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(Solved) PLEASE ASSIST IN ALL UNANSWERED QUESTION THANK YOU


PLEASE ASSIST IN ALL UNANSWERED QUESTION THANK YOU


Macro1 (ECON1016), 1sem 2016

 


 

MACRO1 (ECON1016) Assignment 2

 

(Chapter 28, 26&28)

 

Submit online by: 9PM (Melbourne time) 27th March (Sunday)

 

(see ?Assessment Task? in Blackboard)

 

Tutorial Time and Day:

 

_________________________________________________________________________________________________________________

 

Student Name: Chen Pei Shun

 

_________________________________________________________________________________________________________________

 

ID:

 

_________________________________________________________________________________________________________________

 

This assignment covers the following topics:

 

Monetary System (Chapter 29)

 

Inflation: Its causes and costs (Chapter 30)

 

Aggregate demand and supply (Chapter 33)

 


 

READ THE FOLLOWING FIRST (Very Important)

 


 


 


 

This assignment contributes to 20% of the overall marks for the course.

 

Use this Word template only for your submission (ie, write down your answers in the

 

space provided in each question and submit) ? any other form of the file is NOT

 

accepted for e-submission (Failing to do so will automatically mean zero mark).

 


 


 


 

The recommended browser for submission is Chorme, Firefox or Explorer (some have

 

suggested that Safari might not work well).

 


 


 


 


 


 


 

The font size has to be at least 12.

 

Explain your answers, but be succinct.

 

Label and explain any diagrams, if any, that you use carefully (labelling each axis).

 

Show all of your working in order to get partial credits

 


 


 


 

Please ensure to attach the final version of the assignment.

 


 


 


 

After the due, any late submission will be marked as ?late? (a penalty of 10% (ie, 2 marks)

 

per a day will apply).

 


 


 


 

Make sure you have included student ID and name in the front page of the assignment

 


 


 


 

Working with other fellow students is strongly encouraged. However, you cannot just copy

 

your friend?s answers. If we find out this, you will be harshly punished for the academic

 

plagiarism. See RMIT?s policy on this:

 


 


 


 

http://www1.rmit.edu.au/browse;ID=sg4yfqzod48g1

 


 

Page 1 of 8

 


 

Macro1 (ECON1016), 1sem 2016

 


 

Page 2 of 8

 


 

Macro1 (ECON1016), 1sem 2016

 


 

Short Answer Questions:

 

The font size has to be at least 12.

 

Use the template only to provide answers for each question

 

1) (4 marks in total). You have decided to deposit $2,000 in a savings account in the Commonwealth

 

Bank, which does not have any excess reserves at the time when you make a deposit. (1 mark for

 

each)

 

a) How does your deposit change the Bank?s T-account? Show the T-account changes.

 

Commonwealth Bank of Australia

 

Assets

 


 

Reserves

 

2000

 


 

Liabilities

 


 

Deposits

 

2000

 


 

b) Now the Bank is told to maintain a reserve ratio of 0.2 (ie, 20 percent). The Bank decides to

 

make the maximum possible loan from the deposited funds. Following from the T-account in

 

Part a), what does the T-account look like now?

 


 

Assets

 


 

Reserves

 

400

 


 

Liabilities

 


 

Deposits

 

2000

 


 

Loans

 

1600

 

Total assets

 

2000

 


 

Total liabilities

 

2000

 


 

Page 3 of 8

 


 

Macro1 (ECON1016), 1sem 2016

 


 

c) Now, somebody who took out the loan in Part b) writes a cheque for the amount and then the

 

person receiving the cheque deposits it in WestPac Bank which also maintains a reserve ratio of

 

0.2. Show how this changes the T-account of WestPac Bank.

 

Westpac

 

Assets

 


 

Liabilities

 

Deposit

 


 

Reserves

 

320

 

Loans

 

1280

 


 

1600

 

Total liabilities

 

1600

 


 

Total assets

 

1600

 


 

d) If the process of money creation continues what is the total money supply resulting from your

 

initial $2,000 deposit?

 


 

Money multiplier = 1/0.2 = 5

 

Original deposit

 


 

= $2000

 


 

Total money supply

 


 

= 5 * 2000

 

= 10000

 


 

Page 4 of 8

 


 

Macro1 (ECON1016), 1sem 2016

 


 

2) (6 marks in total) Suppose that the price level in Singapore is expected to rise by 7% in 2017.

 

a) Why do some economists claim that we should not worry too much about inflation at this level?

 

(2 mark)

 


 

b) Other economists think that there are significant costs associated with inflation above 2-3%.

 

What are they? (2 mark)

 

Shoeleather cost and Menu cost.

 


 

c) What are the other costs be to consider if the inflation rate unexpectedly turns out to be higher

 

than 7%? (2 mark)

 

Arbitrary redistributions of wealth and Confusion and inconvenience.

 


 

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Macro1 (ECON1016), 1sem 2016

 


 

3) (8 marks in total) Consider an economy that is initially in long run equilibrium in the AD-AS

 

diagram that we covered in lectures. Start with the equilibrium point shown in the Figure below and use

 

it to demonstrate the following changes.

 

a) Suppose people in the economy start to become a bit worry about the future of the economy

 

and decided to save more. This translates into an increase in private saving (we assume that

 

this happens given any real interest rate and price level).

 

i.

 

How does this change the aggregate price level, real income and unemployment in the

 

short run? Explain and illustrate it in AD-AS diagram (2 mark)

 

ii.

 

On the same diagram illustrate the adjustment process to long run equilibrium (assuming

 

that real potential output remains unchanged, so no change in LRAS), and explain the final

 

impact on the price level. (2 mark)

 

Answer here (Tips: to create new lines (AD, SRAS, LRAS), simply copy the existing curves and move to the

 

new locations)

 


 

P

 


 

LRAS

 

SRAS0

 


 

P0

 


 

AD0

 

YLR

 


 

Page 6 of 8

 


 

Y

 


 

Macro1 (ECON1016), 1sem 2016

 


 

b) Suppose many firms mistakenly expect that there will be an increase in the relative price of

 

their own products as compared to others (including relative to the input costs and wages they

 

pay). Start with the equilibrium point shown in the Figure below and use it to demonstrate the

 

following changes.

 

i.

 

How does this change the aggregate price level, real income and unemployment in the

 

short run? Explain and illustrate in the AD-AS diagram (2 mark)

 

ii.

 

On the same diagram illustrate the adjustment process to long run equilibrium (assuming

 

that real potential output remains unchanged, so no change in LRAS), and explain the final

 

impact on the price level. (2 mark)

 

Answer here (Tips: to create new lines (AD, SRAS, LRAS), simply copy the existing curves and move to the

 

new locations)

 


 

P

 


 

LRAS

 

SRAS0

 


 

P0

 


 

AD0

 

YLR

 


 

Page 7 of 8

 


 

Y

 


 

Macro1 (ECON1016), 1sem 2016

 


 

4) (2 marks)

 

Based on what you have studied so far in this course, discuss and describe some aspects of

 

macroeconomics that can be useful in your future (?yes, it can be anything we discussed in this

 

course). Your discussion should be more than half a page to a page in length.

 


 

(Answers)

 


 

Page 8 of 8

 


 

 


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