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2. Suppose,
• C=0.8(1-t)Y
• t=0.25
• I = 900 –50i
• G=800
a) What is the equation for IS curve
b) What is the effect of increase in govt. expenditure by 100 on the IS equation & IS curve? Show the effect using graphs
c)What will happen to the slope of IS curve if Investment becomes more sensitive to interest, say I = 900 – 60i ?
Q6) The wage rate of labor is Rs. 6 and price of capital is Rs. 2. The marginal product of labor is 16 while marginal product of capital is 4. Can a firm be operating at equilibrium?
3. If inflation rises, why is a bond more likely to be sold at a discount to its face value? Explain, with reference to the bond’s coupon. (10%)
4. Using a supply and demand diagram, carefully explain how the January 2021 ‘short squeeze’ of GameStop (GME) caused its share price to rise dramatically. (10%)
1. Consider an economy in which GDP is $30 billion. Tax revenue is $7 billion, con- sumption is $15 billion,, and the government has a budget surplus of $2 billion. Show your work in each of the following questions. (10% each)
(a) What is the level of government spending?
(b) What is private saving?
(c) What is national saving?
(d) What is the level of investment?
2. Using a supply and demand diagram, explain how each of the following scenarios impacts the market for loanable funds. Show your work, and be specific about what happens to the equilibrium. (10% each)
(a) The government increases its debt, thus crowding out the loanable funds market. (b) The government starts a program that makes it easier for new homeowners to take out a mortgage.
(c) Technological improvements increase the profitability of investments for firms. (d) People’s values change, and they start to save more of their income.
Following macroeconomic data is given for a hypothetical economy. All Values are given in
Rs. Millions.
a) Compute Marginal Propensity to Save
b) Derive the saving function of this economy
c) Calculate the equilibrium level of national income.
d) If government purchases rise to Rs. 250 million, calculate the expenditure
multiplier and new equilibrium national income.
Consumption (C) 300 + 0.8Yd
Investment (I) 200
Taxes (Te) 100
Government transfer to household (Re) 80
Government Purchases (G) 150
Name three (03) characteristics of an Economic goods?
“Consumption and investment are complementary during deflation, but competitive at full
employment.” Discuss in detail.
Give 2 success, 2 examples and 2 reasons for Southern African Development Community and also give 2 reasons, 2 examples for Southern African Development Community failures
In the mythical country of Ecotopia there is no government spending, taxes, or foreign trade. The mpc for the people is .8, c (autonomous consumption) is 50b. and II (Intended Investment) is also 50b. (just accidentally the same). In a minute, you will fill in the table below, using this data. (b. stands for billions of dollars) (Recall that AD (me) and AE (textbook) are the same thing, as are II (me) and Ip (textbook). Also recall that C = c + (mpc) x Y and that AD = C + II, so AD = c + ((mpc) x Y) + II. I am sorry, every time I rescale, the bar that is supposed to go over the little c moves and I can’t erase it. So please just remember that little c is actually c-bar and stands for autonomous consumption.
Does the Keynesian view of the short-run Phillips curve differ from the Monetarist view ?
