ECO152 - Preparation Exercise
1.1 You are given the following information 𝐶 = 20 + 0.875𝑌; 𝑍 = 350 + 0.1𝑌; 𝐼 ̅ = 300;
𝐺̅ = 180; 𝑌𝑓 = 2 400; 𝑋̅ = 550; 𝑇 = 0.143𝑌. by approximately how much must government
spending be raised to achieve full employment?
1.2 What is the government’s budget balance?
2. Describe the four lags associated with monetary and fiscal policy and explain why the timing
of policy decisions and actions is so important.
3. Discuss the key ideas of the Monetarists and New Keynesian economics.
4. Discuss the four key aspects in the definition of inflation.
5. Explain the difference between the consumer price index (CPI) and the inflation rate.
6. In 2019, the Consumer Price Index (CPI) stood at 120. By the end of 2020, it had risen to
132. Calculate the inflation rate for 2020. Additionally, discuss one potential consequence of
this inflation rate on pensioners
7. Explain the distributional effects of inflation.
8. List and explain three important features of inflation targeting.
9. Distinguish between the strict and expanded definitions of unemployment.
10. Use the information in the table below to answer the following question:
Employed
2 707 410
Unemployed
1 090 741
Discouraged work seekers
Inactive
891 743
1 677 426
10.1 Calculate the Strict Unemployment Rate. Show all your workings.
10.2 Calculate the Broad Unemployment Rate. Show all your workings.
11. Discuss the supply factors of economic growth. How can the potential output of an economy
be increased?
12. Discuss some of the costs associated with unemployment, both for the individual and for
society as a whole.
13. Define the informal economy. Why do people engage in informal sector activity?
1