Macroeconomics Answers

 The text notes that changes in oil prices can affect the inflation unemployment outcome. Explain what effect changes in oil prices may have on these two variables.

5. The introduction to this chapter suggests that unemployment fell, and inflation generally fell, through most of the 1990s. What phase (Phillips, stagflation, or recovery) does this represent? Relative to U.S. experience from the 1960s until the 1990s, what was unusual about this?

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?

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

• Definition of technological change
• Definition of structural unemployment
• Impact of technological change on employment
• Impact of technological change on future production
• Impact of technological change on the economy
• How does an economy recover from structural unemployment?
• What government actions help to facilitate this recovery?

Assume that in small open economy where full employement always prevails national saving is 300. If domestic investiment is I =400-20r

a, what is real interest rate be if the economy is closed

b, if the economy is open and the world interest rate is 10 percent what will investiment?

Suppose that the firm operates in a perfectly competitive market. The market price of its product is $10. The firm estimates its cost of production with the following cost function: TC= -4Q2+Q3 + 10Q + 2

A) What level of output should the firm produce to maximize its profit?

B) Determine the level of profit at equilibrium.

C) What minimum price is required by the firm to stay in the market?

Why does government impose price celling and price floor an certain commodity who are the beneficiaries of both

Briefly explain the meaning of gross domestic product (GDP) and gross national product

(GNP). Decide and explain either GDP or GNP is better to measure the economic

performance of the country.

4. What would be the shape of:

(a) The IS curve if investment does not depend on the interest rate?

(b) The LM curve if the demand for money does not depend on interest rate?

(c) The LM curve if the demand for money does not depend on income?

5. Consider an economy with levels of aggregates as follows:

Consumption function: C = 0:8 (1 − t) Y

Tax rate: t = 0:25

Investment: I = 900 − 50r

Government expenditure: G¯ = 800

Demand for money: L = 0:25Y − 62:5r

Money supply: M = 1000

Price level: P = 2

(a) Derive the IS and LM equations.

(b) Determine the equilibrium levels of income and interest rate.

(c) Calculate the full government spending multiplier, αG.

(d) By how much income and interest change for a unit change in

government spending allowing the money and goods market to

interact?

(e) How do you account for the difference between the value of the

government spending multiplier in (b) and the change in income

in (d)? (Hint: What happens to investment?)

Differentiate between the classical and Keynesian approach to the macroeconomic issues

1. Explain the following terms.

(a) Liquidity trap

(b) Monetary accommodation

(c) The Marshall-Lerner condition

(d) Crowding out

(e) Monetary transmission mechanism

(f) Neutrality of money

(g) Sterilization

(h) Devaluation