Answer all the questions below well.

The public sector deficit that would occur if the economy were operating at the potential level of

national income is known as:

A the budget deficit.

B the general government deficit.

C the primary deficit.

D the structural deficit.

Which of the following will result from an increase in government expenditure financed by

increased government borrowing from the non-bank private sector?

A a fall in the money supply

B a fall in the inflation rate

C a rise in the domestic interest rate

D a fall in the money demand

The extent of crowding out in response to an increase in government spending will be greater:

A if investment is insensitive to interest rates.

B the flatter is the money supply curve.

C the flatter is the liquidity preference curve.

D if the government implements a pure fiscal policy.

20.4 (i) Define automatic fiscal stabilisers and explain how they will reduce the extent of a

recession.

(ii) Discuss whether there is likely to be a similar stabilising effect arising from a change in

monetary conditions in a recession.

Show why the numerical value of the tax multiplier is one less than that of the government

expenditure multiplier.

(i) Define fiscal policy.

(ii) Explain, with examples, the main roles for fiscal policy in practice.

(i) Explain how fiscal policy could be used to expand economic activity in the short run.

(ii) Discuss the potential problems that may undermine the effectiveness of such a policy.

(i) Explain the case for and against discretion.

(ii) Outline the case for rule

and,forlt=0,1,...,m1, l} K(x)=k,k+1,...,k+h'1 Aha = Ubk+h+l _ (k+kV+ \"Hal KC\" = k+ h Dk+h+1V[k+hv+nk+h) K(x}=k+h+l,k+h+2,.... Show that 171-1 3.. min = 2 Uh Aid-Fl = ml b. Wrasse) a k] = 2 as mousse a a. . Repeat Example 3.5.1 in terms of an insured from Example ?.4.4 1who has survived to the end of the second policy year. . Repeat Exarnple 8.5.2 in terms of a portfolio of 1,500 policies of the type described in Example 14.4 and discussed in Exercise 8.26. . In Exercise 8.2? there is no uncertainty about the amount or time of payment for the insureds who have survived to the end of the fourth policy year. Redo Exercise 3.27 for just those insureds at durations 2 and 3. Write a formula. in terms of benet premium and terminal benet reserve symbols, for the benet reserve at the middle of the eleventh policy year for a 10,000 whole life insurance with apportionable premiums payable annually issued to (30). A 3-year endowment policy for a face amount of 3 has the death benet payable at the end of the year of death and a benet premium of 0.94 payable annually. Using an interest rate of 20%,. the following benet reserves are generated: End of Benet Year Reserve 1 0.66 2 1.56 3 3.00 ulate a. 'l: 13' IEl'.1u:+1 c. The variance of the loss at policy issue, 0L d. The conditional variance, given that the insured has survived through the rst year, of the loss at the end of the rst year, It. a. Use (8.3.10) to transform (8.5.1) to 0 K(x) Sh - 1 An = ( but 1 - h+IV ) U - (bu+1 - h+IV) U 9xth K(x) = h - (by+ 1 - h+ 1 V) U qxth K(x) Zh+ 1. In this interpretation A, is the loss on the 1-year term insurance for the amount at risk in the year (h, h + 1). b. Use the display in (a) to verify E[A, ] = 0. c. Use parts (a) and (b) to obtain Var(A,). puting Exercises Consider a variation of the insurance of Example 8.2.2 which provides a unit benefit whole life insurance to (20) with geometrically increasing benefit pre- miums payable to age 65. On the basis of your Illustrative Life Table and i = 0.06, determine the maximum value of r such that the benefit reserve is non-negative at all durations. Use the backward recursion formula (8.3.9) to calculate the benefit reserves of a. Example 7.4.3 [Hint: ;V = 0.0.] b. Example 7.4.4. [Hint ,V = 1.0.] A decreasing term insurance to age 65 with immediate payment of death claims is issued to (30) with the following benefits: For Death between Ages Benefit 30-50 100,000 50-55 90,000 55-60 80,000 60-65 60,000 On the basis of your Illustrative Life Table with uniform distribution of deaths within each year of age and i = 0.06, determine a. The annual apportionable benefit premium, payable semiannually and b. The reserve at the end of 30 years, if benefit premiums are as in (a). A single premium insurance contract issued to (35) provides 100,000 in case the insured survives to age 65, and it returns (at the end of the year of death) the single benefit premium without interest if the insured dies before age 65. If the single benefit premium is denoted by S, write expressions, in terms of actuarial functions, for a. S b. The prospective formula for the benefit reserve at the end of k years c. The retrospective formula for the benefit reserve at the end of k years d. On the basis of your Illustrative Life Table and d = 0.05, calculate S and the benefit reserve 20 V