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Why literature describe the Keynesian consumption function as a short-run model?
How does interest rate affected by devaluation ?
1. Develop a qualitative analysis on income, interest rate, trade balance and private consumption using the IS-LM-BP model if the Fiji dollar was devalued. Assume perfect capital mobility. Carefully discuss the adjustment processes.
a) Draw a production function that exhibits diminishing marginal product of labor. Define total cost, average total cost, and marginal cost. How are they related?
(b) Two firms are in the candy market. Each firm can choose to go for the high end of the market (high quality) or low end (low quality). Resulting profits are given by the following payoff matrix :
Firm 2.
Low High
Low -20,-30 900,600
Firm 1
High 100,80 50,50
(i) Does any firm have a dominant strategy? Explain.
(ii) Find the pure strategy Nash equlibria (if any).
Suppose you are appointed as an economic advisor to the government of Zimbabwe. Assume the government is facing a difficult choice on the type of exchange rate policy to be adopted. Advise the government of Zimbabwe on the key considerations in choosing the exchange rate regime (whether fixed, floating etc.)
Discuss the neoclassical model of investment and Tobin's q theory.
Why AD is never a constraint in the classical model?
Why literature describe the keynesian consumption function as a short run model?
Demographers predict that the fraction of the population that is elderly will increase over the next 20 years. What does the life-cycle model predict for the influence of this demographic change on the national saving rate?
