Question
Question 3: Contemporary Economic Applications Suppose a hypothetical scenario in which recent research suggests that a reduction in the growth rate of the United States
Question 3: Contemporary Economic Applications Suppose a hypothetical scenario in which recent research suggests that a reduction in the growth rate of the United States economy will cause a downturn in the global economy. The UK government has commissioned a select committee to analyse the economic impacts on the UK economy of such a scenario. You are working for the HM Treasury and the select committee have asked you to provide further guidance on the above situation. Using economic theory, answer the following:
(This question had a total of 30 marks, and so required very lengthy detailed answers for the following 2 picked parts)
a. "Any volatility in output and unemployment from the external shock would be due to slow market adjustment. Policy-making should be focussed towards re-correcting any longer run rigidities over short run demand management". Discuss and critique the statement. (10 Marks)
b. Why could it be suggested that any monetary policy responses would have no real effect in the long run? (5 Marks)
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