Macroeconomics Answers

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.

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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

Question No. 02

A graduating MBA student has job offers from two brokerage firms. Firm #1 pays a straight salary of $70,000 (but no commission bonuses). Firm #2 pays a salary of $6,000 plus a commission bonus, with a fixed bonus schedule based on annual sales; the potential commission bonus for firm #2's job is as follows: $150,000 with a probability of 11%, $50,000 with a probability of 83%, $20,000 with a probability of 5%, and zero with a probability of 1%.

(a)       What is the expected monetary value of Firm #2's job?

(b)       The student claims to be indifferent between the two job offers. If this is true, is the student risk averse, risk loving, or risk neutral, and why?

Q.19 The average cost of producing 10 units is Rs 30, while the average cost of producing 20 units is Rs 20. Find the average cost of producing 30 units.

{Hint : Find Fixed cost. TC of 10 units = Rs 300, TC of 20 units = Rs 400, VC = Rs 10/ unit

Fixed cost = TC = FC + VC (10* 10) = 300 = FC + 100 = FC = 200. Thus, AC of producing 30 units will be Rs 16.67}

Critically evaluate and explain with help of graph (s) that monetary policy or 

fiscal policy is appropriate when goods market is sensitive to rate of interest and 

money market is relatively insensitive to rate of interest.

1.     You deposit $5000 in the bank for one year.

CASE 1: inflation = 0%, nom. interest rate = 20%

CASE 2: inflation = 10%, nom. interest rate = 30%

a.     In which case does the real value of your deposit grow the most? [1]

Assume the tax rate is 15%. 

a.     In which case do you pay the most taxes?[2]

b.     Compute the after-tax nominal interest rate, then subtract off inflation to get the after-tax real interest rate for both cases.[3]

2.     Explain whether the following statements are true, false, or uncertain. [4]

a.     “Inflation hurts borrowers and helps lenders because borrowers must pay a higher rate of interest.”

b.     “Inflation does not reduce the purchasing power of most workers.”

The MYZ Company is considering the purchase of a machine that costs 100 thousand dollars, and which has a lifespan of only two years, after which it has a zero scrap value. This investment, if undertaken, will generate gross returns of 40 thousand dollars and 64 thousand dollars at the end of the first and second years, respectively, after deducting all the costs except depreciation and interest costs. Should the Company go ahead with this investment when the prevailing rate of interest is 6 percent? Explain your answer

Suppose the money demand in an economy in which no interest is paid on money is M^d/p = 500+0.2Y-100i,

a) you're told that price =100, Y=100, and i=0.10.

Find the real money demand, nominal money demand and velocity.

b) the price doubles from p=10 to p=20. Find the real money demand, nominal money demand, and velocity.