- The table below describes the evolution of the Italian economy over 2000-2005.
Year Growth %Q-gap Inflation T-G (%gdp) Interest rate X-M (%gdp S-I (%gdp)
2000 1,1 -2,0 1,4 -1,2 4,3 -0,8
2001 1.6 -1,1 1.8 -2,3 3,2 -2.1
2002 1,8 -0,1 2,4 -2,4 2.9 -3.5
2003 2,7 +1,9 3,0 -1,8 3,0 -4,2
2005 3,3 +3,5 3,6 -1,5 3,2 -3,1
2005 2.8 +0,4 2.9 -1,2 3,4 -1.7
a. Describe the business cycle over 2000-2005 using the indicators provided like Q-gap, inflation and growth.
b. Discuss the policies pursued by the Government, at each stage of the business cycle, over 2000-05 to steer the economy towards potential output.
c. Explain the monetary policy action used by the Central Bank to influence the interest rates over 2000-02
d. Fill in the private sector balance (S-I) in the table. How did the private & public sectors contribute to the external balance over 2000-02?
e. Explain how monetary & fiscal policies affected the private sector behavior/balance over the business cycle?
f. Use the AD-AS-LRAS diagram to illustrate the process of economic adjustment over 2000-02
g. How could the Govt. shift the LRAS over 2003-05 instead of using demand side policies?
h. Describe how the economy would adjust itself automatically over 2000-02 towards potential output if there was no Govt. policy action (use AD-AS-LRAS diagram).
- Use diagrammatic Aggregate Demand-Aggregate Supply analysis to depict the impact on the global economy of the following developments over 1995-2008:
a. The diffusion of new technologies via FDI boosted the capacity of the global economy to produce.
b. High savings in developing economies increased liquidity lowering global interest rates.
c. Integration into the global labour force of 1,5bn Chinese & East Europeans lowered the cost of labour in favour of profits.
d. Depict in a single diagram, how the combined impact of the above forces (a,b,c) led to high global growth with low inflation.
Exercise 1 weights 60% and ex2 40%
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