Macroeconomics Answers

If the demand and supply functions in a competitive market are (5marks) Qd = 50 − 0.2P Qs = −10 + 0.3P and the rate of adjustment of price when the market is out of equilibrium is dP /dt = 0.4(Qd − Qs) derive and solve the relevant difference equation to get a function for P in terms of t given that price is 100 in time period 0. Comment on the stability of this market.

If the price elasticity of demand for tractors priced between $4,000 and $6,000 is -0.75 (using the mid-point method), what will be the percentage change in quantity demanded when the price for tractors falls from $6,000 to $4,000?

Assume a linear demand function of the form:

Qd = 120 - 5P and a linear supply curve of the form:

Qs = -30 + 10P

Using these demand and supply functions, answer the following questions.

 Are the following statements true or false? Explain in each case. a. Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods. b. Certain talented people have a comparative advantage in everything they do. c. If a certain trade is good for one person, it cant be good for the other one. d. If a certain trade is good for one person, it is always good for the other one. e. If trade is good for a country, it must be good for everyone in the country.

Explain the difference between monetary loosening and monetary tightening

aggregate investment is independent of economic growth.” explain and critically appraise the economic theory underpinning this statement.

Employed 95,000

Unemployed 5,000

Not in the labor force 80,000

The labor force equals?

What factors determine the effectiveness of discretionary fiscal policy?

An economy is currently in equilibrium. The following figures refer to elements in the national

income accounts.

$ Billions

Consumption (total) 60

Investments 5

Government expenditure 8

Imports 10

Exports 7

g. Given an initial level of national income of $80 billion, now assume that spending on exports

rises by $4 billion, spending on investment rises by $1 billion, whilst government expenditure

falls by $2 billion. By how much will national income change?