Macroeconomics Answers

According to the short run Phillips curve , which of the following would occur when the SARB increases money supply

A.Both the unemployment and inflation rate will increase
B.Both the unemployment rate and inflation rate will decrease
C.The unemployment rate will decrease
D.The inflation rate will decrease

What will happen if a shoe firm sells its shoes at a price lower than the opportunity cost of the inputs used in the production process.

A. The firm will make both accounting and economic profits.
B. The firm will make both accounting and economic loss.
C. The firm will possibly make an accounting profit but will make economic less.
D. The firm will possibly make an economic profit and an accounting loss

The trade off between inflation and unemployment:

i. Is depicted by the long-run Phillips curve
ii. Is consistent with the theory of money neutrality
iii. Shows the possible effects of monetary policy in the short run.

A. Only ii is correct
B. Only iii is correct
C. i and iii are Correct
D. ii and iii are correct

8. Explain in words and using the notion of expenditure rounds why the tax multiplier is smaller than the expenditure multiplier.

6. Reconstruct Table 22-2 assuming that planned investment is equal to ( a) $300 billion and ( b) $400 billion.
What is the resulting difference in GDP? Is this difference greater or smaller than the change in I? Why? When I drops from $200 billion to $100 billion, how much must GDP drop?

5. Define carefully what is meant by equilibrium in the multiplier model. For each of the following, state why the situation is not an equilibrium. Also describe how the economy would react to each of the situations to restore equilibrium.
a. In Table 22-2, GDP is $3300 billion.
b. In Figure 22-7, actual investment is zero and output is at M.
c. Car dealers find that their inventories of new cars are rising unexpectedly.

4. In the simple multiplier model, assume that investment is always zero. Show that equilibrium output in this special case would come at the break-even point of the consumption function. Why would equilibrium output come above the break-even point when investment is positive?

9. Using the augmented investment demand schedule from question 8(c) and assuming that the interest rate is 10 percent, calculate the level of investment for cases a through d in question 8.

8. What would be the effects of the following on the investment demand function illustrated in Table 21-5 and Figure 21-8?
a. A doubling of the annual revenues per $1000 invested shown in column (3)
b. A rise in interest rates to 15 percent per year
c. The addition of a ninth project with data in the first three columns of ( J, 10, 70)
d. A 50 percent tax on net profi ts shown in columns (6) and (7)