Macroeconomics Answers

Distinguish between growth correlates and fundamental causes of growth

3. Suppose a country targets an income level of Y ∗.

(a) Demonstrate, using graphs, that either fiscal or monetary policies

can be used to achieve the targeted level of income.

(b) What are the possible reasons for a country to opt for a particular

policy (fiscal or monetary) while both of them can yield similar

level of income?

4. A country faced an unexpected build-up of foreign exchange earning

following a positive price shock on the country’s main export in the international market. This gain was, however, accompanied by a soaring

inflation. How and under what conditions, if any, can the build-up of

the foreign exchange reserve trigger inflation?

If technological change increases structural unemployment, why do most governments and economists encourage such change?

6. Suppose that declining resource supplies reduce potential output in each period by 4%. What kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?

2. As the economy slipped into recession in 1980 and 1981, the Fed was under enormous pressure to adopt an expansionary monetary policy. Suppose it had begun an expansionary policy early in 1981. What does the text’s analysis of the inflation-unemployment cycle suggest about how the macroeconomic history of the 1980s might have been changed?

1. The Case in Point titled “Some Reflections on the 1970s” describes the changes in inflation and in unemployment in 1970 and 1971 as a watershed development for macroeconomic thought. Why was an increase in unemployment such a significant event? 

The text outlines three kinds of unemployment: Frictional, Structural, and Cyclical. The Bureau of Labor Statistics describes a fourth kind, seasonal unemployment, as: “The seasonal fluctuations in the number of employed and unemployed people reflect not only the normal seasonal weather patterns that tend to be repeated year after year but also the hiring (and layoff) patterns that accompany regular events such as the winter holiday season and the summer vacation season.” Of the four, structural unemployment is the most challenging for people.

In this discussion assignment, provide an example of each kind of unemployment you have either experienced or witnessed. Consider what you might personally do to avoid structural unemployment in your own career.

Suppose you have the following production function: Q =f(L,K)=10L^1/2K^1/2 in addition, the price of labor is $1 and the price of capital is $4

a) what is the optimal amount of labor and capital if you want to produce 20 units?

b) what is the level of minimum cost ? (Ans L=4 and K=1, Min C=$8)

Suppose that you are the member of the Board of Governors of

the State Bank. 

The economy is experiencing the severe

unemployment. What changes in

A. The Reserve Ratio

B. The Discount Rate

C. Open Market Operations

would you recommend? Explain in each case how the change you advocate would affect

the money supply, interest rate and aggregate demand and authenticate your arguments

with monetary transmission mechanism diagram.