Macroeconomics Answers

In your role as an economist at the South African Reserve Bank, you are required to present to the monetary policy committee on how the fall in household wealth will affect the economy in both the short- and mediumrun, as well as how the bank should respond to these changes. [Hint: use clearly labelled diagrams to illustrate your answer]

An economy is in a steady state with no productivity change. Because of an increase in acid rain, the rate of capital depreciation rises permanently. a. According to the Solow model, what are the effects on steady-state capital per worker, output per worker, consumption per worker, and the long-run growth rate of the total capital stock? b. In an endogenous growth model, what are the effects on the growth rates of output, capital, and consumption of an increase in the depreciation rate of capital

How would each of the following affect national saving, investment, the current account balance, and the real interest rate in a large open economy?

a. An increase in the domestic willingness to save (which raises desired national saving at any given real interest rate).

b. An increase in the willingness of foreigners to save.

c. A temporary increase in foreign government purchases.

d. An increase in foreign taxes (consider both the case in which Ricardian equivalence holds and the case in which it doesn’t hold)

Explain how each of the following transactions would enter the U.S. balance of payments accounts. Discuss only the transactions described. Do not be concerned with possible offsetting transactions.

a. The U.S. government sells F–16 fighter planes to a foreign government.

b. A London bank sells yen to, and buys dollars from, a Swiss bank.

c. The Federal Reserve sells yen to, and buys dollars from, a Swiss bank.

d. A New York bank receives the interest on its loans to Brazil.

e. A U.S. collector buys some ancient artifacts from a collection in Egypt.

f. A U.S. oil company buys insurance from a Canadian insurance company to insure its oil rigs in the Gulf of Mexico.

g. A U.S. company borrows from a British bank

Discuss the applicability of the Harris Todaro model in developing countries

Lucas’ point of view, what are the limitations of the Keynesian model? What improvements does he suggest?

Explain what is the level of elasticity (short and long term) in terms of price elasticity of demand for Nestle milo product

With the use of a graph explain the vertical and horizontal cases of the LM curve and show which policy is ineffective under each case.