Macroeconomics Answers

“There has been a turnaround from the sizeable net outflows over the past two years when South African companies stepped up their efforts to internationalise their businesses. 

The shift in direct investment trends made a small contribution to improving the financial account of South Africa’s balance of payments, which showed a surplus of 3.5% for the third quarter, up from 1.3% the previous quarter. The Reserve Bank’s quarterly bulletin shows that capital inflows were more than adequate to finance the deficit on the current account deficit of the balance of payments, which widened to 4.1% from a revised 2.9% in the third quarter. 

Economists expect that the current account deficit, which tends to be a driver of the rand exchange rate, will narrow again in the fourth quarter as exports pick up again” (Joffe, 2016). 

In your opinion, can the government keep export demand stimulated such that the balance of payments remains dazzling

use a diagram to illustrate and explain the effect of political unrest in South Africa on the dollar / exchange rate

In Keynesian model, discuss the effects of changes in fiscal variables - increase in government purchases, reduction in tax rates and increase in transfer payments on equilibrium level of income

what could cause the shifts in the production function? 

Answer the following questions (3 points , 1.5 each):

a. What would the LM curve look like in the classical world? If this was the actual case

what would a policymaker prefer to affect output, monetary or fiscal policy?

b. Suppose there is a decline in demand for money. At each output level and interest rate

the public wants to hold lower real balances

i. In the Keynesian case, what happens to equilibrium output and to prices?

ii. In the classical case what is the impact on output and prices?

Consider the following economy (7 points)

C=0.8(1-t)Y , t=0.25,I=900-50i, G=800, L=0.25Y-62.5i, M/P=500

a. Find the equilibrium income and interest rate. (2 )

b. What is the value of the multiplier? (1)

c. How much does a unit change in G change the equilibrium income and interest rate?(2)

d. How much does a unit change in M/P change the equilibrium Income and interest

rate?(2)

Consider two alternative programs for contraction. One is removal of an investment subsidy and the other is the rise in income tax rates. Using the IS-LM model and the investment schedule discuss the impact of these alternative policies on income, interest rates and investment.

Suppose the government decides to reduce transfer payments but increase government

purchase of goods and services by an equal amount i.e. ∆G=-∆TR (5 points)

a. Would equilibrium income rise or fall as a result of this change? Show using the

following data c=0.8, t=0.25, Y 0 =600, ∆G=10=-∆TR. (2)

b. Find the change in equilibrium change in income ∆Y 0 (2)

c. What is the change in budget surplus? Why has it changed? (1)

The Aggregate Demand- Aggregate Supply (AD-AS) model can be used to illustrate the right combination of policies in an economy. Discuss four supply-side measures that policy makers can be implemented to expand the economy and explain why supply-side measures are more desirable than demand-side measures?

Use a diagram to illustrate and explain the effect of a political unrest in South Africa on the dollar/rand exchange rate.