29189 LI Macroeconomics

Java Python Assignment Remit

Programme Title	Department of Economics
Module Title	LI Macroeconomics
Module Code	08 29189
Assignment Title	Assignment (Main)
Level	LI
Weighting	50%
Deadline Date & Time	27/11/2024		12pm
Feedback Post Date	16th working day after the deadline date
Assignment Format	Other
Assignment Length	See below
Submission Format	Online	Individual

Module Learning Outcomes:

This assignment is designed to assess the following module learning outcomes. Your submission will be marked using the Grading Criteria given in the section below.

1. Demonstrate knowledge and critical understanding of the concepts of ‘comparative static analysis’ and ‘dynamic macroeconomic equilibrium’;

2. Use the theoretical models developed throughout the module to analyse the impact of shocks and macroeconomic policy on aggregate economic variables;

3. Critically evaluate these theoretical models with reference to empirical evidence, including macroeconomic policy examples.

Assignment:

This assessment requires you to use diagrams, introduced in the lectures and classes, to consider a particular policy issue. You should not use any alternative theories or additional reading to support your analysis and will not receive any credit for doing so.

You are not permitted to use any Generative Artificial Intelligence (e.g. ChatGPT) in preparing your answer. This must be individual work – plagiarism checks are performed on all submitted assignments. You should upload your answer to Canvas in the usual way, as either a Microsoft Word file or a PDF file.

Question 1

In September 2022, the UK Government released a ‘Growth Plan’ that identified tax cuts and support for investment and infrastructure development, including in skills of the workforce, as away of promoting a higher growth rate for the UK economy. Details of the policies that the Government wished to pursue are found in the document included in the assessment information on the Canvas page for LI Macroeconomics. The short run impact of this policy was a significant depreciation of sterling on money markets and an increase in the interest rates on UK Government debt and the Government had to abandon the policy soon after it was announced.

Read the documents provided on Canvas to inform. your answers to the questions below.

Specifically, you should use the Government Policy statement Section 3 for (a) and Section 4 for (b) and (c). You should use the NIESR report for part (c).

(a)  Use the aggregate production function/labour and capital market equilibrium diagrams and the I-S=NX diagram, discussed in Week 1 lectures, to provide an analysis of the long-run economic implications of the policy outlined in the document. You should provide a short (50 word) text explanation of your diagrammatic analysis; (50%)

(b)  Use the Mundell-Fleming model of the small open economy diagrams, discussed in week 3 of the lectures,to explain the short-run consequences of the policy. You should provide a short (50 word) text explanation of your diagrammatic analysis; (25%)

(c)  Focussing on your answers to (a) and (b), provide a short text explanation (maximum

100 words) of what conditions would have been necessary for the policy to have been successful. (25%)

Additional notes for Question 1

You should use appropriate diagrams (discussed in lectures and classes) to support your answers to parts (a) and (b). You are not required to provide derivations of the diagrams that you use and will not receive any marks for such derivation. Providing an appropriate diagrammatic analysis, based on what has been discussed in the lectures, is the key aspect of an answer to parts (a) and (b) of the question. You should briefly explain why you are using the diagram, what are the changes that you are making to it and why, and what is the final result.

Question 2

Between January 2022 and June 2022, the market price of Brent crude oil increased from approximately $80 per barrel to approximately $120 per barrel. The oil price subsequently fell back to approximately $80 per barrel by the end of the year.

(a) Present a fully-labelled diagram to show how this scenario can be depicted in the Dynamic Model of Economic Fluctuations studied in the lecture slides (and Mankiw, 2022, Chapter 16). Assume that this situation can be modelled as a persistent supply shock which hits firms’ input costs for two quarterly time periods (t and t+1) and disappears  thereafter.  Further  assume  that  the   economy  begins  and  ends   in  a long-run equilibrium position. (75%)

(b) Provide a short explanation (maximum 200 words) to accompany your diagram. Comment upon the dilemma faced by the Central Bank when faced by the shock you have modelled. (25%)

Additional notes for Question 2

The diagram must be your own, it should be hand-drawn and you should use a ruler where appropriate. You may hand-write or type the paragraph of explanation