Macroeconomics Answers

An economy is currently in equilibrium. The following figures refer to elements in the national

income accounts.

$ Billions

Consumption (total) 60

Investments 5

Government expenditure 8

Imports 10

Exports 7

g. Given an initial level of national income of $80 billion, now assume that spending on exports

rises by $4 billion, spending on investment rises by $1 billion, whilst government expenditure

falls by $2 billion. By how much will national income change?

You are a manager at Glass Inc. a mirror and window supplier. Recently, you conducted

a study of the production process for your single-side encapsulated window. The results

from the study are summarized below and are based on the eight units of capital

currently available at your plant. Workers are paid $60 per unit, per unit capital costs

are $20, and your encapsulated windows sell for $12 each. Given this information,

optimize your human resource and production decisions. Do you anticipate earning a

profit or loss? Explain carefully.

Labor Output

0 0

1 10

2 30

3 60

4 80

5 90

6 95

7 95

8 90

9 80

10 60

11 30

What is a multiplier

Consider the following Cobb Douglas Production Function:

Y =√K √N

when K = 49 and N = 81

2.2 Is this production function characterised by constant returns to scale? Demonstrate.

Using the multiplier process, explain the effect of a rise in investment on output and price in

an economy.

Think of a good or service you might like to provide to your community. Then, describe how you would supply the good or service. How would you go about estimating demand for your good or service? Evaluate whether there would be enough demand for there to be a “market” for your good or service.

What are the two main types of asset price bubbles? Discuss some of the policy responses

to possible bubbles.

Explain the dynamics of financial crisis.

What is inflation targeting? Elaborate its usefulness in the short-run and the medium-run.

Since the effects of policy are uncertain, more active policies lead to more uncertainty. 

Explain this statement in the context of using monetary policy as a tool to expand output 

during recession.