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Econ 302 Assignment 2 Fall 2014




Question;Note: The rst two questions are fairly broad and are meant to evaluate your understanding of the key macroeconomic frameworks we have studied so far. Answer them with extreme care. Be careful of plagiarism, your work cannot closely mimic another student's submission.1. In the long-run, the nominal interest rate is determined by a number of macroeconomic fundamentals. Write the formal model of nominal interest rate determination and describe how the various macroeconomic variables aect nominal interest rate. In elaborating how the variables aect nominal interest rate, you may need formal models (graphs and equations) to explain each of the variables you link to nominal interest rate (25 points)2. Use the formal model of nominal exchange rate determination to explain how various foreign and domestic macroeconomic variables aect exchange rate. The linkages have to be clearly indicated (using formal equations and graphs, when possible). (30 Points)3. Explain how expected ination aects the actual price level. Use a formal model and explain using intuitive reasoning (15)4. The dierence between short-run and long-run theoretical frameworks are simply hinged on one key assumption. What is this assumption and how does it imply the key difference between the short- and the long-run frameworks?


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