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4. How is the multiplier affected by a decrease in leakages from the Keynesian model with a government?
1] it decreases [2] it increases [3] no change [4] multiplier is not affected
5. In the Keynesian model, if inventories start to decrease, it could be a signal that...
[1] aggregate spending is greater than total output and businesses should decrease output. [2] aggregate spending is greater than total output and businesses should increase output. [3] aggregate spending is less than total output and businesses should decrease output. [4] aggregate spending is less than total output and businesses should increase output.
6.In the Keynesian model with a government and foreign sector an increase in government spending …
[1] decreases the equilibrium level of income and imports. [2] increases the equilibrium level of income and decrease imports. [3] increases the equilibrium level of income and imports. [4] increases both exports and imports.
In the aggregate expenditures model, the size of the marginal propensity to consume (MPC) is assumed to always be
In the simple Keynesian model, total spending is the sum of
Explain endogenous and exogenous variables in the IS-LM model as well as the labour markets, derive the AD-AS model.
2) Assume the logarithmic transformation f a utility function, for the consumption of two commodities is given by
ln U = ln4 + 0.5ln X + 0.25lnY
(a) if the price of X is GHS2.50 and that of Y is GHS4.00, calculate the optimal combination for an income of GHS50.00.
b) Determine and interpret the value of the Lagrange multiplier.
1) A consumer has a utility function given by
ln U = 5 ln x1 + 3 ln x2
if the budget constraint is given by
10x1 + 14x2 = 124, find
i) the optimal quantities of the two goods that the consumer should purchase in order to maximise utility, subject to the budget constraint.
ii) the value of the consumer’s marginal utility of money at the optimum
iii) the marginal rate of substitution (MRS) of x1 for x2 and determine its direction at the optimum
(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 happensto the domestic (i.e., Ghana) interest rate relative
to the US? Explain.
2. Estimate the Okun’s law and Philips’s curve equations for Ghana over two periods
(1983-2000 and 2001-2018. Explain fully the difference in the estimates of the two
periods for both equations. [Hint: Use the average annual GDP growth rate for each
period as the normal growth rate for the Okun’s law equations and use the period average
unemployment rate as the natural rate of unemployment for the Philips curve equation.
Suppose that the economy can be described by the following three equations:
is given by πet = πt-1. Suppose that unemployment is initially equal to the natural rate
and that π=10%. The central bank decides that inflation is too high and that, starting in
year t, it will maintain the unemployment rate 1% point above the natural rate until the
inflation rate has decreased to 2%.
(a) What is the sacrifice ratio in this economy [Hint: the sacrifice ratio is the percentage of
a year’s excess unemployment needed to reduce inflation by 1%. For a Philips curve
given as t − t −1 = −α (ut − un ), the sacrifice ratio is 1/α]?
(b) Compute the rate of inflation for year t, t+1, t+2, t+3, …, t+8.
(c) For how many years must the central bank keep the unemployment rate above
the natural rate of unemployment? Is the implied sacrifice ratio consistent
with your answer to (a)?
at the natural level of output.
(a) Discuss the short and medium run effects of a decrease in the money growth rate.
Make sure to describe the adjustment process.
(b) Now, suppose that you are asked to advice the monetary authorities on how to reduce
the inflation rate. You are faced with two options: a gradual reduction over several
years or an immediate reduction. What particular features of the economy would you
like to look at before giving your advice
