Macroeconomics Answers

Explain the lifecycle hypothesis of consumption; compare the major differences of this

hypothesis with the permanent income hypothesis of consumption

The model of income determination is called kenysian model. What makes it keysian not classical

The South African economy, like most world economies, has been struggling following the COVID-19 pandemic. Give a diagnosis of the health of the South African economy following the changes in it’s macroeconomic indicators in the past 5 years. Your analysis should: (20 marks)

ˆ Include all macro-economic indicators that explain the health of the macro-economy.

ˆ link all these macroeconomic indicators to the circular flow diagram. No need to draw it.

ˆ Give an overview of the South African economy showing the trends in the past decade.

The table below shows the values of selected macroeconomics variables over a period:

YEAR 1 (R-Billion) YEAR 2 (R-Billion)

Investment 200 220

Saving 180 190

Export 100 110

Imports 120 140

Government Expenditure 150 160

Taxation 150 160

Equilibrium National Income 1 800 2 000

(a) Calculate the value of the multiplier for this economy.

(b) Should the full employment level of income be R-B2 255, by how much should government change its spending to reach this level of income during the next year given the multiplier has not changed.

(c) Evaluate whether or not this policy approach is effective in real life in achieving the desired level of GDP.

The IS-LM model is a simplification of the interrelationship between

selected economic variables. The model consists of a number of en-

dogenous variables (those variables whose values are determined inside

the model) and a number of exogenous variables (those variables whose

values are determined outside the model). The labour markets mostly

consider the relationships between prices, expected prices, unemploy-

ment among other macroeconomic variables.

(a) Explain endogenous and exogenous variables in the IS-LM model

as well as the labour markets, derive the AD-AS model.

(10 marks)

(b) In the labour market, explain how the rate of unemployment is

related to the bargaining power and nominal wages.

(5 marks)

(c) As a policy consultant, use the AD-AS framework to explain how

the health of the South African economy can be improved given

you diagnosis in question 1.

(15 marks) Note: Please use diagrams to aid your explanation.

Explain endogenous and exogenous variables in the IS-LM model as well as the labour markets, derive the AD-AS model.