UNIVERSITY
OF
GUELPH
Department
of
Economics
&
Finance
ECON*2410/McKenna
F12
Essay
Guidelines
and
To...

Question

UNIVERSITY
OF
GUELPH
Department
of
Economics
&
Finance
ECON*2410/McKenna
F12
Essay
Guidelines
and
Topics

should
address
one
of
the
two
topics
below.
2. Marks
are
given
for
clarity
of
exposition
and
accuracy.
This
includes
appropriate
use
of
technical
terms,
equations,
data
and
diagrams.
3. Use
complete,
grammatically
correct
sentences.
4. The
essay
should
be
at
most
1000
words,
plus
diagrams
and
references.
5. As
a
guide,
consider
the
highlighted
‘Focus’
boxes
in
the
textbook,
such
as
on
pages
 XXXXXXXXXX,
and
 XXXXXXXXXX.
Suppose
you
have
been
asked
to
write
one
of
these
on
one
of
the
topics
below.
6.The
essay
is
due
by
4:30
pm
on
Friday,
23
November.
There
will
be
a
drop---box
on
the
counter
top
in
the
main
office
of
the
Department
of
Economics
and
Finance,
7th
floor,
MacKinnon.
The
box
will
be
removed
at
4:30.
I
will
not
accept
late
or
electronic
submissions
under
any
circumstances.
7. I
strongly
recommend
you
start
work
on
the
essay
very
soon,
even
though
the
deadline
seems
far
away.
TOPICS:
1. Apply
the
aggregate
demand
and
aggregate
supply
analysis
(chapters
9
and
10)
to
study
the
effects
on
the
economy
of
an
increase
in
unemployment
benefit,
financed
by
an
increase
in
taxation.
(You
may
assume
a
closed
economy.)
2. Apply
the
aggregate
demand
and
aggregate
supply
analysis
(chapters
9
and
10)
to
study
the
effects
on
the
economy
of
an
increase
in
energy
prices.
What
policy
options,
if
any,
are
available
to
the
government
to
counteract
these
effects?
Explain
the
likely
effects
of
these
policies.
(You
may
assume
a
closed
economy.)

Robert · Accepted Answer

Q1
An aggregate demand-aggregate supply approach was first explained by Keynes as a new theory that could explain the occurrence of the Great Depression and more importantly offer a solution to pull the economy out of the deepest recession till date. The prevalent theory was the classical theory that argued against any government action and assumed that the economy will bounce back itself. 
Keynes theory introduced and relied on the concept of effective demand and argued that it was ’normal’ for an economy to be in equilibrium at less than full employment level. A change in any variable / event can be understood in terms of its effect on aggregate demand or aggregate supply. 
The aggregate demand comprise of Consumption spending (C ), Investment spending(I), and Government spending(G). The AD is shown as a negative sloping curve that relates price levels to GDP/income (Y) level. As prices rise, each of these components is reduced so that AD slopes downwards.  The aggregate supply curve can be of three parts. In the very short run AS is horizontal, implying that AS can rise as it is at low levels without affecting prices. In the medium run/short run it is upwards sloping. Producers are willing to supply more as price rise.

UNIVERSITY OF GUELPH Department of Economics & Finance ECON*2410/McKenna F12 Essay Guidelines and Topics should address one of the two topics below. 2. Marks are given for clarity of exposition and...

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