EC4418: Using Your Knowledge Of The IS-LM And IS-LM-PC Models, Illustrate Graphically And Explain The Short-Run Implication Of The Demand Shock: Monetary Economics Assignment, MU, Ireland
| University | University of Limerick (UOL) |
| Subject | EC4418: Monetary Economics |
ESSAY QUESTION
The current Covid-19 pandemic has brought about a major slump in aggregate demand in many economies. You are required to choose one country.
For the country you choose:
1. Using your knowledge of the IS-LM and IS-LM-PC models, illustrate graphically and explain the short-run implication of the demand shock and how you anticipate your chosen economy will revert to its medium-run equilibrium. Your answer should reference the specific policies which are being pursued by both the central bank and the government in response to the crisis in your chosen country.
2. Discuss the likely effectiveness and limitations of the policies highlighted in Question (1)in the context of the prevailing macroeconomic environment at the onset of the pandemic.
3. With the use of relevant diagrams, comment on the role of expectations in shaping the effectiveness of the abovementioned macroeconomic policies. How might the assumptions made about how people form expectations shape the impact of these policies on output, unemployment and inflation?
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