Macroeconomics Answers

Suppose a country wants to shift the composition of its economy so as to rely more on export and less on domestic demand, without increasing its output. Using the IS-LM model with international trade, perfect capital mobility and flexible exchange rate, explain what policy mix can be adopted to achieve this objective. Remember to label clearly the axes and the direction of any changes in your diagrams.

Using an IS-LM model of the macroeconomy that is open to international trade, and in which there is perfect capital mobility, draw diagrams for the goods market, money market and the IS-LM together showing the effect of an expansionary fiscal policy for the case of a flexible exchange rate regime in the short run. Remember to label clearly the axes and the direction of any changes Explain briefly the effect on the trade balance.

Government statistical results show that there has been remarkable economic growth in Ethiopia during the last couple of decades or so. However, some proportion of the population has been complaining that they become poorer “despite the observed economic growth”. Evaluate the economic performance observed in the last couple of decades in Ethiopia in development economic terms

Consider the following information relates to a certain economy

C= 40 + 0.35

I = 70- 2r

G=300

T= 15+0.2Y

X=120

M=45+0.4Y

r = 0.5

Required:

i). Compute the autonomous investment, government expenditure, export and tax multipliers

ii). Find the equilibrium income

Consider an Edgeworth box that describes a two-person, two-commodity exchange 

scenario. Explain how trade takes place between the two individuals starting from the 

initial endowment position. What is the significance of the slope of the ray passing 

through a Pareto optimal point and the endowment point?

A monopolist operates under two plants, 1 and 2. The marginal costs of the two plants 

are given by 

MC1 = 20 + 2Q1 and MC2 = 10 + 5Q2

where Q1 and Q2 represent units of output produced by plant 1 and 2 respectively. If the 

price of this product is given by 20 – 3(Q1 + Q2), how much should the firm plan to 

produce in each plant, and at what price should it plan to sell the product?