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AY 2020-2021, January Open Book Coursework

ECON0016: MACROECONOMIC THEORY AND POLICY

1  Aggregate private consumption expenditure is sensitive to temporary tax changes.

2  The development of a major new technology which is important for the government’s net zero carbon policy programme has no impact on the Phillips curve, and therefore the central bank should not react to it.

3  Assume both labour productivity and the mark-up are constant.   Comparing an economy with trade unions to another economy without trade unions, the activities of trade unions are counterproductive because they generate inflationary pressure and in the new equilibrium, employment is lower.

4 When the interest rate on government debt is smaller than the growth rate of the economy’s output, the debt-to-output ratio can be stabilised only if the government runs a deficit.

5  A policy of quantitative easing (QE) might be especially useful when the short-term nominal interest rate reaches some effective lower bound because it is likely to encourage commercial banks to lend more to the private economy.

6  Financial deregulation that increases the degree of competition among banks should be accompanied by a rise of the central bank’s policy rate.