Macroeconomics Answers

1.      Imagine that the banking system received additional deposits of $100 million and that all the individual banks wish to retain their current liquidity ratio of 20%.

a.      How much of the$100 Million will banks choose to lend out initially? (2mks)

b.      What will happen to banks liabilities when the money that is lent out is spent and the recipients of it deposit it in their bank accounts? (2mks)

c.      How much of these latest deposits will be lent out by the banks? (2mks)

d.      By how much will total deposits eventually have risen, assuming that none of the additional liquidity is held outside the banking sector? (2mks)

e.      How much of these extra total deposits are matched by (i) liquid assets; (ii) illiquid assets? (2mks)

f.       What is the size of the bank multiplier? (3ms)

g. If one-half of any additional liquidity is held outside the banking sector, by how much less will deposits have risen compared with (d) above? (5mks)

3. Using supply and demand curves, show the effect of each of the following events on the market for cigarettes.

a. A cure for lung career cancer is found.

b. The price of cigarette increases.

c. Wage increase substantially in states that grow tobacco.

d. A fertilizer that increase the yield per acre of tobacco is discovered.

e. More state pass laws restricting smoking in public places 

If South Africa’s economy grows, one would expect …

1.      As a policy adviser, explain how you would use the OMO to secure 3 -5% economic growth and reduce unemployment in an economy in slight recession? (5mks)

b. Describe possible unintended consequence to your policy actions. (3mks)

1.           Institutions refer to any structure or mechanism of social order and corporation governing the behaviour of set of individuals within a given human community. Within the context of institutions, discuss the following concepts in the African scenario

a)     Decentralization and development

b)     Privatization and development

Compare and contrast the Linear Stages of Growth Model (Modernization Theory) and the Neoclassical Counterrevolution (Market Fundamentalism). In your analysis, try to address the causes of underdevelopment and how development best occurs in developing countries

Coross price elasticity of a gquantity demand 807.184 ant px =5 py = 15?

5. Explain the distinction made in economic analysis between the short run and the

long run.

4. “If it were not for the law of diminishing returns, a firm’s average cost and average variable

cost would not increase in the short run.” Do you agree with this statement? Explain.