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Suppose that the nominal money supply is growing at the rate of 10% per year and that this growth
rate is expected to persist for ever. Currently, the nominal money supply is M = 400. What are the values
of the real money supply and the current price level? (Hint: What is the value of the expected inflation
rate that enters the money demand function?)
Consumption (C) is 600 when income (Y) is equal to 1500. Solve for autonomous consumption
If wealth increases does spending decrease
Suppose that a small national economy consists of one firm. During a certain period of time the firm:
Imports of raw material from abroad costing Rs. 4000
Hires labor, who are paid wages are Rs. 9000
Sells all its output for Rs. 20000 and so makes a profit of Rs. 7000
Pays its post-tax profit of Rs. 4000 to stockholders
The country‘s government taxes the labor force Rs. 2000 and the company Rs. 3000
The firm‘s sales of Rs. 20000 are accounted for by:
Domestic consumers who spend Rs.11000 this Rs.11000 is the post-tax wages earned by the labor force (Rs.7000) plus Rs.4000 in dividends earned by the company company’s stockholders;
The government which spends the Rs. 5000 it has raised in taxes ;
Foreign buyers who spend Rs. 4000
Calculate the GDP with three measures
Income Approach
Expenditure Approach
Output or value-added Approach
For each of the following assets, answer if it is considered:
- M1 money
- M2 money
- Neither M1 or M2 (it is not currency)
- $0.27 cents that has accumulated under a couch cushion.
- Your $2,000 line of credit with your Visa account.
- The $210 balance in your checking account.
- $800 in a 12-month CD (certificate of deposit)
- 10 shares of stock your uncle gave you on your 18th birthday, which are now worth $520.
- $200 in traveler’s checks you have purchased for your spring‐break trip.
An expansionary monetary policy is shown as
Explain the three approaches to national income accounting in detail. Why are the three approaches to national income accounting equal? Are the three approaches give the same answer?
41.Suppose that an auto company owned entirely by Canadian citizens opens a new facility in the U.S. Answer all three parts below. In each case, carefully explain your answer.
a) What sort of foreign investment would this represent?
b) What would be the effect of this investment on current Canadian Gross Domestic Product (GDP) and U.S. GDP?
c) What would be the effect of this investment on future per capita incomes in the United States?
44.a) Explain the influence of each of the following on the natural rate of unemployment
i. Employment Insurance
ii. the minimum wage
iii. efficiency wages.
b) How would the natural rate of unemployment have been affected by the Covid-19 pandemic?
Which one of the following statements is correct :
(a). An increase in expenditure for healthcare that is financed from moving funds from the education budget will increase the budget deficit.
(b). A decrease in the number of items exempted from VAT will increase the budget deficit.
(c). A decrease in VAT from 15% to 14% will increase the budget deficit
(d). An increase in the corporate income tax rate will increase the budget deficit
1. A reduction in the tax rate will increase the disposable income of consumers. True/False
2. Structural unemployment occurs when a slump or recession in the economy (as a result of a temporary lack of demand) gives ride to unemployment. True/False
