Macroeconomics Answers

1. Calculate nominal GDP in 2009 and in 2013 and the percentage increase in nominal GDP from 2009 to 2013. 2. What was the percentage increase in production from 2009 to 2013, and by what percentage did the cost of living rise from 2009 to 2013? 3. In 1988, the average wage rate was $9.45 an hour and in 2008 the average wage rate was $18.00 an hour. The CPI in 1988 was 118.3 and in 2008 it was 215.3. Which real wage rate is higher?

The market for pizza has the following demand and supply schedules:

price quantity demanded quantity supplied

$4 135 pizzas 26 pizzas

5 104 53

6 81 81

7 68 98

8 53 110

9 39 121

a. Graph the demand and supply curves. What is the equilibrium price and quantity in this market?

b. If the actual price in this market were above the equilibrium price, what would drive the market toward the equilibrium?

c. If the actual price in this market were below the equilibrium price, what would drive the market

toward the equilibrium?

Describe how institutions, biology, technology, and preferences combine to

determine the following:

a.Technically feasible set.

b.Contract curve.

c.Final outcome.

Roger and Rafael play a game with the following rules. Roger is given $250 to divide between himself and Rafael. Rafael does not get to choose but he can reject Roger’s offer if he does not like it. If Rafael rejects, both get nothing. If Rafael accepts, both get the split that Roger decided.

a. What is this game called?

b. Find all Nash equilibria for this game.

c. When this game is played in the real world, do the predictions in part 1b materialize? Why/why not?

d. Are all Nash equilibria in part 1b Pareto Optimal? Explain

The Washington Post reported on 25thFeb 2019

that Los Angeles subway ridership declined after a fare increase: “There were nearly 4 million fewer riders in December 2018, the first full month after the price of a token increased 25 cents to $1.50 than in the previous December, a 4.3 percent decline.”

a. Use these data to estimate the price elasticity of demand for subway rides.

b. According to your estimate, what happens to the Transit Authority of LA’s revenue when the fare rises?

c. Why might your estimate of the elasticity be unreliable?

Okahao island is a hypothetical small, closed economy in the northern part of Namibia. Autonomous

consumption in Okahao dollars is N$400.00, government spending is N$200.00 and Tax = 0.1Y. The investment function is I = 300 – 10r and the money demand function is [m/p]^d  = Y - 50r. Money supply is N$2500.00 and price level is N$5.00.

1. Derive the equations for the IS curve and the LM curve. 

2.Find the equilibrium interest rate. 

3. Compute the equilibrium level of income.

4. Use the IS-LM model to graphically depict the equilibrium interest rate and level of income calculated in (2) and (3) above. Show both intercepts.

5. Suppose that the government decides to double both the taxes and government spending. Calculate the new rate of interest and the level of investment. 

6. Does your answer in (5) above depend on the marginal propensity to consume? 

Consider a market with the following demand and supply curves:

𝑄^d =100−2𝑝

𝑄^s=3𝑝

Calculate

a. equilibrium price and quantity.

b. At the equilibrium, find the elasticity of demand and supply and compare.

c. At this equilibrium, calculate the producer’s surplus, consumer’s surplus, and total surplus.

d. Suppose the government would like to decrease the quantity traded in the market by 10%. Calculate the tax that will have to be imposed per unit.

e. Calculate the deadweight loss due to the tax calculated in part d.