Macroeconomics Answers

(a) Use illustrative diagrams to explain the effects of a monetary contraction on output, composition of output, interest rate, and on the exchange rate under the flexible exchange rate system. (14)

(b) Explain the three channels through which a real depreciation affects the trade balance. (6) 

(a) State the determinants of export and clearly explain how each of the determinants affects the level of imports. (6)

(b) Using illustrative diagrams explain how an increase in foreign government spending affects output and trade balance. (14)

(a) Use appropriate diagrams and explain how the LM curve is derived. (10)

(b) Use appropriate diagrams explain under what circumstances monetary policy is

(i) Completely ineffective (5)

(ii) Most effective (5)

(a) Explain fully the conditions on which a worker’s bargaining power depends. (6)

(b) Define a reservation wage and explain why firms want to pay more than the reservation wage. (6)

(c) Use an illustrative diagram to show and explain how the natural rate of unemployment is affected by an increase in unemployment benefits. (8) 

The Namibian economy is described by the following equations, where: t is marginal tax, Y is income; I is investment spending; G is government spending; L is money demand; M/P is money supply, i is interest rate and C is consumption. The interest rate is measured in percentage terms while all the other variables are measured in millions of Namibian dollars:

C = 100 + 0.8 ( 1-t)Y

t = 0.25

I = 600 -80i

G = 900

L = 0.5y - 60i

M/P = 1500

(a) Derive the equation for the Is curve. (4)

(b) Derive the equation for the LM curve. (4)

(c)Determine the values of income (Y) and interest rate (i) and show these values on an IS –LM diagram. (8)

(d) What are the equilibrium levels of consumption and investment?

) Suppose currency to deposit rato is 040 and required reserve ratio is 0.10 and Govt. buys bonds from public which increase the Monetary Base by Rs. 10000. Find out how much money supply will be changed? Also find the money multiplier.

a) 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:

i. If the Solow residual were zero what rate of growth would the economy achieve?

ii. 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.

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.

Which of the following statement(s) about Gross Domestic Product is incorrect?

i. Compensation of employees (wages) is the single largest component of aggregate income.

ii. Transfer payments buy no goods or services. 

iii. Aggregate income equals aggregate expenditure and both equal GDP.

iv. Investment is the flow that adds to the stock of capital.

v. Gross domestic product includes depreciation. 

Group of answer choices

i, ii, iii and iv only.

i, iii, iv and v only.

ii, iii, iv and v only.

ii only.