Macroeconomics Answers

what is liquidity trap (3mrks)

Distinguish between (3 marks each)

i. Open market operations and exchange rate

ii. Monetary and fiscal policy

iii. Classical and Keynesian aggregate supply curve

iv. Structural and cyclical unemployment

v. Phillips curve and IS curve

write a short notes of the following (15 marks)

a) aggregate demand curve

b) monetary transmission mechanism

c) natural rate of unemployment

THE GOVERNMENT REFERRED TO IN THE PREVIOUS QUESTION APPROACHES YOU FOR ADVICE ABOUT HOW TO INCREASE THE SIZE OF THE KEYNESIAN MULTIPLIER.

1. A small open economy is characterized by having the following information,

Indicator In million dollars

Transfer Payments 54

Interest Income 150

Depreciation 36

Wages 67

Gross Private Investment (I) 124

Business Profits 200

Indirect Business Taxes 74

Rental Income 75

Net Exports (X-M)

18

Net Foreign Factor Income 12

Government Purchases (G) 156

Household Consumption (C) 304

A. Calculate GDP using expenditure approach

B. Calculate GDP using Income approach

C. Is there any difference between the two approaches of calculating GDP? Why?

In the countries of Xerxes and Arias both nominal and real gross domestic product are the same. Because each dollar an Xerxes is used more often then Arias, ____ in Xerxes

In the article “An early contribution to theoretical literature”, JC Harsanyi

cogently argues that economic decisions free of bias can be obtained by

placing decision makers in a position of ignorance. What is the further

opinion about the distribution of income according to Harsanyi?

Interpret and explain the diagram below, which illustrates the effect of airline

regulations by the civil aeronautics board. Indicate what effect the regulation will

have on airlines’ sales, output and profit, and also what consumers are losing or

gaining in the process.

Define an isoquant and then explain what decreasing returns of scale

implies. What happens to the isoquants on an isoquant map in such an

instance?

Explain what the income consumption curve is in terms of individual and

market demand.