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1. Explain how the following changes in aggregate demand or short-run aggregate supply, other things held unchanged, are likely to affect the level of total output and the price level in the short run. a. An increase in aggregate demand b. A decrease in aggregate demand c. An increase in short-run aggregate supply d. A reduction in short-run aggregate supply 2. Explain why a change in one component of aggregate demand will cause the aggregate demand curve to shift by a multiple of the initial change. 3. Use the model of aggregate demand and short-run aggregate supply to explain how each of the following would affect real GDP and the price level in the short run. a. An increase in government purchases b. A reduction in nominal wages c. A major improvement in technology d. A reduction in net exports
Why Aggregate demand is derived from ISLM model in short 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 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?
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
- 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
