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In the framework of a full-employment macro model of a closed economy, describe, also graphically: (a) the role of the real interest rate in the

In the framework of a full-employment macro model of a closed economy, describe, also graphically:

(a) the role of the real interest rate in the determination of the macroeconomic equilibrium (3 points);

(b) how macroeconomic equilibrium is influenced by: (b1) a decrease in investment demand (2 points); (b2) a decrease in taxation (2 points);

(c) "The dynamics of wealth distribution reveal powerful mechanisms pushing alternately toward convergence and divergence" (T. Piketty). Discuss (3 points).

(2)(a) Explain the concept of natural rate of unemployment and possible policies to reduce its level (3 points);

(b) discuss the concept of minimum wage and its relevance to explain structural unemployment (3 points);

(c) following Nickell's (1997) analysis, discuss the main explanatory variables for the level of European unemployment over the period 1983-1994 (4 points).

(3) (a) Discuss the role of the private banking system in the creation of money (4 points);

(b) discuss the main instruments of monetary policy (3 points);

(c) "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency" (J.M. Keynes). Discuss (3 points).

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