SECTION A
Attempt ALL THREE questions for a maximum of 20 marks each (60 marks in total)
1. Analyse how and why bond and share prices will be affected by an unexpected fiscal expansion. Will the outcome differ if the expansion is anticipated?
2. Explain how the permanent income theory changes the understanding of the factors affecting aggregate consumption in the economy, compared to a simple C = a + b(Y-T) relationship. How might this affect factors which can cause the IS curve to shift?
3. Distinguish between the concepts of government debt and government deficit and explain how they relate to each other. Analyse how the government needs to conduct fiscal policy to keep its debt levels manageable.
SECTION B
Attempt the ONE question (40 marks in total)
1. What factors underlay the house price booms in the US and UK in 2007/8? Discuss and analyse how this translated into a financial crisis in these countries and why it had a worldwide impact.
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