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ECONOMICS – 2015: Daily Answer Writing Challenge – 4

ECONOMICS – 2015: Daily Answer Writing Challenge – 4

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Advanced Macro Economics:

Answer in 300 words:

1) If workers supply labour on the basis of an expected real wage, how is the aggregate supply of output determined in the economy? Suppose aggregate demand and supply are below the natural rate of employment and output. Would the New Classical economists advocate any particular policy intervention in this situation?

 

2) Macroeconomics is usually approached via the outcomes of economic interaction in the following four markets – commodities, money, bonds, and labour markets. The Classical economists focussed on which three of these four markets? In which market does the loanable fund theory of interest rate determination of the Classical economists focus and how is the interest rate determined? The Neo Classical synthesis focuses on which three markets? In which market is the interest rate primarily determined in the liquidity preference theory?

 

3) Explain the determination of output and employment in a macroeconomy under the conditions when individuals are subject to i) no money illusion ii) money illusion.

 

Tomorrow:

Advanced Macro Economics: