# ECON6922-Macroeconomic Theory

Problem 1

1.State the expression for the change in the debt to GDP ratio (without money).

a.Define the variables and explain what the expression means.

b.Show what happens to the debt to GDP ratio if interest rates are greater than real GDP growth rates.

c.Show what happens to the debt to GDP ratio if interest rates are less than real GDP growth rates.

d.If an economy is in the situation stated in b., and the debt ratio is positive, how can the economy stabilize the debt? What are the possible consequences of doing so?

2.Using the IS-LM model, show the effects of expansionary fiscal policy when:

a.The increase in government spending is bond financed.

b.The increase in government spending is money financed.

c.The increase in government spending is tax financed (ie balanced budget case)

3.What is meant by Ricardian equivalence?

4.Suppose an economy has a debt to GDP ratio of 110%, a real growth rate of 2.5% and interest rates of 1%. Assuming their deficit is zero, should they be concerned with debt stability? What affect would fiscal consolidation have on growth rates?

5.What is the cyclically adjusted budget deficit? How can it be calculated?

Problem 2

1.Assume that households attempt to maximize lifetime utility subject to a budget constraint.  If households have perfect foresight and interest rates are zero, what will household consumption paths look like? Explain.

2.According to the Consumption CAPM, what should be the relationship between consumption growth and asset returns?  Do we see this in reality? Explain.

Problem 3

1.In our IS-PC-MR model what would happen if:

a.Profitability in the future is expected to be lower.

b.Real interest rates are expected to rise next quarter.

c.Credit constraints limit the ability of firms to borrow.

2.What is the difference between Q and q? Under what assumptions is investment solely a function of q?

3.According to empirical analysis, there appears to be a need for a scale term in investment functions. Suppose we use output, y, as a proxy for that scale affect, and our Investment equation becomes

Assuming a simple consumption function ,

a.What will happen to the slope of the IS curve?

b.How will this affect the impact of a demand shock?

Pages (550 words)
Approximate price: -

Why Choose HelpHub

Quality Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Qualified Writers

We have hired a team of professional writers experienced in academic and business writing. Most of them are native speakers and PhD holders able to take care of any assignment you need help with.

Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account.

On Time Delivery

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. We will always strive to deliver on time.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text.

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

## Calculate the price of your order

Total price:
\$0.00

How it works?

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

HelpHub Writing Services

No need to work on essay at night. Sleep tight, we will cover your back. We offer all kinds of essay writing services.

## Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.