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Principles of Economics Short-answer Assignment (20% of final mark) 2000 words MAX 1. Use the AD-AS model to show how a recession can occur due to a fall in investor confidence. Assuming the government was interested in bringing the recession to an end, describe the fiscal and monetary policy responses most likely to serve that objective. 6 marks 2. If the actual unemployment rate fell below the ‘natural rate of unemployment’, explain [don’t just describe] the likely impact on inflation. [Define your terms.] 6 marks 3. Using the data in Table 1, calculate the participation rate, employment rate and the unemployment rate for year 1 and year 2. [Define your terms.] 3 marks 4. Using the data in Table 1, explain how it is possible for the employment rate and the unemployment rate to rise simultaneously. 5 marks Table 1 year 1 year 2 millions millions employed 12 13 unemployed 2 3 labour force 14 16 working age population 16 16
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