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Suppose the level of output that creates full employment in the ec3is 1800.Using the multiplier of 10, determine the level of investment spending that would create full employment in this economy
When it comes to understanding inflation, and even other aspects of the business cycle, ecological economists will often emphasize the role of energy, and especially oil, in shaping macroeconomic outcomes. To decide how important oil prices are in shaping macroeconomic outcomes such as inflation, do the following: a. Graph the average annual CPI inflation rate from 1970 to the 2000s (www.bls.gov has the data); graph the world price of oil over the same time period (www.eia.doe.gov has these data); overlay the graphs (this is sometimes called “teardrop analysis”) and move them forward and backward a bit to create leads and lags. What kind of a pattern do you see? b. Use the AD/AS model to analyze the impact of an oil shock on the economy. c. What is the necessary consequence of using fiscal policy to stimulate the economy after a supply-side oil shock? What conclusions do you draw from the analysis?
4. Suppose that a typical firm in a perfectly competitive industry has the following total cost curve:
TC = 240 Q "?o 6 Q2 + .08 Q3
a. Is this a short-run cost curve, or a long-run cost curve? How do you know?
b. What will the price of the product be in the long-run?
Using diagrams and examples, compare and contrast the Classical economists’ Quantity Theory and the
Keynesian’s Liquidity Preference Theory of money demand.
Why is macro policy more difficult than the simple model suggests?
2. Austrian economist Murray Rothbard has argued that government intervention during 1929 made what could have been a 1-year recession set off by the stock market crash into a 12-year depression. He believed that by creating confusing signals, government intervention kept investors from gaining knowledge of what investments to avoid. a. Is Rothbard’s explanation of the Depression consistent with the AS/AD model? b. If one agrees with Rothbard, how would one’s proposed policies to deal with recessions differ from those presented in the book? (Austrian)
Two researchers, Mamelodi and Phatane report the results of an investigation into the
factors affecting the quantity Yt of wheat produced in Thohoyandou, Limpopo province
of South Africa, using annual data from 1995 to 2015. The following regression was
run and the estimated equation was found to be:
Yt = 993.633 + 0.0461It + 0.706 Dt + 48.22Rt
(1368.4) (0.273) (0.945) (11.28)
Standard error of estimates are in parenthesis
Adjusted R2 = 0.56
Where It, Dt, and Rt were hectares of irrigated area, hectares of dry land area and
rainfall respectively.
a) Estimate t-value for each of the predictor variables in the model
[9 marks]
b) Briefly explain why Mamelodi and Phatane may have concluded that the result
did not make sense.
a) Use the p value approach to find out whether energy contributes negatively to mineral exploitation at the 5% level. Hint: specify the 5+1 steps. (6 marks)
b) Use formula in Appendix to calculate adjusted R2. (2 mark)
c) What does adjusted R-squared imply? (2 marks)
d) Interpret the coefficient on ln(energy). (2 marks)
e) Are coefficients’ signs on explanatory variables within your expectation? Answer this question with a brief explanation. (9 Marks)
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f) The researcher suspect that export and energy are jointly insignificant. Describe step-by-step procedure the researcher should carry out to determine if the variables are jointly insignificant. (5 Marks)
) For each of the following pairs of goods, which good would you expect to have more elastic demand and why?
a. required textbooks or mystery novels
b. Beethoven recordings or classical music recordings in general
c. subway rides during the next 6 months or subway rides during the next 5 years
d. root beer or wate
The supply-side effects of fiscal policy in the AD-AS model shows, that an increase in the marginal tax rate on labour income will do the following:
Increases potential GDP because people work more as they have less disposable income.
Increase the incentive to work.
Increase the equilibrium quantity of labour as firms demand more workers at the lower wage.
Decreases potential GDP.
An expansionary fiscal policy would most likely cause which of the following changes in output and interest rates?
Both output and interest rate will decrease.
Output will increase and interest rate falls.
Both output and interest rate will increase.
Output will fall and the interest rate increases.
