Macroeconomics Answers

4. You win $100 in a basketball poo. You have

a choice between spending the money now or

putting it away for a year in a bank account

that pays 5 percent interest. What is the oppor-

tunity cost of spending the $100 now? ANoLW

How Total revenue changes with change in output when Marginal Revenue is positive

The economy is at full employment. Now the government wants to change the composition of demand towards investment and away from consumption without, however, allowing aggregate demand to go beyond full employment. What is the required Policy mix? Use the IS-LM diagram to show your policy proposal.

1. Explain how fiscal policy can use both policy instruments at their disposal to stimulate an economy?
2. Based on your answer (1), illustrate and explain by aid of the AD-AS model what the identified policy employment by Fiscal Authorities will have on the general price level and the level or real production and income in the economy.

Using a graph illustrate and explain how the motive for holding money relates to the demand for active balances (L1). Let interest rate (i) be on the X-axis and quality of money (M) on the Y-axis

C = 350 mil + 0.85Yd

I = 175 mil

G = 300 mil

X = 170 mil

Z = 120 mil

T = 0,15Y

Yf = R3100 million

Equilibrium Income: Y = C + I + G + (X - Z)

Disposable Income: Yd = (1 - t)Y

• How much does the government collect in taxes when the economy is in equilibrium?

If there is an increase in the price of dvds , a substitute in production for cds then

C = 350 mil + 0.85Yd

I = 175 mil

G = 300 mil

X = 170 mil

Z = 120 mil

T = 0,15Y

Yf = R3100 million

Equilibrium Income: Y = C + I + G + (X - Z)

Disposable Income: Yd = (1 - t)Y

• What is the value of the marginal propensity to consume in this model?

• Calculate the Multiplier

Given consumption function investment government purchases and taxes with the following function: c=90+0.75(Y-T) I=120 G=180 T= 80

find

a)the aggregate demand function?

b)The equilibrium level of income?

c)the equilibrium level of consumption?

d)the equilibrium level of aggregate demand? e)draw the graph of consumption and aggregate demand to show the equilibrium level of income and consumption?

Suppose that the euro/us dollar exchange rate changes from 1,3 euro per dollar to 1,1 euros per dollar. Then