Macroeconomics Answers

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.

QUESTION TWENTY

The Bank of Zambia’s monetary policy committee lowered its policy rate by 125 basis points to 8%

on 18th August responding to the growing COVID-19 crisis. Discuss what would happen to all the

necessary components of the Balance of Payment for Zambia. Please, explain clearly how this would

affect the exchange rate. [15 marks]

QUESTION NINETEN

Suppose the income levels of our small country, Zambia suddenly increases fromY1 to Y2, use the

monetary approach to explain this change adequately. If on the other hand, we assume that Zambia

uses a pegged exchange rate, show using the monetary approach how such a sudden upswing in income

would affect the BOP and the economy at large. If you feel that there is need to illustrate the scenario

above graphically, you can draw a well-labelled graph. [15 marks]

QUESTION ONE

a. What is economic integration?

b. Briefly discuss the history of SACU and its functions.[15 marks]

QUESTION SEVENTEEN

There are different financial instruments to hedge the exchange rate risk. The main text mentions three

financial instruments: forwards, swaps and options. Explain what these instruments entail and which

of them is most fit to secure that at a specific time a certain amount of foreign currency can be

exchanged to local currency against a predetermined exchange rate. [15 marks]

QUESTION SIXTEEN

Suppose you own a car assembly line in Zambia. The different parts of the car are imported

from the South Africa and the assembled cars are exported back to the South Africa.

a. What happens to the price of the imports when the Zambian kwacha depreciates?

b. Does your car become more or less attractive for South African consumers when the

Zambian kwacha depreciates? Explain.

c. As a Zambian producer, do you think the depreciation of the kwacha is a good

thing? [15 marks]

QUESTION FIFTEEN

On Monday the 1" of November 2004 the dollar/euro exchange rate was 1.2748 and the dollar/euro 12

months forward exchange rate was 1.2717.

a. Calculate the annual forward premium of the euro and the dollar.

b. Explain whether the forward premium indicates that investors expect the curo to appreciate or

depreciate in the future.

c. If you expect that the euro will appreciate in the future, should you buy or sell a forward euro

contract? [15 MARKS]

Discuss practically how the coronavirus has affected international trade. [15 marks]