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Macro Assignment 2

The document provides instructions for Assignment 2 for the course ECON2021D Basic Macroeconomics at the Chinese University of Hong Kong. It outlines the submission requirements, including submitting handwritten answers on white paper by the deadline of March 1st 2021. It also notes that the assignment aims to help students prepare for the final exam rather than testing ability. Students will receive a grade of pass or fail based on submitting answers, regardless of accuracy. The assignment contains 4 questions relating to the money multiplier, money supply, deposit insurance, and effects of financial contract risks on money demand and interest rates.

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ching lam
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71 views2 pages

Macro Assignment 2

The document provides instructions for Assignment 2 for the course ECON2021D Basic Macroeconomics at the Chinese University of Hong Kong. It outlines the submission requirements, including submitting handwritten answers on white paper by the deadline of March 1st 2021. It also notes that the assignment aims to help students prepare for the final exam rather than testing ability. Students will receive a grade of pass or fail based on submitting answers, regardless of accuracy. The assignment contains 4 questions relating to the money multiplier, money supply, deposit insurance, and effects of financial contract risks on money demand and interest rates.

Uploaded by

ching lam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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The Chinese University of Hong Kong

ECON2021D Basic Macroeconomics


2nd term, 2020-21

Assignment Two
Submission deadline: 5:00pm, 1st March 2021
[To make sure that you submit by the deadline, you are advised to submit one hour
before the time above]

General instructions:
1. You should submit your assignment via Blackboard and strictly comply with the
requirements as can be found in the introduction for Assignment 1 posted on Course
Content, Blackboard. Some of these are reproduced as “specific instructions” below.
2. All the questions below are of similar format and difficulty to the final exams of my classes.
My goal is to provide you some exercises that help you cope with the final exam instead of
testing your ability in this occasion. Hence, the marking standard is deliberately SOFT. You
will be either given a grade of “PASS” or “FAILURE”. So, submission is all-important for
getting the marks from assignments. Non-submission always implies “FAILURE”. You
should not worry too much about whether you can submit correct answers for grading,
provided that you have really spent time on thinking about the solutions and practise.
3. Don’t waste time on plagiarizing. You will get a “PASS”, provided that you have shown
sufficient efforts exerted, regardless of whether your answer is 50% or 100% correct. But
you will surely learn nothing if you haven’t tried doing the questions yourself. On the other
hand, you should feel free to discuss your answers with your classmates. We emphasize more
on the process of thinking about, instead of the results of, assignments.
4. We will discuss assignment answers in tutorials after the submission deadlines. Nevertheless,
our policy is NOT to post any answers on the web. We will NOT release any softcopy or
hardcopy of answers. The only way for you to get the answer is to attend tutorials for the
verbal explanations given by tutors.

Specific instructions:
Submission format:
1. You should prepare sufficient white papers as your answer sheets. Don’t use papers
with colour(s). Don’t type. Answer by handwriting.
2. Before answering any questions, write down the following on the first page: (a) Student
Full Name in Block English, (b) Student ID in CUHK, (c) The course code, and (d) the
assignment number (e.g. write "Assignment 1").
3. Always use a new page when answering a new question. Also, write down the relevant
question number at the beginning of your answer to that question (e.g. “Q1 or
question 1”).
4. Write down the page number of each page clearly.
5. When you finish, take photos of all the answer pages in consecutive sequence, and
submit the photos via Blackboard. Alternatively, you can scan all the answer pages in
consecutive sequence and combine them into a single pdf file. The photos for
submission must be properly taken. In particular, a demo has been uploaded and you
should submit in a form similar to it.
Notes:
1. Combing pages into one file enables you to submit faster. If you don't have a
pdf software for combining pages into a single file, you can download this pdf editor for
free. You should choose ‘FREE’ when there is option to choose during installation. You
had better try it well before your submission.
2. If the marker finds that he cannot mark your submission due to the improper format
(find "photo submission format" in the Blackboard introduction of Assignment 1), he
will send you email to require re-submission. So, marks will be reduced if you fail to
comply with the requirements above.
Punctuality: Late submission will be given zero mark.
1. Briefly explain the impact of the introduction of deposit insurance on the money multiplier
and money supply. Deposit insurance guarantees depositors can get back all (or most) of
their money in bank accounts even if the banks are bankrupt.

2. At the end of 2008, the United States Federal Reserve and Treasury Department announced
programs to purchase various assets, such as mortgage-backed securities or even commercial
bills, from banks. Briefly explain how such actions will affect the money supply. (Please
provide the definition of M1 and explain if the above action will directly affect M1.)

3. The general public perceives a possibility of bankruptcy in banks (in the absence of deposit
insurance) because of the surge of bad debts.
(a) How will the money multiplier and money supply be affected? Briefly explain.
(b) Use diagrams to describe how the LM curve will be affected. Please indicate the
money-market equilibrium interest rate and output clearly in your diagram.

4. People normally invest in various financial assets, including bonds. Meanwhile, they hold
money to facilitate transactions.
(a) The rights and obligations of holding financial assets are specified in financial
contracts. Now, legal experts discover a major shortcoming in these contracts, which
implies asset holders will suffer from higher risks. What is the impact on money
demand upon announcement of the finding? Briefly explain.
(b) How LM curve will be affected, assuming a fixed money supply? Draw a diagram to
illustrate. You should also draw the diagram for money market.

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