Macroeconomics Answers

If the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls

from 10,000 slices to 7,400 slices, using the formula for arc price elasticity (5 marks)

i. What is the percentage change in price?

ii. What is the percentage change in quantity?

iii. What is the level of elasticity?

iv. What is the interpretation the result

Demonstrate using the classical model how a decrease in the money supply, a

decrease in income velocity and a rise in the transactions demand for money

would affect prices, money wages and real variables.            

Explain the lifecycle hypothesis of consumption; compare the major differences of this

hypothesis with the permanent income hypothesis of consumption

The model of income determination is called kenysian model. What makes it keysian not classical

The South African economy, like most world economies, has been struggling following the COVID-19 pandemic. Give a diagnosis of the health of the South African economy following the changes in it’s macroeconomic indicators in the past 5 years. Your analysis should: (20 marks)

ˆ Include all macro-economic indicators that explain the health of the macro-economy.

ˆ link all these macroeconomic indicators to the circular flow diagram. No need to draw it.

ˆ Give an overview of the South African economy showing the trends in the past decade.

The table below shows the values of selected macroeconomics variables over a period:

YEAR 1 (R-Billion) YEAR 2 (R-Billion)

Investment 200 220

Saving 180 190

Export 100 110

Imports 120 140

Government Expenditure 150 160

Taxation 150 160

Equilibrium National Income 1 800 2 000

(a) Calculate the value of the multiplier for this economy.

(b) Should the full employment level of income be R-B2 255, by how much should government change its spending to reach this level of income during the next year given the multiplier has not changed.

(c) Evaluate whether or not this policy approach is effective in real life in achieving the desired level of GDP.