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What is most likely to happen to inflation and real output growth if a government raises taxes and its economy has a year of excellent weather for growing crops? Illustrate your verbal answer with a graph. Label everything!
1. Draw indifferences curves to represent each of the following type of preferences.
(i) A customer is always pleased to change 5 sweet candy for 1 chochlate bar.
(ii) A customer always desires 2 glasses to wear with 1 frame.
- Assume that in 2015, the following prevails in the republic of Nurd
Y= $200
C= $160
S= $40
I (Planned)= $30
G= $0
T= $0
d. Suppose Y = $200, C = $160, S = $40, and I = $40. Is Nurd’s economy in equilibrium?
e. Starting with the situation in part d, suppose the govern-ment starts spending $30 each year with no taxation and continues to spend $30 every period. If I remains constant, what will happen to the equilibrium level of Nurd’s domestic product (Y)? What will the new levels of C and S be?
f. Starting with the situation in part d, suppose the govern-ment starts taxing the population $30 each year without spending anything and continues to tax at that rate every period. If I remains constant, what will happen to the equilibrium level of Nurd’s domestic product (Y)? What will be the new levels of C and S? How does your answer to part f differ from your answer to part e? Why?
- Assume that in 2015, the following prevails in the republic of Nurd
Y= $200
C= $160
S= $40
I (Planned)= $30
G= $0
T= $0
Assume that households consume 80 percent of their income, they save 20 percent of their income, MPC = 0.8, and MPS = 0.2. That is, C = 0.8Yd and S = 0.2Yd.
a. Is the economy of Nurd in equilibrium? What is Nurd’s equilibrium level of income? What is likely to happen in the coming months if the government takes no action?
b. If $200 is the “full-employment” level of Y, what fis-cal policy might the government follow if its goal is full employment? c. If the full-employment level of Y is $250, what fiscal policy might the government follow?
c. If the full-employment level of Y is $250, what fiscal policy might the government follow?
Suppose the marginal propensity to consume (𝑀𝑃𝐶 = 𝑑𝐶⁄𝑑𝑌) is given by 10𝑌 1 5 − 4𝑒 − 1 4𝑌 + 1, where Y is the level of income and C is the level of consumption. When income is 0, consumption is 360. Find the consumption function.
Suppose that you are the economic advisor to the President of Djibouti. As per
your assessment the country’s exchange rate falls too low. As a result you
recommend Djibouti to reduce its budget deficit in order to raise the exchange
rate.
Use the long-run model of a small open economy (assuming Djibouti as a
Small Open Economy (SEO)) to illustrate graphically the impact of
reducing the government's budget deficit on the exchange rate and the
trade balance. Be sure to label:
i. the axes
ii. the curves
iii. the initial equilibrium values
iv. the direction the curves shift
v. the new long-run equilibrium values.
b. Based on your graphical analysis, explain whether your policy
recommendation will work. Specifically state what happens to the exchange
rate and the trade balance as a result of the government budget deficit
reduction
What is the relationship between the neoclassical theory of investiment and the way firms make their investiment decisions in practice?
Assuming that the UAE economy is in recession. What are the implications of this indicator? Why might this indicator be inaccurate
How does great depression and great MEDERATION PERIOD related to Nigeria economics
Between January and December 1991, while the U.S. economy was falling deeper into its recession, the interest rate on Treasury bills fell from 6.3 percent to 4.1 percent. Use the IS-LM model to explain this pattern of declining output and interest rates. Which curve must have shifted? Can you think of a reason—historically valid or simply imagined—that this shift might have occurred?
