Economics Macro

Topics: Supply and demand, Keynesian economics, Economics Pages: 6 (1115 words) Published: July 16, 2013
MCD2090 Revision Tutorial ( T2, 2012)

The following questions have been taken from the weekly tutorial questions. You are expected to attempt all of the following questions before you attend tutorial in week 12.

1. Topic: Saving, Investment and the Financial System

Terms and definitions:
* Financial system
* Financial market
* Financial intermediaries
* Market for loanable funds
* Real interest rate
* Investment tax credit
* Budget deficit
* Budget surplus
* Balanced budget
* National saving
* Private saving
* Public saving


1. What is the role of the financial system? Name and describe two markets that are part of the financial system in our economy. Name and describe two financial intermediaries. What is the fundamental difference between financial markets and financial intermediaries? 2. Draw a diagram to illustrate the market for loanable funds (closed economy) where all savers take their funds to be loaned and where all investors go to borrow funds. a. Explain the supply curve for the loanable funds market. Why the supply curve for loanable funds is upward sloping? b. Explain the demand curve for the loanable funds market. Why the demand curve for loanable funds is downward sloping? c. How the real interest rate adjusts to balance the supply of and demand for loanable funds (adjustment process). 3. Using separate diagrams for market for loanable funds (closed economy) explain and illustrate the impact of: d. Reduced taxation on interest payments.

e. Superannuation rebates to encourage savings.
f. A reduction in government deficit (or an increase in a budget surplus) on * Supply curve of lonable funds
* Demand curve of lonable funds
* Private Savings
* Public Savings
* National Savings
* Investment
* The new equilibrium real interest rate and quantity of lonable funds

2. Topic: Unemployment

Terms and definitions:
* Unemployment
* Labour force
* Unemployed
* Employed
* Unemployment rate
* Labour- participation rate
* Cyclical Unemployment
* efficiency wages
* Minimum wage policy
* Job search
* Natural rate of unemployment (NRU)


1. Define the natural rate of unemployment and cyclical unemployment. 2. How do we define the labour force, the unemployment rate and the labour-participation rate? 3. How does ABS measure the unemployment rate in Australia? List the three reasons for the way we measure unemployment may be inaccurate.(Overstates or understates the amount of joblessness) 4. Draw the supply curve and the demand curve for a labour market. Using the diagram, explain how the following three reasons can effect wages, number of workers supplied and demanded, and the amount of unemployment. a. Minimum wage which is above the market clearing wage (equilibrium wage) b. Minimum wage set below the market clearing wage (equilibrium wage) c. Efficiency wage

d. Trade unions bargaining power

3. Topic: The Open Economy

Terms and definitions:
* Net exports (NX)/ Current Account Balance (CAB)
* Net Foreign Investment (NFI)/ Net capital outflow
* Open economy
* Higher business confidence
* Foreign exchange market


1. Describe the components of the Current Account Balance (CAB). 2. Describe the sources of supply and demand for lonable funds in the market for loanable funds and the sources of supply and demand for foreign exchange in the foreign currency market. 3. What are the factors that affect NX and the factors that affect NFI? 4. Suppose that Australian government encourages domestic private savings through various saving incentives. Explain using Open Economy Model how the increase in private savings will effect Ausralian...
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