Answer Happy

22. Answer two of the following questions. (10 marks each) (a) Using a diagram illustrate the concepts of() equilibriuro unemployment and disequilibrium unemployment and () demand-pull inflation and cost push inflation Explain why dealing with both demand-pull inflation and cost-push inflation at the same time may be difficult in terms of balancing between unemployment and inflation Answer: Marker Moderator (b) Using a Keynesian income-expenditure diagram, (i) show how the national output is determined in equilibrium and (ii) show how expansionary fiscal and monetary policies can affect national output during the COVID-19 pandemic. Using a suitable model, explain further why combining fiscal and monetary policies may be more effective in raising the national output. Answer: Marker Moderator (c) Explain the impact of quantitative easing on national output using (i) a keynesian income-expenditure diagram, (ii) the interest rate and exchange rate transmission mechanisms, and (iii) the ISLM model. Comment on whether predicting the final change in national output is straightforward or difficult. Answer: Marker Moderator (d) Suppose government expenditure increases by £100m. The marginal propensity to save is estimated at 0.2, the marginal propensity to tax is estimated at 0.1 and the marginal propensity to import is thought to be 0.1. What will be the final increase in national income considering the multiplier effect? Using a business cycle diagram, explain what may happen if the marginal propensity to consume is underestimated or over-estimated. Explain why a discretionary fiscal policy may be challenging to Implement.