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ANSWER ALL FOUR (4) QUESTIONS. 25 MARKS EACH QUESTION. 100 MARKS OUT OF 100. 1. “By managing its exchange rate, exercising strong autonomy in internal domestic monetary policy and regulating...

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ANSWER ALL FOUR (4) QUESTIONS.

25 MARKS EACH QUESTION. 100 MARKS OUT OF 100.

1. “By managing its exchange rate, exercising strong autonomy in internal domestic monetary policy and regulating international capital flows into and out of the country, the Chinese government is conforming to the dictates of the Policy Trilemma.” Indicate whether this statement is true, or false or uncertain and explain why.

2. “In an open economy, fiscal policy is more effective than in a closed economy, while monetary policy is less effective than in a closed economy, ceteris paribus. Indicate whether this statement is true, or false or uncertain and explain why.” Use the AD-AS graph and the AE equation in your answer.

3. Refer to the data below in answering the question below.

What are the data saying about the real interest rates that held across large economies in the aftermath of the Global Financial Crisis of 2007-8? What sort of monetary policy regime resulted in negative real interest rates? Use the appropriate money market graph in your answer.


4. Refer to data below in your answer.

How are the US war casualties described above likely to have affected US GDP growth according to the Solow-Swan model? What sort of macroeconomic effects are the payments to veterans likely to have according to our short-run macroeconomic models? Explain.

******END OF PAPER*******

Answered Same Day Jun 24, 2021 ECON1102 The Australian National University

Solution

Komalavalli answered on Jun 25 2021
146 Votes
1. The statement is false
Policy Trilemma : It states that a country can choose either two of the policies out of 3 choices of policies .From below diagram we can see that if china choose option A means it can implement policies of free flow of capital, fixed exchange rate by excluding monetary policy. Option B indicates it can implement policies of free flow of capital, monetary policy by excluding fixed exchange rate. Option C indicates it can implement policies of fixed exchange rate, monetary policy by excluding free flow of capital.
Therefore in policy trilemma China cannot follow all policies.
2. False in an open economy the fiscal policy is effective in closed economy than open economy and monetary policy is effective in open economy than closed economy.
Aggregate equili
ium equation in open economy
    Y = C+I+G
Expansionary fiscal policy increase the level of consumer spending will shift the Aggregate demand to the right which will increase the...
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