Principles of Macroeconomics

Principles of Macroeconomics

Instructions:

1.    Each group should consist of 2 students only.
2.    The due date of the assignment is Wednesday December 17th. The assignment should be submitted at the beginning of the class.
3.    The assignment should be submitted in a hard copy format.
4.    It’s preferred that the assignment be typed than handwritten. However, graphs should be done by hand.
5.    Use your own words. Plagiarism will not be tolerated.
6.    Don’t exceed the space provided underneath each question.
7.    For question 1, it is allowed to use page and half and you have to write in the footnote the reference(s) you relied on to get your data. Failing to provide the reference will decrease your score.
8.    For question 3, it is assumed that the US is an oil-importer country (which is the case in real life).

Questions:

1.    Pick any two GCC countries and get data on the following economic variables for 5 consecutive years:
–    M1
–    M2
–    Inflation rate

a.    Draw a graph showing the trend of each variable using excel.
b.    Comment on the relationship between inflation rate and the money supply measures (M1 and M2).
c.    Discuss in brief the Central Bank tools that could be used to increase money supply.

2.    Assume the Qatari government is pursuing an expansionary fiscal policy by increasing government purchases. Show the short run and long run impact of this policy on the macroeconomic equilibrium point using AD and AS model (assume that Qatar’s economy initially operates at the potential level of GDP). You need to draw a graph and briefly explain the short run and long run impact of this expansionary fiscal policy.

3.    In December 2014, the international price of oil has dropped to almost half of its level in June 2014. What do you think the expected impact of this drop on the US economy using the AD and AS model? Hint: Think of the impact on aggregate supply in the US and assume that the US economy initially operates at the potential GDP level. You need to draw a graph.

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