Question 1.

Answer the following questions:

a) Identify key assumption underlying Keynesian and Classical approaches to macroeconomic analysis.

b) What differences emerge between Keynesian and Classical economists regarding understanding about the business cycle and how the economy should best be managed?

c) Present an argument where you express support for either a Keynesian approach OR a Classical approach. You should make a case in arguing for only ONE of these two different approaches. To support your argument draw on real world examples and/or evidence that you cite in your answer and include in the reference list at the end of your assignment.

Question 2.

Assume the following information for an economy:

Natural level of output = $128b

C = 13 + 0.6(YD)

Total investment = 16

Government expenditure = 19

Autonomous taxation = 5

Based on this information answer the following questions:

a) Calculate the output ratio for the economy. Note: in order to find output ration for the economy, you will first need to establish the economy's actual level of output.

b) Using the Phillips Curve illustrate the current approximate position for the economy and identify this as point A.

c) Assume the government increased spending by $2b. Calculate what the new equilibrium level of output will be.

d) As a result of c) indicate how this will likely impact the economy using the Phillips Curve model from b). Label the new position the economy will approximately be at as point B.

e) Discuss whether the government actions in c) are consistent with the objectives of economic stablisation. Include within your discussion reference to what the goals and objectives of economic stabilisation entail.

Question 3

If deposits in the banking system are $540, while the reserve ratio is 0.2 and the currency to deposit ratio is 0.09, then:

a) Calculate the total demand for high powered money.

b) Calculate the money multiplier