Macroeconomics Answers

• When a farmer in Limpopo Province decides to harvest lettuce by the use of machines instead of by migrant workers, the farmer is answering the question. A. "For whom?"
•  B. "How?"
•  C. "What?"

Analyse the differences in unemployment rates by race and gender

Propose how you think unemployment can be reduced in South Africa?

Explain whether it is possible for the amount of employed people to decrease while the unemployment rate decreases

Suppose the economy of Ghana in 2020 was characterized by

C = ¢400m + 0.75(Y-T); I = ¢400m - 20r; G = ¢200m; T = ¢200m;

Ms = ¢250m/P; Md = 0.25Y - 10r

a. Derive the IS and LM curve equations. Give a brief explanation as to why they are

positively or negatively sloped.

b. Calculate equilibrium output and interest rates (in this case assume P=1).

 Econ313 2020/2021 PROBLEM SET 2 Page 1 of 2

c. Suppose the government of Ghana in the second half of 2020 spent an additional ¢50m to mitigate the impact of the COVID pandemic on households and businesses and government tax revenue declined by 10% as a result of the lockdown in Ghana what will be the new equilibrium output?

d. Will the policy in (c) above have an impact on interest rate? Briefly explain.

e. What is the amount of the fiscal deficit incurred as a result of the government fis

Suppose the economy of Ghana in 2020 was characterized by

C = ¢400m + 0.75(Y-T); I = ¢400m - 20r; G = ¢200m; T = ¢200m;

Ms = ¢250m/P; Md = 0.25Y - 10r

a. Derive the IS and LM curve equations. Give a brief explanation as to why they are

positively or negatively sloped.

b. Calculate equilibrium output and interest rates (in this case assume P=1).

 Econ313 2020/2021 PROBLEM SET 2 Page 1 of 2

c. Suppose the government of Ghana in the second half of 2020 spent an additional ¢50m to mitigate the impact of the COVID pandemic on households and businesses and government tax revenue declined by 10% as a result of the lockdown in Ghana what will be the new equilibrium output?

d. Will the policy in (c) above have an impact on interest rate? Briefly explain.

e. What is the amount of the fiscal deficit incurred as a result of the government fis

1. Supply shocks are usually modelled as leading to higher rates of price inflation. Explain the initial effect of a supply shock in the context of an oil price shock. Why is the effect of the pandemic supply shock different
2. The pandemic has been characterized by both negative supply and negative demand shocks. Many economic activities have been restricted by government order. Inflation in the Euro-zone remains stubbornly negative. Explain what generic short-term macroeconomic fiscal policy actions Euro-zone governments
3. World interest rates, including the ECB’s and the Federal Reserve’s main monetary policy interest rate targets, are approximately zero. Zero interest rates create a monetary policy dilemma. Explain what this dilemma is and how it affects monetary policy as defined by the Taylor Rule.

Explain how Life-Cycle Hypothesis and the Permanent Income Hypothesis, explain the difference between long run APC and short run APC.         

With a help of a diagram discuss how the permanent income theory of consumption explains the difference between the cross-section and time-series estimates of the Keynesian aggregate consumption function.  

 Explain what happens to consumption, investment, and the interest rate when the government increases taxes. Show graphically the effect of increased taxes when saving is not dependent on interest rate.