Macroeconomics Answers

Which of the following is related with the “within in a country” principle of the GDP calculation:

Group of answer choices

Output that is produced by a South African owned textile factory in Zambia which is later supplied as finished apparels to Edgars South Africa.

A South African trained doctor, treating patients in Kenya.

Water consumed in Gauteng that is sourced from the Lesotho Highlands Water Project at a fee.

Biltong sold in a Johannesburg supermarket but produced/cured in Durban.

Based on the circular flow of income, identify from the following items what can be considered as a withdrawal/leakage in the South African economy.

i.    Government spending on wages of civil servants.

ii.    A local resident purchasing an imported capital good.

iii.   Swaziland purchasing a inyala from the Denel Ltd a South African government owned defence and military equipment manufacturer.

1. iv.   A decision by the government to purchase French nuclear energy technology instead of the Russian technology.

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? 

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. 

Illustrate and examine how the individual supply of labor curve demonstrates the way an individual divides his/her time between work and leisure

1. Explain the three possible profit maximizing positions of perfectly competitive firms in the short-run. 
2. Distinguish between the short-run aggregate supply curve and the long-run aggregate supply curve

 Write down and explain the uncovered interest parity (UIP) condition. (a) What does it imply about the relationship between domestic and foreign interest rates? (b) Suppose that you expect the Ghana cedi to appreciate relative to the US dollar, which bond should you buy? What happens to the domestic (i.e., Ghana) interest rate relative to the US? Explain. 

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 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.

7) In the graph of the Solow growth model, at any point to the left of the steady-state intersection we have national saving per effective labour greater than steady-state investment per person, causing (K/AL) to increase.

8) In the Solow growth model, an increase in the marginal propensity to consume shifts the steady-state investment line downward with the implied change in the capital stock resulting in a higher standard of living in the long run.

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.