Search & Filtering
1. In the traditional macroeconomic framework (under open or closed
economy), all macroeconomic variables can somehow be categorized as
part of the aggregate demand and aggregate supply with equilibrating
prices. List as many macroeconomic variables as possible and categorize them under sub-equilibrium and eventually under demand supply
framework. [Hint: Use the goods market, the money market, the labor
market equilibrium, and technology].
2. Transmission mechanism is the process by which changes in the monetary sector (money market) affects variables such as income in the real
sector (goods) market. Discuss.
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?
5. Consider two authorities: the Ministry of Finance (MOF) of Ethiopia,
and the National Bank of Ethiopia (NBE). Suppose these authorities
have two major policy goals namely internal balance and external balance.
(a) What are the major targets under the goals of achieving internal
and external balances?
(b) To achieve the two goals, at least two policy instruments are required. Suggest two policy instruments of achieving the goals of
internal and external balances.
(c) The assignment problem: Using the Swan diagram, demonstrate
and discuss the conditions under which each authority is assigned
to the particular policy goal.
10. Distinguish between growth correlates and fundamental causes of growth.
11. Discuss how history, and aspiration failure explain differences in the
trajectory of economic growth of economies.
12. Consider two cultures X and Z. In culture X, parents live for their children and grandchildren where their current income is divided among
current consumption, saving for retirement, and investment in the education of their children. In culture Z, children are born as assets for
their parents so that the current generation expects to be taken care of by the future generation. Output produced by the younger generation is divided into proceed and bequest for parents, and investment
for future self-sufficiency.
(a) What is the direction of flow of resource of investment in the two
cultures?
Consider three of the stylized facts of economic growth: (i) there is a
sheer level of difference across countries in terms of level of income, (ii)
there are differences in long-run growth of economies in the world, and
(iii) economic positions of countries are not immutable.
(a) Discuss how the Solow growth model addresses the three stylized
facts.
(b) What are the major contributions of the Ramsey-Cass-Koopmans
model over the Solow model? How do they differ from the Solow
model in terms of their implications for the three stylized facts
above?
(c) What is the major shortcoming of the Solow growth model?
(d) The AK models are the first generation models in an attempt to
endogenize technology. Why are they still categorized as neoclassical growth models?
(e) Whose works mainly constitute the AK models?
(f) Briefly discuss how theories of expanding varieties, quality ladder,
and technological transfer attempt to fill the gaps in the neoclassical growth model in addressing the three stylized facts?
Consider two small open economies A and B which opted to adopt a
floating exchange rate regime, and a fixed exchange rate regime, respectively. While Country A wants to exercise fiscal policy, Country B
wants to exercise monetary policy.
(a) What are the possible reasons for Country A to adhere to exercising fiscal policy instead of monetary policy?
(b) According to the Mendel-Fleming model and the monetary approach to the balance of payment, what should be the position
of Country A on the policy of liberalizing its (foreign) capital account, i.e. capital mobility? Discuss the reason.
(c) What should be the position of Country B on the policy of liberalizing its (foreign) capital account, i.e. capital mobility? Discuss
the reason.
The budget deficit tends to decrease when
Suppose an increase in air pollution causes capital to wear out more
rapidly, doubling the rate of depreciation. How would this affect
economic growth?
How to reduce budget dificit in an economic advisor
3. Consider an economy with the following aggregates:
Consumption function: C = 50 + 0:8Yd, where Yd is disposable income
Autonomous investment: I¯ = 70
Government expenditure: G¯ = 200
Government transfer: TR = 100
Tax rate: t = 0:20
(a) Calculate the equilibrium level of income, the multiplier, and the
budget surplus in this model.
(b) Suppose that the marginal propensity to consume increased permanently to 0.9. What is the impact of this increase on the level
of equilibrium income and the multiplier?
(c) Suppose that the tax rate t increases to 0.25. Calculate the new
equilibrium level of income, the budget surplus, and the multiplier.
