Questions attached in file below.Intermediate macro Assignment #1 Assignment #1 Due Monday September...

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Questions attached in file below.Intermediate macro Assignment #1 Assignment #1 Due Monday September 10th, by 3:00pm The assignment is marked out of 25 points. The weight given to each part is indicated below. Style requirements: please keep THREE decimal places in your answers and include your EXCEL results as an appendix in your assignment. Please also take care to structure your answers clearly. (1 point) Question 1 The Clinton-Greenspan policy mix. In the US, during the Clinton administration the policy mix changed toward more contractionary fiscal policy and more expansionary monetary policy. This question explores the implications of this change in the policy mix, both in theory and fact. Please show the data that you collect in tables with clear labels to rows/columns. (1) What must the Federal Reserve do to ensure that if G falls and T rises so that combination of policies has no effect on output. Show the effects of these policies in an IS-LM diagram. What happens to the interest rate? What happens to investment? (2 points) (2) Go to the website of the Economic Report of the President and find reports for the year 2000. (https://www.gpo.gov/fdsys/browse/collection.action?collectionCode=ERP). Look at Table B- 79 (https://www.gpo.gov/fdsys/pkg/ERP-2000/pdf/ERP-2000-table79.pdf) and collect data on federal receipts (tax revenues), federal outlays, and the budget deficit. What happened to federal receipts (tax revenues), federal outlays, and the budget deficit over the period 1995 to 1999? Was fiscal policy contractionary?(Note that federal outlays include transfer payments, which would be excluded from the variable G, as we define it in our IS − LM model. Ignore the difference.) (1 point) (3) Go to Table B-71 (https://www.gpo.gov/fdsys/pkg/ERP-2000/pdf/ERP-2000-table71.pdf) and collect data on the federal funds rate for the years between 1995 and 1999. Was monetary policy expansionary? (1 point) (4) Go to Table B-2 (https://www.gpo.gov/fdsys/pkg/ERP-2000/pdf/ERP-2000-table2.pdf) and collect data on real GDP (in chained 1996 dollars) and real gross domestic investment for the period 1995 to 1999. Calculate investment as a percentage of GDP for each year. What happened to investment over the period? (1 point) Intermediate macro: assignment #1 2 Question 2 Dynamic AS-AD model. The Australian economy experienced adverse demand shocks after the Global Financial Crisis (GFC) and the demand for Australian goods decreased for several years. Your task is to understand how this adverse aggregate demand shock affects the Australian economy and the use of monetary policy in stabilising the economy. For simplicity, suppose the natural level of output is constant. Each period lasts a year. Interest rates and inflation are expressed in percentage points. The parameter values are given in Table 1. Y 100 φ 0.50 π∗ 2 θπ 0.40 ρ 2 θY 0.30 α 2 Table 1: Benchmark Parameter Values (1) Using the parameter values in Table 1, calculate the long-run equilibrium values of inflation, output and the nominal and real interest rates. Suppose the economy was initially in its long run equilibrium. At year t = 1 the economy was hit by a persistent adverse aggregate demand shock ε  0, indicates a higher risk. The higher risk in the market tends to raise the cost of investment and the real interest rate. Using this modified expression of the real Intermediate macro: assignment #1 3 interest rate, derive the two equations for dynamic aggregate demand and dynamic aggregate supply in this slightly more general model with risks. (3 points) (5) Following part (4), suppose the economy also experienced a persistent risk shock in addition to the persistent adverse demand shock. The risk shock takes the value ηt = 0.5 for five years (t = 1, 2, 3, 4, 5) before reverting to zero at t = 6 . Starting in the long-run equilibrium, use the parameter values in Table 1 and the new DAD and DAS equations to recompute and plot the time paths of inflation, output, nominal and real interest rates for 50 years after the persistent risk shock and adverse aggregate demand shock hit the economy. How does the risk shock affect the dynamics of output and inflation? Does the the economy return to the long run equilibrium faster? In what sense the risk shock resembles a demand shock? Explain. (4 points) Deadline and format This assignment represents 12.5% of the available credit in ECON20001 Intermediate Macroeco- nomics. The assignment is due by 3pm on Monday September 10th. Your assignment should not exceed 1500 words in length. You should use relevant diagrams and/or algebra to reinforce your argument where appropriate. Citations, labels in diagrams, symbols in equations and numbers in tables will not count towards the word limit. The assignment can be done in groups subject to the following rules: All members of a group sub- mitting a single assignment must belong to the same tutorial and all members of the group will be given the same mark. No more than three students may make up a group. Students may choose to work and hand in an assignment on their own. No two groups may hand in the same assignment. All assignments will be electronically screened for plagiarism. Assignments must be submitted in electronic format by 3pm on the due date. Moreover: • You must keep a copy of your assignment. • Plagiarism or other forms of academic dishonesty will result in discipline proceedings being brought against you. • 10% of the mark will be deducted for each day delay after the due date. Fine print Plagiarism and collusion Plagiarism is the presentation by a student of an assignment identified as his or her own work even though it has been copied in whole or in part from another students work, or from any other source (e.g., published books, web-based materials or periodicals), without due acknowledgement in the text. Plagiarism is heavily penalised. Penalties for plagiarism can include a mark of zero for the piece of assessment or a failing grade for the subject. Intermediate macro: assignment #1 4 Collusion is the presentation by a student of an assignment as his or her own work when it is, in fact, the result (in whole or in part) of unauthorised collaboration with another person or persons. Both the student presenting the assignment and the student(s) willingly supplying unauthorised material are considered participants in the act of academic misconduct. The Centre for Excellence in Learning and Teaching has developed a web-based ‘Academic Honesty Module’ that allows you to learn more about and test your knowledge of plagiarism and collusion. I strongly encourage you to complete this module. Late submission If you are unable to complete an assignment by the due date due to circumstances outside of your control, you should apply for an assignment extension in the first instance. Applications for extensions should be made directly to the Faculty of Business and Economics, http://fbe.unimelb.edu.au/students/bcom/current-students/assessment Please note that assignment extensions cannot be granted after the assignment due date. Late assignments, where approval for late submission has not been given, will be penalised at the rate of 10% of the total mark per day, or part thereof, for up to 10 days, at which time a mark of zero will be given. Special consideration Students who have been significantly affected by illness or other serious circumstances during the semester may be eligible to apply for Special Consideration at STOP1. The following website contains detailed information relating to who can apply for Special Consider- ation and the process for making an application: https://students.unimelb.edu.au/admin/special You should not approach me or the tutors about special consideration. Referencing All sources used for a written piece of assessment must be referenced. This is to acknowledge that your material is not based entirely on your own ideas, but is based, in part, on the ideas, information, and evidence of others. It is important that all material you present for assessment is referenced correctly. Material that has not been referenced correctly may be considered to be plagiarised, and as such may be penalised (as discussed above). We will also look for evidence that material included in the bibliography has been used in the assignment. Including references that have not been used may also result in your assignment being penalised. http://fbe.unimelb.edu.au/students/bcom/current-students/assessment https://students.unimelb.edu.au/admin/special

Intermediate macro Assignment #1 Assignment #1 Due Monday September 10th, by 3:00pm The assignment is marked out of 25 points. The weight given to each part is indicated below. Style requirements:...

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