Use graphs to explain

Section A (8 marks each) A1. What are the key differences between monetary and fiscal policies? Focus on who makes the decisions, what tools do they use, what macroeconomic variables they affect and how practical they are. Many economists argue that an improvement in technology can increase wage, real interest rate and employment with a competitive labour market and credit market. Explain this argument with the help of appropriate graphs. What are the two key assumptions in your explanation? Section B (20 marks each). B1. 32. Unemployment is one of the major macroeconomic issues that concern policy makers. Some economists have argued the main reason for a rise in unemployment during the great recession 20082053 is a drop in labour demand. a) (7 marks) Show the effects of a drop in labour demand curve using the labour supply and labour demand curves in the competitive equilibrium with perfect information. Can it predict a rise in unemployment? b) (7 marks) Suppose now there is imperfect information so that firms cannot perfectly observe workers' effort. Explain how your answers to part (a) are changed. c) (6 marks) Another reason why a drop in labour demand can imply a higher unemployment rate is the minimum wage law. Explain how it works using labour supply and labour demand curves. Can this be a main cause of the rise in aggregate unemployment during the great recession for the United States? Many central banks, including the Bank of England, have adopted a monetary policy of targeting a low, positive and stable ination rate. In addition, the Bank of England also supports the Government's objectives for growth and employment. a) (6 marks) Explain why it is good to target a \"low, positive and stable" ination rate. b) (6 marks) What is a recession and what are its characteristics? 0) (8 marks) When the U.K. economy goes into recession, how should the Bank of England set the ofcial Bank rate to help bring the economy out of recession? Explain the mechanism and refer to the characteristics you listed in part (b)