Economic Growth and Aggregate Supply

Economic Growth and Aggregate Supply Questions

Economic Growth and Aggregate Supply

1. Draw the Solow growth model for a “catch-up” economy.

2. Does the Solow growth model predict that the real GDP of an economy will eventually stop growing? Explain your answer.

3. Use either the Production Possibilities Curve or the Solow growth model to explain how an economy can grow over time.

4. Use the Solow Growth Model to explain the effects of an increase in the average propensity to save.

5 Show how a change in technology affects the steady state in the Solow model. Explain the adjustment process.

 6. Explain how the Aggregate Supply curve and the Production Possibilities Boundary are related.

Aggregate Demand

1. Investment spending includes the production or purchase of capital goods. List the variables that effect investment and indicate whether an increase in each variable causes investment to rise or fall.

2. What are the determinants of desired consumption spending? Income, Savings, Taxes

3. Explain why the Keynesian consumption function may not be utility maximizing.

4. Show how an unexpected increase in income affects consumption differently in each of the Modigliani and Friedman models.

5. What is the fundamental difference between the Keynesian, Life-Cycle and Permanent Income models of consumption?

6. What would happen to desired investment spending if the rate of depreciation increased? Explain.

7. • What are the major determinants of net exports?

8. State and explain the three reasons that the Aggregate Demand curve is downward sloping.

9. With the use of an AS-AD diagram, illustrate the effect of a US recession on the Canadian unemployment rate.

MONEY AND BANKING

1. State and explain the three use of money.

2. What are the 6 characteristics that a commodity must possess to function as money? (learning objective 10.1, from Textbook)

3. Use an example to clearly demonstrate that you understand the difference between brassage and seigniorage.

4. Use an example to illustrate Gresham’s Law.

5. Derive the transaction demand for money from the Quantity Theory of Money.

6. How does the Cambridge Approach differ from the Quantity Theory of Money? Which predicts the more elastic demand for money?

7. What is a liquidity trap?

8. What are the major functions of the Bank of Canada?

9. Show how a $100 increase in the monetary base affects the money supply if the target reserve ratio is 10%.

10. Explain the shape of the money supply curve in Canada, and why it is that way.

EXCHANGE RATES

1. rate. Show the relationship between the circular flow and the determination of the exchange

2. Indicate the variables that influence the exchange rate and state in which direction theychange the exchange rate.

3. Show that you understand the Interest Rate Parity Theorem.

4. Show that you understand the Purchasing Power Parity Theorem.(from textbook)

5. Explain what happens to a fixed exchange rate when a country runs out of foreignreserves.