Answer all questions Please type all answers when possible

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UNIVERSITY

OF PRETORIA


DEPARTMENT

OF ECONOMICS




HONOURS



MONETARY ECONOMICS


Nicola Viegi

September 2010



Answer all q
uestions


Please type all answers

when possible




Submission Date


17.30 of the 6
th

of October 2010




Question 1


The
CC
-
LM Model
and the Current Financial Crisis




Use the CC
-
LM model of B
erna
nke and Blinder to describe the

different phases of the

economic
and financial
crisis affecting
industrialized countries

at the moment
.



If the economy is in a liquidity trap, how can monetary p
olicy have
a role in the recovery from the crisis?


Question 2


The Instruments of Monetary Policy




Most Central Banks use interest rate as the
instrument of
monetary policy. Justify this choice using the Poole model of
monetary policy under uncertain sho
cks.



In the context of this model, how do you justify the switch to
quantitative easing operated by Central Banks in industriali
zed
countries during the crisis?


Question 3


The
Independence and
Credibility of Monetary Policy