Section A – use a Section A answer book

Answer ONE question

1       (a)     GDP per capita in Luxemburg is roughly 2.5 times the EU 28

average. Ireland’s GDP is over 1.8 times the EU 28 average   and Germany’s about 1.2.  The GDP per capita of the UK,      France and Italy are close to the EU average. What factors do we need to bear in mind in interpreting these statistics?

(b)     Imagine that the government decides to increase

unemployment benefits. How would this change both       government expenditures and consumption? Explain your answer.

(70 marks)

(30 marks)

2       In 2003, the economists John T Addison and Paulino Teixeira                 (100 marks)

surveyed the early empirical literature studying the effects of             employment protection on employment (Addison, John T. and           Paulino Teixeira, “The Economics of Employment Protection,”           Journal of Labor Research, 2003, 24 (1), 85– 128.). Most of the         studies they surveyed pointed to a negative relation between             employment protection and employment. And some studies pointed  to a particularly negative relation between employment protection     and youth employment. Discuss these results in light of the effects of employment protection on the job separation and job finding              probabilities.

Section B – use a Section B answer book

Answer TWO questions

3       (a)    Assume that both government transfers and taxes increase

in the same amount and simultaneously there is a rise in    consumers’ confidence. Using the Keynesian Cross model, comment on the combined effect of all these disturbances  on output.

(b)     Using the IS-TR model, contrast the effect on output of an

increase in taxes when the economy is and is not on the zero lower bound.

(50 marks)

(50 marks)

4       The OECD reported a drop in the average business confidence index in OECD countries in 2018. Using appropriate diagrams, answer the following questions.

(a)    Would the drop in business confidence have different

effects on output in the context of the IS-LM and AD-AS models in the short run?

(b)    Would the drop in business confidence have different

effects on output in the short run and long run? In

answering this question, use the AD-AS model.

(60 marks)

(40 marks)