Advanced Macroeconomics

Suppose that output is at the full-employment level and that nominal wages are slow to adjust. Considering the short-run and long-run effects of the coronavirus on output and the price level, discuss what the government can do to return output to its natural level using the AD-AS framework?

Using wage- and price-setting relations, explain how the natural rate of unemployment is
determined and how it is different from the cyclical unemployment?

3rd year Macroeconomics Question

(a) Suppose that output is at the full-employment level and that nominal wages are slow to adjust. Using the AD-AS framework to explain the short-run and long-run effects of the coronavirus on output and the price level. (Hint: How does the coronavirus affect the short-run and long-run aggregate supply curves and the aggregate demand curve?)

1. An important difference between fixed and floating exchange rates is the impact on monetary policy. This difference is framed by some economists as being a benefit of floating exchange rates, but other economists frame the same thing as a benefit of fixed exchange rates. Explain each side of the argument, and then give your own opinion.

8. Using both the arguments from the previous lecture about floating exchange rates and the theory of optimal currency unions, make the arguments both for and against the idea of having a single Australia & New Zealand currency.

1. Draw the AA/DD model on a graph. Show on the graph the impact of a permanent increase in money supply. What is the impact on the following variables:
   1. Short-run output
   2. Long-run output
   3. Short-run interest rates
   4. Long-run interest rates
   5. Short-run exchange rates
   6. Long-run exchange rates
   7. Short-run prices
   8. Long-run prices

Would GDP increase when the environment is damaged by toxic spills and then the damage caused

by these spills is cleaned up?

Assume that the US and Mexico both have two different industry sectors. The first sector produces raw materials and the second sector assembles products based on the raw materials. Both sectors in both countries use only two input factors - unskilled labor and skilled labor. Both factors are mobile. The assembly sector uses unskilled labor intensively. The sector that produces raw materials uses skilled labor intensively. Without trade the US has a larger relative supply of raw materials to assembled products than Mexico. Countries do not differ with respect to demand. Answer all following questions using the Heckscher-Ohlin model.

a) Relative prices:

a1) Without trade, is the relative price for raw materials to assembled products, i.e., P_r/P_a, higher in the US or in Mexico? Briefly explain your answer (1-2 sentences are expected).

a2) Assume both countries open for trade. Compare the world relative price for raw materials to assembled products to the relative prices that result without trade in both countries. Briefly explain your answer (1-2 sentences are expected).

b) Exports:

b1) Which good is exported by the US? Which good is exported by Mexico? Briefly explain your answer (1-2 sentences are expected).

b2) Which input factor is abundant in the US? Which input factor is abundant in Mexico?

c) After the North American Free Trade Agreement (NAFTA), there has been an increase in Maquiladoras (i.e., companies where unskilled workers assemble products) in Mexico close to the US border. Opponents of NAFTA in the US argued that the free trade agreement will hurt workers in the US. Do you think this is a valid concern? Explain your answer (4-8 sentences are expected)

Discuss each of arguments presented below for big local governments units:

For big LG units:

1. They could produce more goods- what enhance citizens participation

2. Local stakeholders  are strong enough to be present also at central level

3. Better for creating and forcing local development strategy

4. Lower disproportion among local units- more equal distribution of costs and benefits

5. Arguments for small LG are to idealistic