Macroeconomics Answers

Regina owns a tax accounting business that has 3 PCs. One PC wears out each year and is replaced. In addition, this year Jeannie will expand her business to 5 PCs. Calculate Jeannie’s initial capital stock, depreciation, gross investment, net investment, and final capital stock

With the aid of graph,illustrate the effect of a change in demand for chicken by restaurant to chicken farmer

he South African Reserve Bank (SARB) has, in an unprecedented move, reduced the repo rate from 6.75% to 3.75% in a very short period. Use an appropriate diagram to illustrate and explain the likely effects of reducing the repo rate on output and inflation in South Africa, assuming that the economy was initially operating at less than full employment

Consider an economy in which the labour force grows by 2.7 percent per annum, physical capital grows by 4 percent per annum and human capital grows by 1.8 percent per annum. Suppose 45 percent of national income goes to labour and 40 percent to capital. Use a constant returns to scale production function to answer the following growth accounting questions:

(a) If the Solow residual were zero what rate of growth would the economy achieve?

(b) The country's actual rate of growth has been 4.5 percent per annum, which is faster than the growth rate generated by the accumulation of capital and labour stocks. Calculate the value of the residual.

Consider an economy with the following aggregate production function: Y = 3K1/3(AL)2/3

Capital grows through investment but also decays due to wear and tear at a constant rate δ per period. Assume that A is growing at the exogenous rate g, that L is growing at the exogenous rate n, and that households save a constant proportion s of their income.

(a ) Find the steady state level of the capital per effective worker (k*), output per effective worker (y*) and consumption per effective worker (c*) - in terms of the parameters of the model.

(B) What is the level of k (k**) that maximizes consumption? 

(C) Given a depreciation rate of 7%, population growth rate of 2%, technological progress of 1% and a saving rate of 30%, calculate the steady state levels of k, y and c.

(D) To move to the level of capital that maximizes consumption, how should the saving rate be changed? Explain. 

(E) Calculate the saving rate needed to reach the golden rule level of capital per effective worker.

Answer true or false and explain your answer

(1) If an economy can raise its annual real GDP growth rate from 3.8 percent to 4.5 percent, its real GDP doubling time is reduced by 15 years.

(2) Suppose that the government passes a law requiring households to increase savings 10% above previous levels. According to Solow's growth theory, in the long run output per capita will grow less rapidly.

(3) If an economy has a real GDP doubling-time of 48 years, this will be increased to 56 years if annual GDP growth is reduced by 3.2 percentage points.

(4) If K = 3000, n = 0.02, and depreciation, δ= 0.04 and g =0.03, then investment of 320 will hold (K/AL) constant.

(5) Suppose s = 0.15, Y = 4200, K = 6100, n = 0.03, g=0.03 and δ= 0.10. This makes national saving smaller than steady-state investment, so that the amount of capital per effective worker will be falling.

The monetary policy transmission mechanism shows the relationship between

Suppose milk and honey are the only products produced in Ghana. Use the data belowfrom the

ii.real GDP, (3marks)

a.Computefor each year the

economy of Ghana to answer the questions that follow:

iii.the GDP deflator.(3marks)

YearPrice of MilkQuantity of MilkPrice of HoneyQuantity of Honey

i.nominal GDP, (3marks)

2012Ghc1200Ghc2100

2013Ghc2200Ghc4100

2011Ghc1100Ghc250

Base year: 2011

b.Compute for 2012 and 2013 from the respective preceding years the percentage change in

Required:

i.nominal GDP, (2marks)

ii.real GDP, (2marks)

iii.the GDP deflator (2marks)

You are the manager of a firm that receive revenue of Rs.30,000 per year from product X and Rs. 70,000 per year from product Y. The own price elasticity of demand for product X is -2.5 and the cross price elasticity of demand between product Y and X is 1.1. How much will you firm’s total revenue (revenues from both products) change if you increase the price of good X by 1 present?