178.300 Macroeconomics Policy and Applications Assignment 2, Semester 2, 2025

School of Accountancy, Economics and Finance

Order ready-to-submit essays. No Plagiarism Guarantee!

Note:  All our papers are written from scratch by human writers to ensure authenticity and originality.

Check your essay before you submit. See exactly what your professor sees.

See your AI and plagiarism results before your instructor does.Get the exact same report your professor uses. Trusted by 50,000+ students worldwide.

Get Plagiarism Report Humanize My Essay

DUE DATE: Friday 10 October 2025

Question 1 (20 marks) Open economy model

Assume you are in a small open economy with flexible exchange rates. The economy experiences a permanent positive demand shock.

(a) Draw the PC −MR, the IS −RX and the ERU −AD graphs to help you explain the path back to medium run equilibrium.

(b) Draw a graph of the real exchange rate over time and give a brief explanation of its path.

(c) How does the medium run equilibrium vary from that in the closed economy? 

Question 2 (20 marks) Supply-side shock

Oil prices fell dramatically in 1986. Use the WS−PS and ERU diagrams to explain the effect of this supply-side shock on a small open economy. At the initial real exchange rate, what has happened to real wages and the level of employment? 

Question 3 (20 marks) Demand-side shock  

Consult Chapter 11 and use the mathematics from Section 11.4.1 of the Appendix to derive the RX curve after a negative demand shock in bloc B. 

Question 4 (20 marks) The loss function

A central bank has the following loss function:

L = − (y_t − y_e) + β(π_t − π^T )²                                                         (13.1)

Consult Chapter 13 to answer the following questions:

(a) What can we interpret about the central bank’s preferences from this loss function (Equation 13.1)?

(b) Briefly explain how this loss function compares to the standard loss function and a loss function with y^T > y_e.

(c) Find the inflation bias for a central bank with this loss function (Equation

13.1). [Hint: see Section 4.6 in Chapter 4].

Question 5 (20 marks) Financial crisis

Assume an economy with lump-sum taxes is hit by a large negative demand shock (e.g. financial crisis). In response, the government introduces a large fiscal stimulus package to try and boost economic activity and help stabilize the economy. Assess whether the policy will be successful in each of the following cases:                                                                                    

(a) In the 3-equation model, when stimulus is financed through borrowing

(b) In the 3-equation model, when the stimulus is financed by raising taxes (i.e. a balanced budget expansion)

(c) In the RE − PIH model, when the stimulus is financed through

In which case will output expand the most? Justify your answer.

The post 178.300 Macroeconomics Policy and Applications Assignment 2, Semester 2, 2025 appeared first on NZ Assignment Help.