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a) Godley mentions two views of how the economy works and he adopts one of these. Explain the features of each of these views. (10)
a) Godley mentions two views of how the economy works and he adopts one of these. Explain the features of each of these views. (10) b) Write down the Average Fiscal Ratio and the Average Trade Ratio, and briefly explain i) why each have to grow at the same ratio as GDP in the long run, and ii) what was their position in the US in 1999. (10) c) Assume that households hold equities as wealth and the stock of equities is constant. Show how the growth rate of the stock price can temporarily support the sustainability of the household sector. (10) d) Godley maintain that the growth rate of real money supply, which stood at around 10%, could not continue indefinitely. Using the same reasoning as the ATR or AFR, explain why this is so. (10) e) Godley argues that when the day of reckoning arrives, a relaxation in monetary policy (i.e. a decrease in the interest rate) would not be enough to stem the crisis. Explain how he arrived at this conclusion
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