Macroeconomics Answers

Suppose that there are only two goods produced in the economy, Call center services and banking services. Prices (P), quantities (Q) and the number of workers (W) occupied in the production of each good for year 1 and year 2 are given by the following table : Year 1 Year 2 Two products P1 Q1 W1 P2 Q2 W2 Call centre 10 100 50 12 100 50 Banking 10 200 50 12 230 60 a. What is nominal GDP in each year? 

When households attempt to increase saving but end up by saving no more than before the attempt, they have encountered:

what does the multiplier effect sujest

1. The ratio of nominal GDP to real GDP is known as the:

Suppose that there are only two goods produced in the economy, Call center services and banking

services. Prices (P), quantities (Q) and the number of workers (W) occupied in the production of

each good for year 1 and year 2 are given by the following table :

Year 1 Year 2

Two

products

P1 Q1 W1 P2 Q2 W2

Call centre 10 100 50 12 100 50

Banking 10 200 50 12 230 60

a. What is nominal GDP in each year? ( 2 marks)

b. Using year 1 prices, what is real GDP in year 2? What is the growth rate of real GDP?

( 2 marks)

c. What is the rate of inflation using the GDP deflator? ( 2 marks)

d. Using year 1 prices, what is real GDP per worker in year 1 and year 2? What is labour

productivity growth between year 1 and year 2 for the whole economy?

Question 4: List and explain various majors (indexes) of human welfare. Compare the Human Development Index (HDI) for major Pacific Island Countries and write critical analysis. ( 5 marks) Question 5: a) How is money supply different in a fixed compared to a flexible exchange rate system? b) Explain why does monetary policy lose autonomy in a fixed exchange rate system ? c) Explain the assumptions of flexible exchange rate and fixed exchange rate. Which is an appropriate system for an small island economy of the Pacific ? ( 5 marks) Question 6 (a)Why is the amount of R&D spending important for growth? How do the appropriability and fertility of research affect the amount of R&D spending? (b) How do each of the policy proposals listed in (i) to (iv) affect the appropriability and fertility of research R&D spending in the long run, and output in the long run?

Suppose that there are only two goods produced in the economy, Call center services and banking services. Prices (P), quantities (Q) and the number of workers (W) occupied in the production of each good for year 1 and year 2 are given by the following table Year 1 Year 2 Two products P1 W1 P2 Q2 W2 Call centre 10 100 50 12 100 50 Banking 10 200 50 12 230 60 b. Using year 1 prices, what is real GDP in year 2? What is the growth rate of real GDP? What is labour productivity growth between year 1 and year 2 for the whole economy? Now suppose that banking services in year 2 are not the same as banking services in year 1 because they include internet banking, which year 1 banking services didn’t include. The technology for internet banking was available in year 1 but the price of banking services with internet banking in year 1 was $13 and no one chose that package. However, in year 2 the price of banking services with internet banking was $12 and everyone chose to have that package in year 2

Answer the following questions about marginal propensity to consume and the multiplier. First provide the correct equation and then show your work to arrive at the answer:

What is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3?

If disposable personal income is 10 and consumption is 12, what is personal savings? What does this mean?

What is the multiplier when the change in equilibrium level of real GDP in the aggregate expenditures model is 9, and change in autonomous aggregate expenditures is 3?

What is the multiplier when the marginal propensity to save is 1/3?

What would happen to the marginal propensity to save when a tax cut was enacted causing the multiplier to change to 5?

Assume the economy of a country is currently operating at short-run equilibrium and producing $500 million in real GDP at a price level of $50. However, the full employment rate of output in Johnsrudia is $300 million. Draw a correctly labeled graph of the AD-AS model that reflects this information. After that tell what happen?

Using the Cobb- Douglas production function and the following data:

Output (Y) = $ 6 trillion, rental cost (rc) = 0.15, the share of capital in output (γ) = 0.4

Calculate the desired capital stock (K*)

Now suppose that Y is expected to rise to $ 7 trillion. What is the corresponding K*?

Suppose the capital stock was at its desired level before the change in the income was expected.