Macroeconomics Answers

Define carefully the difference between movements along the AD curve and shifts of the AD curve. Explain why an increase in potential output would shift out the AS curve and lead to a movement along the AD curve. Explain why a tax cut would shift the AD curve outward (increase aggregate demand).  

1.     What would the expenditure multiplier be in an econ[1]omy without government spending or taxes where the MPC is 0.8 and the MPm is 0? Where the MPm is 0.1? Where the MPm is 0.9? Explain why the multiplier might even be less than 1. 

Descibe how the permanent income hypothesis makes current consumption a function of wealth and current labour income

Explain how money helps specialisation and trade to occur.

In a hypothetical economy, farmers grows wheat, which he sells to a miller at 50,000.the miller turns the wheat into flours,and sells to a backer for 70,000. The backer turns the wheat into bread and sells to the consumers for 1,10,000. Consumers eat bread.

A) compute gdp by using value added approach clearly mentioning value added at each activity level

B)does this example suggest another way of computing gdp, other than value added approach? If yes, suggest the name of the approach,compute gdp and compare the result which you found with the value of gdp computed by value added approach

2. In a hypothetical economy, farmer grows wheat, which he sells to a miller for Rs 40,000. The miller

turns the wheat into flour, which he sells to a baker for Rs 70,000. The baker turns the flour into

bread and sells to consumers for Rs 1,20,000. Consumers eat the bread.

a) Using Value added approach, compute GDP by mentioning value added at each activity level.

b) Who contributes more to GDP, farmer, miller or baker and how much?

c) Does this example suggest another way of computing GDP, other than Value added approach? If

yes, suggest the name of the approach, compute GDP and compare the result which you found

with the value of GDP computed by Value added approach.

2. In a hypothetical economy, farmer grows wheat, which he sells to a miller for Rs 40,000. The miller

turns the wheat into flour, which he sells to a baker for Rs 70,000. The baker turns the flour into

bread and sells to consumers for Rs 1,20,000. Consumers eat the bread.

a) Using Value added approach, compute GDP by mentioning value added at each activity level.

b) Who contributes more to GDP, farmer, miller or baker and how much?

c) Does this example suggest another way of computing GDP, other than Value added approach? If

yes, suggest the name of the approach, compute GDP and compare the result which you found

with the value of GDP computed by Value added approach.

Assume the Phillips curve is given by the simple equation U = - 1 + 16 The non-accelerating rate of unemployment is 8 percent. a. If inflation changes to 13 percent, what will be the unemployment rate in the short run? bWhat will it be in the long run?

Suppose a country has total GDP(Y)=\$12 trillionconsumption (C)=\$8 trillion government spending (G)=\$2 trillion Investment $3 trillionand taxes . a. What is the level of net exports or balance of tra $trillion bWhat is the level of public savings? What is the level of private savings? $ trillion What is the level of net capital outflow ?

Suppose we observed an economy in which changes in the money supply produce no changes whatever in nominal GDP. What could we conclude about velocity?

8. Suppose price levels were falling 10% per day. How would this affect the demand for money? How would it affect velocity? What can you conclude about the role of velocity during periods of rapid price change?

9. Suppose investment increases and the money supply does not change. Use the model of aggregate demand and aggregate supply to predict the impact of such an increase on nominal GDP. Now what happens in terms of the variables in the equation of exchange?