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Section A (20 Marks) – Please answer all 5 questions in this section.

For each question, identify the statement as True or False. You will receive 1 mark for correctly identifying the statement as True or False (please circle the correct answer) and 3 marks for an explanation of your answer. You may use verbal or diagrammatic explanation as appropriate. Please note explanations should not exceed 5 lines.

A1. When we add rational expectations to the 3-equation model, the predictions of the model changes. (4 marks)

True or False? Briefly explain your answer.

A2. There is no difference between Tobin’s q theory of investment and permanent income hypothesis (PIH). (4 marks)

True or False? Briefly explain your answer.

A3. The IS curve becomes flatter with a fall in the marginal tax rate that decreases the size of the multiplier. (4 marks)

True or False? Briefly explain your answer.

A4. Central banks can offset the fall in borrower demand in a balance sheet recession by reducing interest rates and inducing savers to spend more. (4 marks).

True or False? Briefly explain your answer.

A5. Profit maximisation is one of the objectives of the central bank in the three-equation model. (4 marks).

True or False? Briefly explain your answer.

Section C (30 marks) (Choose C1 to complete or C2.A and C2.B – MUST TOTAL 30 MARKS)
C1. What does the term ‘creative destruction’ mean? In a Schumpeterian growth model, what determines the growth rate of productivity? How does this compare to the mechanism driving growth in the Solow model with technological progress? (30 marks)

Type Of Service: Academic paper writing
Type Of assignment: Essay
Subject: Economics
Pages/words: 3/880
Number of sources: N/A
Academic Level: Undergraduate
Paper Format: Chicago
Line Spacing: Double
Language style: UK English