Question
Question A1 (a) Discuss the policy implications of the Quantity Theory of Money, the Liquidity Preference Theory and Friedman's Restatement of Quantity Theory of Money.
Question A1
(a) Discuss the policy implications of the Quantity Theory of Money, the Liquidity Preference Theory and Friedman's Restatement of Quantity Theory of Money. (12 marks)
(b) Consider a closed economy in which the central bank chooses to target its interest rate. Suppose the economy is recovering fast from a recession and there are signs of inflation in the subsequent future. To pre-empt the inflation, the central bank decides to increase the interest rate gradually. Use the IS-LM-Yn diagram to describe and analyze the above events. (13 marks) (TOTAL: 25 marks)
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International Economics
Authors: Robert C. Feenstra, Alan M. Taylor
3rd edition
978-1429278515, 142927851X, 978-1319029517, 1319029515, 978-1429278447
