You are working as an economist for an international consultancy firm and your boss has assigned you to provide a 1500 words report in total. The task has 2 parts and you have to answer both parts.
In each part of the report, you have to respond to the criteria. The mark for criteria in the brackets will contribute to the final mark.
try to answer one by one by indicating a, b and etc. in each of report. You have to be creative and choose a style that is appropriate for the report/ essay. If you use any source please cite it.
Please label your diagrams and graphs.
Your first part of report should respond to the following criteria.
a) Consider country A comprising a credit-constrained household and a non- credit-constrained household type. Please explain and graphically show how each household type would react to the news about an increase in income in future. (hint: for each household type, use a figure with time on the horizontal axis and income and consumption on the vertical axis) (10 marks)
b) Now assume, in the same country A, 50% of households are credit constrained and 50% are not credit-constrained. Please illustrate how the aggregate consumption would look using a graph with the same axes as in part a). (10 marks)
c) Now consider If Country A is full of credit-constrained households, would the multiplier be larger than 1 or smaller than 1 and why? In your view in this economy, Permanent Income Hypothesis (PIH) may fail or not and why? (10 marks)
d) Now consider country B which has No credit constraint at all, and a recession hits both countries (A and B). A countercyclical fiscal and monetary policies implemented by their ministry of finance and their Central bank. In your view,
in which of these countries (A or B) implemented policies are more effective? And why? You could support your view by academic citation. (20)
In the second part of the report, consider a large negative demand shock that hits two small economies. The economies are identical except that one is closed and the other is open. The close economy called country C and open economy called country O.
Evaluate the impact of a large negative demand shock on these economies considering the following criteria
a) Brieflyexplainhowalargenegativedemandshockcanleadtoadeflationtrap. What role plays central banks to stabilise the economy (15marks)
b) Which of the economies (country C or country O) is more likely to fall into a deflation trap following the shock? Justify your answer. (10 marks)
c) Whatinitialconditionswouldmakeitlikelythatbotheconomies(countryCand country O) would fall into a deflation trap? (10 marks)
d) Which of the following shocks is more damaging for medium-run output in a small open economy like country O: a negative supply shock or a negative demand shock? Explain in words and use AD − ERU diagrams to support your argument. (15 marks)
Type of service-Academic paper writing
Type of assignment-Essay
Pages / words-2 / 1100
Number of sources-9
Language style-UK English