ECON 1000 FOR S2 Quiz 2

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ECON 1000 FOR S2 Quiz 2

Answer both quiz activities on your own – 5 marks for each question are indicated. Total
mark is converted to an appropriate percentage value, rounded to the nearest half‐mark.
For question 1a, the AD/AS diagram can be hand drawn (if preferred) and then scanned into
an editable text, Word Document.
Please include your Full Name and Student ID as a title in the Word Document
and for the file name when submitting your work.
Upload to Turnitin by the due date – link available under the Assessments tab in Bb.
QUIZ ACTIVITY 1a: application of monetary policy in the basic AD/AS model
You are the Treasurer of the Australian economy and are reviewing the
following economic data in 2016-2017:
Real GDP growth rate per capita: 0.5%
Unemployment rate: 7.0%
Inflation rate: 1.0%
Determine what phase of the business cycle the Australian economy is likely to be
experiencing. Provide specific reasons for your answer. Use the AD/AS model to show
the position of this economy. Explain whether the Australian government should use
expansionary or contractionary monetary policy to move the economy back to the long
run, full-employment GDP equilibrium. [write total answer in 280 words or less]
[5 marks]
QUIZ ACTIVITY 1b: effectiveness of monetary policy in stimulating aggregate demand (AD)
Is the relationship between interest rates and the components of AD (C, I, G, X – M)
known with any accuracy? How effective are interest rate reductions during severe
recessions? [write total answer in 380 words or less]
[5 marks]

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