Macroeconomics Answers

3. What are the key points in a short-run production function that delineate the three stages

of production? Explain the relationship between the law of diminishing returns and the

three stages of production.

2. Define the law of diminishing returns. Why is this law considered a short-run phenomenon?

With reference to price elasticity of demand, answer the following questions: 3.4.1 Indicate what the two (2) main determinants are that price elasticity of demand depends on. (2) 3.4.2 With the aid of a diagram (draw the diagram), illustrate and explain what a linear demand curve is, where exactly the top of the curve is and where the bottom of the curve is, and how elasticity values (coefficients) vary on the curve from being infinitely (perfectly) elastic to unit elastic and finally to completely (perfectly) inelastic.

The impact of economic growth can be seen by the following issues except

Select one:

a. Increase in price

b. Increase in the demand for money 

c. Increase in income

d. Increase in unemployment

Classify each of the following statements as positive or normative. Explain. a. Society faces a short-run trade-off between inflation and unemployment b. A reduction in the rate of money growth will reduce the rate of inflation. c. The Central Bank or Federal Reserve should reduce the rate of money growth. d. Society ought to require welfare recipients to look for jobs. e. Lower tax rates encourage more work and more saving.

Classify the following topics as relating to microeconomics or macroeconomics. a. a familys decision about how much income to save b. the effect of government regulations on auto emissions c. the impact of higher national saving on economic growth d. a firms decision about how many workers to hire e. the relationship between the inflation rate and changes in the quantity of money

An economy consists of three workers: Larry, Moe, and Curly. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; and Curly can either mow two lawns or wash one car. a. Calculate how much of each service is produced under the following circumstances, which we label A, B, C, and D: All three spend all their time mowing lawns. (A) All three spend all their time washing cars. (B) All three spend half their time on each activity. (C) Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns. (D)

b. Graph the production possibilities frontier for this economy. Using your answers to part a, identify points A, B, C, and D on your graph. c. Explain why the production possibilities frontier has the shape it does. d. Are any of the allocations calculated in part a inefficient? Explain.

Explain the concepts of Price Elasticity of Demand, Income Elasticity of

Demand and Cross-Elasticity of Demand. (10 marks)

(b) To what extent are these concepts useful to:- managers of shopping malls, and a government (20 marks)

3. Discuss the effectiveness of fiscal and monetary policies in regulating economic

1. (a) The demand (D) and supply (S) equations for a commodity (X) are given by:-

D = 2000 – 20P

S = -500 + 30P, where P = Price (R) per unit

(i) Find the equilibrium price and quantity and show on a suitable diagram. (4 marks)

(ii) Calculate Price Elasticity of Demand (PED) when price rises from R20 to R80. (2 marks)

(iii) A specific sales tax of R30 per unit is imposed on the good. Explain and illustrate the changes to part (i). (3 marks)

(iv) Comment on the burden of the tax. (3 marks)

(b) Discuss the factors affecting: demand for, and supply of a good (18 marks

1.      What is the core discussion of the Keynesian cross?

2.      Why are actual and planned expenditure simultaneously analysed?

3.      Why is the multiplier effect taken into consideration in the Keynesian cross?

4.      How does the Keynesian cross model, explains, the functions of Fiscal policy?

5.      Why are MPC and the ΔG critical variables in the multiplier effect?