Macroeconomic Theory

  1. Compare and contrast the effects of an austerity programme in an economy with a fixed versus a floating
    exchange rate.
    In answering the question explain fully your assumptions and reasoning.
    Equations: Any equations in your answer should be typed either with the Word Equation
    Editor (or similar) or just with normal text (e.g. using subscripts etc.).
    Diagrams: Diagrams may be created electronically or handwritten then captured digitally
    and inserted into your answer.
    The lectures we covered in the module for the essay questions included IS-LM, Keynesian Cross, AD-AS
    Models (also Dynamic AD-AS), Open Economy (including openness, AD-AS, Short run, Medium run,
    Exchange rate regimes fixed versus floating), The long run (Stylised facts, solow model with no technical
    progress and solow model with technical progress), Expectations (expected inflation and adding expectations
    to AD) and finally Policy (Government budget constraint, government debt including the 4 cases of debt
    sustainability. Policy issues including Ricardian equivalence

Sample Solution

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