Macroeconomics Answers

1.    Suppose the IS curve is Y = 39XX-100i and Y = 1500 + 250i is the LM curve, where XX is the last two digits of your ID number. Using these compute:

a)    The equilibrium interest rate and output (i*and Y*).

b)   If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate.

c)    Determine the impact of the above policy on private investment if it is known that di/dA = XX/100, where XX is the last two digits of your ID number.

d)   Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number.

e)    Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).

1.     Drive the AD (Aggregate Demand) curve using the following: IS curve is given as Y = 20XX-100i, LM₁ is Y= 1000+25i (when P = 1) and LM₂ is Y = 500+25i (when P =2), where XX is the last two digits of your student ID number. Show the derivation in (interest rate-income) and (price level-income) spaces. (You may insert a snapshot of the graphs if drawn manually).

1.     Drive the AD (Aggregate Demand) curve using the following: IS curve is given as Y = 20XX-100i, LM₁ is Y= 1000+25i (when P = 1) and LM₂ is Y = 500+25i (when P =2), where XX is the last two digits of your student ID number. Show the derivation in (interest rate-income) and (price level-income) spaces. (You may insert a snapshot of the graphs if drawn manually).

1.     Show using the IS-LM graph the impact of an expansionary fiscal policy if the LM curve is vertical. If you were the Economic Planner in this country, how would you implement the fiscal policy without causing any crowding out of private investment? (You may insert a snapshot of the graph if drawn manually).

(a) Describe five economic effects of continuous, moderate inflation.

(b) How might governments use monetary policy to reduce the rate of inflation?

• Describe what has happened since 2008 to the number of people that are:Employed
• Unemployed according to the formal definition of unemployment
• Unemployed according to the expanded definition of unemployment
• Explain whether it is possible for the amount of employed people to decrease while the unemployment rate decreases.
• Analyse the differences in unemployment rates by race and gender.
• Propose how you think unemployment can be reduced in South Africa?

• Describe what has happened since 2008 to the number of people that are:Employed
• Unemployed according to the formal definition of unemployment
• Unemployed according to the expanded definition of unemployment
• Explain whether it is possible for the amount of employed people to decrease while the unemployment rate decreases.
• Analyse the differences in unemployment rates by race and gender.
• Propose how you think unemployment can be reduced in South Africa?

AN APPROPRIATE GOVERNMENT INTERVENTION IN THE ECONOMY

Taxmania is a closed economy with government. Aggregate demand is described by , where denotes aggregate consumption,  denotes investment and  denotes government expenditure. Disposable income is denoted by ; income in Taxmania is taxed at a rate , while the government can also deduct taxes as a lump sum .

In 2017-18, the Pakistan Bureau of Statistics announced that of all adult Pakistanis, 59,786,200 were employed, 3,613,800 were unemployed, and 58,800,000 were not in the labor force. Use this information to calculate the unemployment rate