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7. Suppose the velocity of money is constant and potential output grows by 5% per year. For each of the following money supply growth rates, what will the inflation rate be? a. 4% b. 5% c. 6%
If consumption function is given as c= $25+0.8Y where yd=y-t ,tax rate=10% investment=$50 calculate equilibrium level of income as well as the government expenditure multiplier.
Country A and B are two main trading partners. A sells mainly raw materials to B, while B sells mainly consumption goods to A. There was a major technological breakthrough in the extraction technology which drastically reduced the cost of production in country A
Describe the initial set-up between the two economies (5 mks)
Analyse the effects of thee change on the two economies (5 mks)
An open economy with a chronic deficit in the current account as well as in the governments budget. To address the problem the government proposes to cut spending and curtail all public purchases from abroad.
Explain why the government concerned. (2 mks)
Describe effects of the proposed policy on an economy where there is no capital mobility and there is a fixed exchange rate policy. (8 mks)
Consider the following model of National Income determination
C= 3000 +0.75 (Y-T)
T=1000
I= 4750
G=1500
Y=E=C+I+G
Required:
Solve for the equilibrium values for all the endogenous variables (4 mks)
Suppose government expenditure increases by 50 find the new equilibrium values of the endogenous variables (4 mks)
Calculate the value of the government spending multiplier (2 mks)
Use the AD-AS model graph to explain the effect of a negative supply shock on the price levels and output levels in the economy
Population: 60 Million
Out of Labour force: 10milion
Unemployed People: 10million
Employed people: 25million
a.Calculate the non-participation rate
b. Calculate the labour force
c. Calculate the unemployment rate
d.calculate the labour force participation rate
In the Keynesian model, an introduction of a proportional tax will:
Discuss the three broad functions of the government
a) Consider the following model of National Income determination
C= 3000 +0.75 (Y-T)
T=1000
I= 4750
G=1500
Y=E=C+I+G
Required:
i. Solve for the equilibrium values for all the endogenous variables (4 mks)
ii. Suppose government expenditure increases by 50 find the new equilibrium values of the endogenous variables (4 mks)
iii. Calculate the value of the government spending multiplier (2 mks)
