Macroeconomics Answers

Suppose that the US and UK are the only countries in the world and that labor is the only 

productive input. 

 Labor Requirements for 

 One unit of X One unit of Y

UK 24 16

US 12 12

a. Which country has absolute advantage in X? in Y? Explain.

b. Which country has comparative advantage in X? in Y? Explain.

Given the following table:

 US UK

Commodity-X (units/man hour) 24 4

Commodity-Y (units/man hour) 16 8

If U.S exchange 24X for 24Y with U.K.

i. What is the gain to US and UK?

 ii. What is the range for mutually beneficial trade?

iii. What is the dollar price of commodity X in the U.S if the wage rate is $48?

iv. What is the pound price of commodity X in the U.K if the wage rate is £8?

 v. What is the dollar price of commodity Y in the U.K if £1 = $2?

 vi. What is the pound price of commodity Y in the U.S if £1 = $2?

QUESTION 16

Only about 1% of U.S. workers are paid minimum wage.

1. The rest are paid less.
2. A small minority is paid higher wages.
3. The vast majority has its wages determined by the market.
4. It has no impact on our society.
5. It is the primary factor influencing our economy.

QUESTION 17

If the minimum wage lies slightly below the equilibrium wage rate:

1. It will determine the market outcome.
2. It is nonbinding.
3. It will hold the price below market wage rate.
4. It will ensure that the market price never rises above the minimum wage rate.
5. It will cause Armageddon!

QUESTION 18

Those who agree on how an economic policy affects quantity demanded and quantity supplied:

1. May still disagree about whether the policy is a good idea.
2. Must disagree about whether a policy is a good idea.
3. Can predict the future with perfect accuracy.
4. Still cannot predict the future with any kind of certainty.
5. Are being misled.

In a market-oriented economy, no government:

a. Can exist.

b. Agency or guiding intelligence oversees responses and interconnections resulting from a change in price.

c. Is ever necessary.

d. All of the above.

e. Potatoes.

You are a manager at the Donnelly Corporation, a mirror and window supplier to the major automakers. Recently, you conducted a study of the production process for your DirectBond single-side encapsulated window (a product that was first introduced on Chrysler minivans). The results from the study are summarized in the table below, and are based on the 5 units of capital currently available at your plant. Workers are paid $50 per unit, per unit capital costs are $10, and your encapsulated windows sell for $5 each. Given this information, optimize your human resource and production decisions. Do you anticipate earning a profit or a loss? Explain carefully.

labour output

0 0

1 10

2 30

3 60

4 80

5 90

6 95

7 95

8 90

9 80

10 60

11 30

Name any two markets within the four-sector circular flow model

We would expect a macroeconomist, as opposed to a microeconomist, to be particularly interested in 

Explain the short term and long term impact of expansionary monetary policy

1.      Let us assume the banking reserves being 200 billion Eur in, currency in circulation 400 billion Eur and banking deposits 1200 billion Eur. Select any number of options

a)     The monetary base is the currency in circulation increased by banking reserves. Thus, the monetary base equals 60 billion Eur

b)     The banking reserve ratio is the ratio of deposits over banking services. The resulting banking reserve ratio is then 6.

c)      If banking reserves decrease by 50 billion Eur banking deposits decrease by 300 billion Eur

d)     Money multiplier describes the process of multiplication of monetary base which then forms money supply, in our case the multiplier is 2.667

e)     Money multiplier describes the process of multiplication of banking reserves which then forms money supply. In our case the multiplier is 8

1.      Assume a small open economy in which domestic and global interest rates are equal. Using the loanable funds model and the open economy model to determine what changes in the economy if the US government runs a budget deficit.

a)     There will be an outflow of capital, the real exchange rate will appreciate and net exports will decline

b)     There will be an inflow of capital, the real exchange rate will appreciate and net exports will decline

c)      There will be an inflow of capital, the real exchange rate will depreciate and net exports will increase

d)     There will be an outflow of capital, the real exchange rate will depreciate and net exports will increase

e)     Do not answer this question