Macroeconomics Answers

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?

(C) Given a depreciation rate of 7%, population growth rate of 2%, technological progress of 1% and a saving rate of 30%, calculate the steady state levels of k, y and c.

(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.

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:
(a) If the Solow residual were zero what rate of growth would the economy achieve?
(b) The countrys 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.

If a change in government policy leads to a balance of payment deficit and fall in the exchange rate, what will be the effect of the new exchange rate level on balance of payment and exchange rate.

Suppose that an exogeneous disturbance, such as a change in government policy, leads to balance of payment deficit and a consequent fall in exchange rate. Discuss tge effects of the new exchange rate on the balance of payment and exchange rate

Discuss the extent to which the traditional approach is an adequate model of exchange rate determin

Suppose milk and honey are the only products produced in Ghana. Use the data belowfrom the
ii.real GDP, (3marks)
a.Computefor each year the
economy of Ghana to answer the questions that follow:
iii.the GDP deflator.(3marks)
YearPrice of MilkQuantity of MilkPrice of HoneyQuantity of Honey
i.nominal GDP, (3marks)
2012Ghc1200Ghc2100
2013Ghc2200Ghc4100
2011Ghc1100Ghc250
Base year: 2011
b.Compute for 2012 and 2013 from the respective preceding years the percentage change in
Required:
i.nominal GDP, (2marks)
ii.real GDP, (2marks)
iii.the GDP deflator (2marks)

Suppose milk and honey are the only products produced in Ghana. Use the data belowfrom the
ii.real GDP, (3marks)
a.Computefor each year the
economy of Ghana to answer the questions that follow:
iii.the GDP deflator.(3marks)
YearPrice of MilkQuantity of MilkPrice of HoneyQuantity of Honey
i.nominal GDP, (3marks)
2012Ghc1200Ghc2100
2013Ghc2200Ghc4100
2011Ghc1100Ghc250
Base year: 2011
b.Compute for 2012 and 2013 from the respective preceding years the percentage change in
Required:
i.nominal GDP, (2marks)
ii.real GDP, (2marks)
iii.the GDP deflator (2marks)

Discuss the extent to which the traditional approach is an adequate model of exchange rate determination.

Effects of the exchange rate on the balance of payments

Discuss the extent to which the traditional approach is an adequate model of exchange rate determination.