Macroeconomics Answers

Suppose that an economy is composed of three classes. Laborers, traders, and capital owners. The size of each of the classes is 60%, 30%, and 10% respectively. Laborers produce all the output in this economy by using capital borrowed from the capitalists and then using the services of traders to market their produce. For this, the laborers have to pay 40% and 20% of their produce to the capitalists and traders respectively.

a.Draw the Lorenz curve for the income distribution of this economy. Calculate the Gini Coefficient.

b.Suppose that the capitalist is taxed 10% of their income and this is distributed as transfers to the laborers. Draw the new Lorenz curve and compare income inequality between the market income distribution and the disposable income distribution.

Consider a market with the following demand curve:

𝑄^d=1000−𝑌×𝑝

Assume the marginal cost of the only firm supplying this market as 𝑀𝐶=𝑄/2

A.Derive an expression of elasticity of demand in terms of Y. Show your work

B.Derive an expression for the slope of the isoprofit curve of this firm in terms of Y. Explain.

c.Now derive an expression for the markup chosen by this firm in terms of Y.

d.What happens to the elasticity (part a) and the markup (part c) if Y goes up? What can you say about the relationship between elasticity and the markup from this observation? Explain.

e.calculate the profit-maximizing quantity and price for the monopolist. What is the maximized profit? Assume fixed cost is 0.

1. Show the effect of a wage decrease on an individual’s income-leisure choices. Isolate the income and substitution effects. Is the worker on the forward-rising or backward bending portion of the labor supply curve?

2. Indicate in each of the following instances whether specified events would cause a worker to want to work more or fewer hours:

(a) The wage rates rises and the substitution effect is   greater than the income effect.

(b) The wage rate falls and the income effect is greater       than the substitution effect.

If your consumption increases from $60,000/yr to $70,000/yr when your disposable income increases from $85,000 to $98,500/yr, calculate your MPC. *

development theories ,mostly those developed by economists from developed economies are foundations for economic policies in many developing countries,they however have shortcomings.

critically discuss the above statement with regard to the Solow growth model.

1.1. what do you understand by the concept economic aid

1.2.disccuss the advantages and disadvantages if foreign aid