1. Suppose that the economy can be described by a closed-economy IS-LM framework and that is in a recession. Assume that the IS curve is relatively steep while the LM curve is relatively flat. If you were to advise the policymakers on which action to take, what would be your advice? Show graphically.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Answer BOTH Questions


Key Marking criteria will include:

• Initiative: Originality, innovativeness of answer
• Assignment Structure: Clarity of aims, objective, structure and presentation
• Quality of Writing: Readability and ability to convey key message(s) concisely
• Quality/Scope of Literature Review: Understanding of established knowledge
• Suitability of Literature: Use of suitable sources, focused to answer key research aims
• Literature Analysis: Quality/level of analytical skill demonstrated
• Insightfulness of Analysis: Interest and usefulness of findings, conclusions drawn
• Understanding: Assignment demonstrates students have understood key topics
• Consistently appropriate and accurate use of diagrams and mathematical expressions
• Clear demonstration of economic interpretation relevant to the assignment
• Overall Quality of Assignment 

Answer BOTH Questions
1. Suppose that the economy can be described by a closed-economy IS-LM framework and that is
in a recession. Assume that the IS curve is relatively steep while the LM curve is relatively flat. If
you were to advise the policymakers on which action to take, what would be your advice? Show
graphically.
2. Consider an economy that is characterised by the following set of equations:
C
co + ciYD
Yp
Y -T
I
bo + bịY
Government spending (G) and taxes (T) are constant. Note that investment (1) is proportional to
output (Y).
a) Solve for equilibrium output.
b) Using your answer derived in (a) identify and discuss the multiplier. How does the relation
between investment and output affect the value of the multiplier?
c) For the multiplier to be positive what condition must be satisfied?
Please note: The two questions are equally weighted in terms of marks. To help explain your answers
and analysis, you should always attempt to use diagrams, mathematical demonstration where
applicable and convey the economic intuitions behind the results. Do not forget to label your graphs.
Key Marking criteria will include:
• Initiative: Originality, innovativeness of answer
• Assignment Structure: Clarity of aims, objective, structure and presentation
• Quality of Writing: Readability and ability to convey key message(s) concisely
• Quality/Scope of Literature Review: Understanding of established knowledge
• Suitability of Literature: Use of suitable sources, focused to answer key research aims
• Literature Analysis: Quality/level of analytical skill demonstrated
• Insightfulness of Analysis: Interest and usefulness of findings, conclusions drawn
• Understanding: Assignment demonstrates students have understood key topics
Transcribed Image Text:Answer BOTH Questions 1. Suppose that the economy can be described by a closed-economy IS-LM framework and that is in a recession. Assume that the IS curve is relatively steep while the LM curve is relatively flat. If you were to advise the policymakers on which action to take, what would be your advice? Show graphically. 2. Consider an economy that is characterised by the following set of equations: C co + ciYD Yp Y -T I bo + bịY Government spending (G) and taxes (T) are constant. Note that investment (1) is proportional to output (Y). a) Solve for equilibrium output. b) Using your answer derived in (a) identify and discuss the multiplier. How does the relation between investment and output affect the value of the multiplier? c) For the multiplier to be positive what condition must be satisfied? Please note: The two questions are equally weighted in terms of marks. To help explain your answers and analysis, you should always attempt to use diagrams, mathematical demonstration where applicable and convey the economic intuitions behind the results. Do not forget to label your graphs. Key Marking criteria will include: • Initiative: Originality, innovativeness of answer • Assignment Structure: Clarity of aims, objective, structure and presentation • Quality of Writing: Readability and ability to convey key message(s) concisely • Quality/Scope of Literature Review: Understanding of established knowledge • Suitability of Literature: Use of suitable sources, focused to answer key research aims • Literature Analysis: Quality/level of analytical skill demonstrated • Insightfulness of Analysis: Interest and usefulness of findings, conclusions drawn • Understanding: Assignment demonstrates students have understood key topics
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