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University of Toronto Monetary Theory Questionnaire

University of Toronto Monetary Theory Questionnaire

Question Description

I’m working on a economics question and need support to help me understand better.

Please choose 4 of the following 6 questions to answer.

Please answer it as fully as possible.

For the answer, you can do some research online, but we expect you to draw more on the course materials introduced in class.

1. Suppose we are at the long run equilibrium level in the economy where the real economy is equal to potential. Suppose that there is an increase in aggregate demand due to more fiscal and monetary stimulus. What happens to prices and output in the short run versus long run if prices are sticky, fixed or flexible? For economic efficiency, do you want prices to be fixed or flexible or a mix of both? Why or why not? Use graphs to explain your answers and be as thorough as possible.

2. Political economy is very important in the discussion of economic policy. Politics will always exist but the need for strong and stable institutions are things that must be the cornerstone of any strong efficient economy. Explain the concept of the political business cycle and why it suggests that strong independent institutions, such as an independent central bank are needed. Why do institutions such as the central bank need to be independent from other forms of government such as the department of finance? Use examples that show that good economic policy will usually come only if strong independent institutions exist that resist political pressure. Be as detailed and thorough as possible.

3. Monetary and fiscal policy is what central banks and the governments conduct in order to achieve their objectives. How effective is fiscal and monetary policy when we have a) fixed exchanges rates or b) flexible exchange rates? Explain both alternative a) and b) in your answer as fully as possible.

4. What is money and what are some ways we can define it? How will digital currency affect the way we look at money in terms of measurement of money in the economy and how will it affect how monetary policy is conducted in the future?

5. Compare and contrast the advantages and disadvantages of inflation targeting. Do you think the analysis would be different if we answered this question pre versus post COVID?

6. What is monetary demand and why is it so important to understand when conducting monetary policy? How does money demand interact with the money supply to determine interest rates? What are factors that shift the money demand curve? If money supply is exogenous, how does a fall or rise in money demand impact interest rates and the economy? Explain.

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