Economics Section A And B

Economics Section A And B

EFIM10027 Economics 2 Coursework brief 2019-20

1. Instructions related to the coursework

i) You should answer ONE question from Section A and ALL questions from Section B.

ii) Total word count should be according to the instructions in each question. Answers

longer than this are unlikely to be sufficiently concise, whilst answers shorter than this will likely not be sufficiently detailed which is likely to impact the academic mark.

iii) Assignments must be submitted through the online submission point on Blackboard. iv) Your assignment will be checked for plagiarism through TurnitIn v) You should attach the coversheet (available on Blackboard) to your assignment before

submission. vi) The DEADLINE for submission is 13:00 Tuesday 26th May.

Late penalties

Assignments handed in after the deadline, without a pre-arranged extension will be subject to the following penalty:

• A fixed absolute penalty of 10 marks is applied for each working day work is submitted after the agreed submission deadline. A mark of zero is applied to work submitted five or more working days after the agreed deadline if this threshold is not already reached.

2. Assignment brief

SECTION A Answer ONE of the following two questions

Question 1 [Your answers in (a) and (b) should not exceed 800 words in total] In late March, Indian Prime Minister, Narendra Modi, put 1.3 billion people under a three-week lockdown. At the same time, Reserve Bank of India slashed interest rates in an effort to counter the economic fallout. In combination with monetary policy, the Indian government as well as many other countries have introduced a stimulus package.

(a) Consider the fact that before the pandemic, India had a negative output gap. Using the three-equation model, show and briefly explain the prediction of the model regarding the effect of coronavirus and these policies on Indian’s short- run output.

(b) Explain the effect of the 2020 pandemic crisis on sovereign debt for any advanced or emerging economy following a strong stimulus package. You may use relevant equations, collect any data and present statistics.

[50 marks]

OR Question 2 [Your answers in (a) and (b) should not exceed 800 words in total.]

 

 

The surge in unemployment in the United States caused by the Covid-19 pandemic shatters all previous records. The official jobless rate is predicted to rocket from just under 4% to at least 20%. Meanwhile, the Office for Budget Responsibility (OBR) warned the pandemic could see the UK economy shrink by a record 35% by June.

(a) Explain how you perceive the relationships between output gap, unemployment and inflation will evolve during and after the pandemic in the United Stated or in the United Kingdom. You may collect any data and present statistics. The OBR report is found here. In your analysis focus on sectors that have been greatly affected by the pandemic.

(b) Show and explain one way in which the Diamond-Mortensen-Pissarides model predicts higher long-term unemployment due to Covid-19 in the United States.

[50 marks]

SECTION B Answer ALL questions

Question 3: True or False Answer the following five questions. Indicate whether the statements are true or false. Where necessary, write no more than three sentences to explain your answer. Only your first three sentences will be taken into account. If a question requires only workings simply show your workings.

(i) An industry has two colluding firms that act so as to maximize total profit in the industry and then split the profits equally. Firm 1 has cost function ????(????) = 8???? where ???? is output. Firm 2 has cost function ????(????) = ????'. Each firm produces an integer number of units. Market demand is given by ????(????) = 56 − ????.

Each firm should produce 12 units.

(ii) A player has two possible venues to choose from: going to a day-time concert or going to the theatre. The payoff from each of these alternatives will depend on the weather. The following table gives the agent’s payoff in each of the two relevant weather events: Payoff if ‘rain’ Payoff if ‘sunshine’ Concert 1 2 Theatre 3 0

Let ???? be the probability of rain. The optimal decision for the agent if ???? ≥ .

' is

to go to the concert.

(iii) In a Nash equilibrium, everyone must be playing a dominant strategy.

(iv) Consider the following game:

 

 

(D, u) is the only subgame perfect equilibrium.

(v) Boris and Donald go to a party together. Boris is there first; if he leaves

without waiting for Donald, he gets a payoff of one. If he waits for Donald, it’ll only be fun if Donald stays for a while. If Donald leaves right away, Donald gets a payoff of one while Boris gets zero (the waiting got on his nerves and his overall payoff is zero). However, if Donald decides to stay, Boris has to make one final decision - he can stay the rest of the evening in which case he bores Donald to death, he gets 3 and poor Donald gets 0. Or he can leave after he and Donald talked for a while in which case, they both get 2. The unique subgame-perfect Nash equilibrium of this game is: Boris leaves right away without waiting for Donald.

[25 marks]

Question 4 Panic buying and mass gatherings in parks after lockdown announcements in the UK during the epidemic, can be demonstrated as coordination problems. One of the most famous is known as the tragedy of the commons.

(i) Briefly describe what the tragedy of the commons is. How is it related to the reaction of individuals in lockdown countries?

(ii) Create a payoff matrix representing either of the coordination problems (panic buying or mass gatherings). Solve for the Nash Equilibrium. Explain three ways in which panic buying be eliminated in order to achieve the Pareto optimal outcome.

[25 marks]

End of Assignment 3. What we expect from the assignment

You will be assessed on how well you understand and present the theory and evidence and how you use both to support arguments where the question asks you to.

We will be looking at the following two elements

• Theory – use of economic models and concepts to support arguments

A B

1,2

3,2 2,0

U

D

u

d

 

 

• Wider evidence – discussion of relevant, wider literature or news articles that is relevant to the questions.

• Concise, precise and clear answers. If a diagram or mathematical derivation is necessary, we expect that these will be clearly shown. If a diagram will be drawn by hand it must be extremely clear for the examiners to take it into account. You are advised to use the maths editor and the drawing canvas where possible. The videos on blackboard should guide you through.

One of the most important skills to be demonstrated in this coursework is the ability to provide short, concise answers.

 

4. Overall mark The assignments will be marked with reference to marking criteria. We will take a holistic view of each question and reward you accordingly. Assignments may have first class elements (such as a good discussion of a single question), but due to the overall quality may gain a lower grade. Similarly, an assignment may have a weak section, but because of overall strength, could be awarded a first. Presentation matters. Watch the videos online on how to present maths and diagrams in Word.

5. Referencing You might need to reference a statement found in a newspaper or in a paper for some of your answers. Due to the word limit, you might want to simply rephrase a statement using your own words. Where needed, you should reference using a consistent referencing system, such as the Harvard referencing system; you should normally cite sources in the text. As a general rule, you should avoid using footnotes to reference. For example: Burgess et al (2013) use the abolition of league tables in Wales to estimate the impact of… If you include a quote, it should be in quotation marks, and a page number included in the in-text reference. For example: Burgess et al (2013, 58) find “a relative decline of 1.78 GCSE grades per student per year” In your bibliography do not list papers in your reference list that you have not referenced in the assignment. References Burgess, S., Wilson, D., and Worth, J., (2013) “A natural experiment in school accountability: The impact of school performance information on pupil progress”, Journal of Public Economics, 106, pp57-67.