Macroeconomics Answers

1 In the model of a small open economy showing the link between real exchange rate and net exports, the impact of the government of foreign trade partner aiming at protecting its market, imposing the import tariffs on the domestic economy, is as follows:

Select one from the following options.

i. National savings drop (S-I), which raises the real exchange rate.

ii. Net exports drop which raises the real exchange rate.

iii. Net exports raise which raises the real exchange rate.

iv. Domestic investments drop, national savings increase (S-I), which causes the real exchange rate to fall.

2 If the GDP deflator increases by 5% year on year and real GDP by 3%, it means that nominal GDP Select one from the following options.

i. will increase by about 8%.

ii. will decrease by about 2%.

iii. will increase by about 2%.

iv. will increase by about 5%.

1 The sticky wage model of AS:

Select one from the following options:

I. explains the vertical AS in the short run.

ii. assumes flexible prices and nominal wages.

iii. assumes flexible prices and sticky real wages.

iv. explains the short-run deviations of the actual output from the potential one

2 Choose the correct statement:

Select one from the following options.

i. According to the Life-cycle hypothesis the consumption changes only with unexpected changes in income.

ii. Consider the life cycle hypothesis. The human consumption function in the form C = 0.025W + 0.5Y implies that life expectancy is 40 years

iii. Consider the life cycle hypothesis. The human consumption function in the form C = 0.025W + 0.5Y implies that a half of one's life expectancy is spent in retirement

iv. Consider the life cycle hypothesis. The human consumption function in the form C = 0.025W + 0.5Y implies that consumption will increase by CZK 25, when wealth will increase by CZK 1,000.

Suppose that the real money demand function is L(y e) == 0.01 Y ,r + '1T e ' r + '1T where Y is real output, r is the real interest rate, and '1Te is the expected rate of inflation. Real output is constant over time at Y = 150. The real interest rate is fixed in the goods market at r = 0.05 per year. a. Suppose that the nominal money supply is growing at the rate of 10°/o per year and that this growth rate is expected to persist forever. Currently, the nominal money supply is M = 300. What are the values of the real money supply and the current price level? b. Suppose that the nominal money supply is M = 300. The central bank announces that from now on the nominal money supply will grow at the rate of 5°/o per year. If everyone believes this announcement, and if all markets are in equilibrium, what are the values of the real money supply and the current price level? Explain the effects on the real money supply and the current price level of a slowdown in the rate of money growth.

Consider an economy with a constant nominal money supply, a constant level of real output Y = 100, and a constant real interest rate r= 0.10. Suppose that the income elasticity of money demand is 0.5 and the interest elasticity of money demand is -Q.1. a. By what percentage does the equilibrium price level differ from its initial value if output increases to Y = 106 (and r remains at 0.10)? (Hint: Use Eq. 7.11.) b. By what percentage does the equilibrium price level differ from its initial value if the real interest increases to r= 0.11 (and Y remains at 100)? c. Suppose that the real interest rate increases to r= 0.11. What would real output have to be for the equilibrium price level to remain at its initial value? 

1.      In 2002, Ozzie purchased a 1997 Ford Escort from his neighbour for his son, purchased a 1999 “one owner” Camry from Larchmont Toyota for his wife, bought a 2001 new BMW sportscar for himself, and sold his 1993 Dodge Caravan to his teenage nephew. Which, if any, of these transactions will be included in GDP in 2002?

Argument of the classical approach of macroeconomics

The executive director of the Ghana National Population Council, Madam Leticia Adelaide Appiah, has continually advocated that "childbirth ( in Ghana ) should be restricted to just three (3) (per family) to reverse the astronomical growth rate of 2.5%". Make a presentation showing the extent to which you agree to her proposal, using relevant statistics and examples to substantiate your assertions.

A market failure occurs when the supply of a good or service is insufficient to meet This results in an inefficient distribution of resources among market participants. Hence government needs to intervene to bring efficiencies. Explain any four tools available for government interventions to deal with the market failures with suitable examples.

is it true

A depreciation of the rand may have inflationary consequences in South Africa because it increases the costs of imported goods.

Question No. 01

PakMonoG’s inverse demand function is P = 100 – 2Q and cost function is TC = 10 + 2Q,

Where Q is quantity in units and P price in PKR.

a.      Determine the profit-maximizing price, quantity and profit (or loss) of PakMonoG.  

b.     Given your calculations in (a), illustrate the demand, marginal revenue and marginal cost curves of the firm in a graph.  

c.      If we were to compare PakMonoG with a perfect competitive firm in the market, are there differences in characteristics of the two structures?  

What are welfare implications? Is total societal welfare of the firm higher or lower than that of a competitive firm? Support your answer using the graph in (b) above