6 |
8400 |
| March |
9850 |
5.2 |
3.8 |
8000 |
| April |
9250 |
5.9 |
4 |
8600 |
| May |
9950 |
6.3 |
3.7 |
9300 |
| June |
11200 |
6.1 |
3.5 |
10100 |
Problem 4:
Consider the information given in the above table to answer the following questions. Assume the business cycle is entirely determined by changes in real GDP.
a) Identify the peak and through during this period.
b) Comment on the timing of the inflation rate and the stock index prices.
Problem 5: Refer to the data provided in problem 4 to answer the following questions.
a) plot real GDP and the stock price index on the same graph.
b) Plot the unemployment and inflation rates on the same graph.
c) Considering real GDP and the unemployment rate when would you say that the economy reached its trough? Explain why?
d) Considering these four indicators would you agree that it is possible to determine the business cycle by measuring changes in only one indicator?
Use the following information to answer problems 6 and 7:
In its February 18, 2010 edition, the wall street journal stated, "The dollar strengthened [. . .] and stocks [. . .]followed suit. The Dow industrials rose 40.43 points or 0.4%."
Problem 6)
a) comment only on the effect of the strengthened dollar on the IS curve.
b) Comment only on the effect of the increase in stock prices on the IS curve.
Referring to problem 6, what is the combined effect of these two events on the IS curve?
Problem 7) Explain why the AD curve has a negative slope. Relate your answer to the MP & IS curves