MACROECONOMICS PAPER

COURSE CODE BCO124 COURSE NAME MACROECONOMICS Task brief & rubrics

Task: Individual final assignment

1. An economy begins in long-run equilibrium, and then a change in government regulations allows banks to start paying interest on checking accounts. Recall that the money stock (demand for money) is the sum of currency and including checking accounts, so this regulatory change makes holding money more attractive.

a. How does this change affect the demand for money?

b. What happens to the prices if the Central Bank does not respond?

c. Draw a graph showing the effect on prices.

2. Explain whether each of the following events increases or decreases the money supply.

a. The Central Bank sells bonds in open-market operations.

b. The CB increases the reserve requirement.

c. The CB increases the interest rate it pays on reserves.

d. Citibank repays a loan it had previously taken from the CB.

e. After a rash of pickpocketing, people decide to hold less currency.

f. Fearful of bank runs, bankers decide to hold more excess reserves.

3a. What is the current account balance of a nation with a government budget deficit of 128 € billion, private saving of 80 € billion, and domestic capital formation of 77 € billion?

3b. “A country is better off running a current account surplus rather than a current account deficit.” Do you agree or disagree? Explain.

3c. “National saving can be used domestically or internationally.” Explain the basis for this statement, including the benefits to the nation of each use of its saving.

4. During the first decade of the 2000s, the nation of Zimbabwe experienced one of history’s most extreme examples of hyperinflation. In many ways, the story is common: Large government budget deficits led to the creation of large quantities of money and high rates of inflation. The hyperinflation ended in April 2009 when the Zimbabwe central bank stopped printing the Zimbabwe dollar and the nation started using foreign currencies such as the U.S. dollar and the South African rand as the medium of exchange. Estimates vary about how high inflation in Zimbabwe got, but the magnitude of the problem is well documented by the denomination of the notes being issued by the central bank. Before the hyperinflation started, the Zimbabwe dollar was worth a bit more than one U.S. dollar, so the denominations of the paper currency were similar to those one would find in the United States. A person might carry, for example, a 10-dollar note in his wallet. In January 2008, however, after years of high inflation, the Reserve Bank of Zimbabwe issued notes worth 10 million Zimbabwe dollars, which was then equivalent to about 4 U.S. dollars. But even that did not prove to be large enough. A year later, the central bank announced it would issue notes worth 10 trillion Zimbabwe dollars, then worth about 3 U.S. dollars. As prices rose and the central bank printed ever-larger denominations of money, the older, smaller-denomination currency lost value and became almost worthless.

1. Highlight the common pattens that hyperinflations have in Zimbabwe

2. What was the central bank´s solution to hyperinflation?

3. Why the value of the Zimbabwe dollar changed over time?

5. What has happened to the exchange-rate value of the dollar in each case?

a. The spot rate goes from $1.25/SFr to $1.30/SFr.

b. The spot rate goes from SFr 0.80/$ to SFr 0.77/$.

c. The spot rate goes from $0.010/yen to $0.009/yen.

d. The spot rate goes from 100 yen/$ to 111 yen/$.

Formalities:

· Wordcount: -

· Font: Arial 12 pts.

· Text alignment: Justified.

· The in-text References and the Bibliography have to be in Harvard’s citation style.

· Final timed-assignment – 45% of the total weighting. Due on week 12 with a deadline of submission of Sunday 2nd May 2021 at 23:59 CEST. Via Turnitin (Moodle)

Submission: Week 12 for all students

Weight: This task is a 45% of your total grade for this subject.

It assesses the following learning outcomes:

· Outcome 1: Introduce the students to the basic principles of Macroeconomics

· Outcome 2: Improve students analytical abilities, discussion skills and presentation techniques

· Outcome 3: Solve macroeconomic exercises supported by theoretical inputs.

Rubrics

Presentation	Exceptional 90-100	Good 80-89	Fair 70-79	Marginal Fail 60-69	Fail <60
Knowledge & understanding (30%)	Student demonstrates superior understanding of the main concepts and principles pertaining to the theory delivered in class and awareness of current areas of debate	Student demonstrates good understanding of the theory delivered in class, applying some relevant knowledge to the question (some minor details might be missing)	Student demonstrates some understanding of the theory delivered in class, applying some knowledge to the question (key details might be missing and there may be some irrelevance)	Student demonstrates little understanding of the theory delivered in class, applying very little key knowledge to the question. Key details are missing and irrelevance is present.	Student demonstrates an insufficient understanding of the theory delivered in class. Key knowledge is not applied to the in question and information is of little or no relevance.
Application (25%)	Student selects appropriate support from data, real life case studies or literature to support their argument.	Student selects mostly appropriate support from data, real life case studies or literature to support their argument.	Student makes acceptable effort to select appropriate support from data, real life case studies, or literature to support their argument.	Student makes little effort to select appropriate support from data, real life case studies, or literature to support their argument.	Appropriate support from data, real life case studies, or literature to support arguments is insufficient or absent.
Critical evaluation (25%)	Student relates concepts and principles to underlying theoretical frameworks and approaches well. Some attempt may be made to engage critically with these frameworks.	Student sufficiently relates concepts and principles to underlying theoretical frameworks and approaches.	Student makes some effort to relate concepts and principles to underlying theoretical frameworks and approaches. Some connections and relationships may be weak.	Student makes little effort to relate concepts and principles to underlying theoretical frameworks and approaches. Some connections may be weak or inappropriate.	Student does not relate concepts and principles to underlying theoretical frameworks and approaches.
Communication (20%)	Student communicates their ideas very clearly and concisely, making excellent use of visuals to support their message.	Student communicates their ideas clearly and concisely, making good use of visuals to support their message.	Student communicates their ideas with some clarity and concision. Visuals are used to support their message successfully at times.	Student communicates their ideas with limited clarity and concision. Visuals support their message with limited success.	Student fails to communicate their ideas clearly and concisely. Visuals are poor and do not support the message.