Macroeconomics Answers

What is the Cash Reserve Ratio (CRR)?

Select one:

a. none of the given options

b. the fraction of the deposits that commercial banks must keep with RESERVE BANK

c. the fraction of the deposits that RESERVE BANK must keep with commercial banks

d. the fraction of the deposits that commercial banks lend to the customers

 What is the full-employment budget surplus, and why might it be a more useful measure than the actual, or unadjusted, budget surplus? The text provides other names for this measure, such as cyclically adjusted surplus and structural surplus. Why might we prefer to use these other term ?

Consider the following voting game. There are three players, 1, 2 and 3. And there are three alternatives: A, B and C. Players vote simultaneously for an alternative. Abstaining is not allowed. Thus, the strategy space for each player is {A, B, C}. The alternative with the most votes wins. If no alternative receives a majority, then alternative A is selected. Denote ui(d) the utility obtained by player i if alternative d 𝜖   {A, B, C} is selected. 

The payoff functions are, 

u1(A) = u2(B) = u3(C) = 2 

u1(B) = u2(C) = u3(A) = 1 

u1(C) = u2(A) = u3(B) = 0  

a. Let us denote by (i, j, k) a profile of pure strategies where player 1’s strategy is (to vote for) i, player 2’s strategy is j and player 3’s strategy is k. Show that the pure strategy profiles (A,A,A) and (A,B,A) are both Nash equilibrium.  

b. Is (A,A,B) a Nash equilibrium? Comment.  

 Consider the following game. Suppose that players play simultaneously over many periods. In each period, each player best responds to the action played by the opponent the period before.       

                                  L        M        R
                        U        0,0       4,5      5,4
                        M        5,4       0,0      4,5
                        D        4,5       5,4      0,0

Assume that in period 1, players start with the strategy profile (M,L). Describe play in the next 7 periods. Does a pattern emerge?

 Suppose there is a covered bowl with 3 red balls and 6 other balls, which could be black or yellow. The Decision Maker [DM] doesn’t know how many black or yellow balls there are, other than there are 6 in total. The DM will choose one ball from the bowl; each ball is equally likely to be chosen. The DM is offered a choice between Option A, which pays off LKR1000 if a red ball is drawn (0 otherwise) or Option B, which pays off LKR1000 if a black ball is drawn (0 otherwise). The DM says she prefers A to B. The DM is then offered a choice between Option C, which pays off LKR1000 if a red or yellow ball is drawn (0 otherwise), or option D, which pays off LKR1000 if a black or yellow ball is drawn (0 otherwise). The DM says she prefers D to C.  

Argue that these preferences are not consistent with the things you learned about decision making under uncertainty and the basics of the theory of expected utility.

Consider a hypothetical economy characterized by the following behavioral equations.

IS                          LM

C=400-200r+0.2Y  Md=Y-1000r

I= 240-400r             Ms=800

G=200                     P=2

a) Show the impact of expansionary monetary policy which is an increase in tax by 50.

b) Show the impact of expansionary fiscal policy which is an increase in nominal money supply by 100.

c) Using balanced budget multiplier show the impact of an increase in government expenditure and tax by 50.

List some empirical examples to support each theory which explains why the short-run aggregate supply curve is upward sloping