Macroeconomics Answers

In the U.S., President Biden recently approved a $1.9 trillion stimulus package aimed at getting the 

economy going. U.S. workers who earned less than $ 75 000 a year in 2019 each received a $ 1 400

stimulus check over the past few weeks.

Use the IS-LM-BP model to explain what this can mean for the levels of output/income and interest 

rates in South Africa. Draw the graph and explain the complete chain reaction.

The residents of an agrarian country spend all their income on cauliflower, cucumbers, and carrots. In 2017, they produced 20 heads of cauliflower valued at Rs.200, 5 kgs of cucumbers for Rs.75, and 50 carrots for Rs.80. In 2018, they produced 25 heads of cauliflower for Rs.250, 8 kgs of cucumbers valued at Rs.160, and 50 carrots valued at Rs.150. a. Calculate nominal and real GDPs taking 2018 as the base year. Then calculate GDP-deflator index. b. Assuming that a common person consumes 1 heads of cauliflower, two kg. of cucumbers and 5 carrots, calculate CPI taking 2018 as the base year. c. Calculate inflation rate between 2017-18 measured both from GDP-deflator index and CPI?

In India, the total NPA in 2020 of the banks amounts to ~17 lakhs crores, an increase from ~3 lakh crores in 2013 and negligible amount in 2007, according to Database on Indian Economy by RBI. Such large non-performing assets (NPA) of the banks have declined the assets of the public sector banks considerably since 2007-08. We know that when asset of the banks decline, the risk in the financial sector increase considerably. Moreover, despite substantial cut in policy interest rate by the RBI, commercial banks are reluctant to extend credit. 

How to illustrate the AD-AS model the impact of strike on the general price level and the level of real production and income in the economy

Explain the relationship between the law of diminishing returns and the three stages of production by means of a graph showing total, marginal and average products. (10)

Examine possible causes of the largest ever recorded trade in goods deficit

Design a government intervention in the competitive equilibrium that could restore social efficiency. In particular, a tax τ on production f (n) is imposed on the firms which is rebated lump-sum to the households. As a first step, set up the new firms maximization with the tax, as well as the maximization problem of the households and derive the respective first-order conditions. Show that leisure demand with taxes is given by l2nd = γ(1−pδ) . Then, determine the optimal size (1−τ)+γ(1−pδ) of the tax τ that would establish equivalence between the competitive equilibrium and Social Planner allocations. 

Households utility:U(c, l) = ln(c − pE) + γ ln l, and the budget constraint is c = w(1 − l). 

Externalities: E = δY

Firms produce with a linear technology using only labor input n: Y = f (n) = n.

Assume that 0 < δp < 1 

(a) Why are second hand motor cars are sold at a huge discount on Black Friday? (2)

(b) Why does the government usually increase taxes on cigarettes and alcohol in order to increase its revenue? (2)

How do the three basic economic questions relate to the firm? (3)

The following equations describe the economy.

• C = 100+ 0.8 Y

• I = 200- 1000 i

• L = Y – 10000 i

Initially, government expenditure is $550, and taxes are $500. The real money supply equals

$900.

a. Derive the formulas for the IS curve and LM curve. (4pts)

b. What are the initial levels of GDP, the interest rate, consumption, and investment?

Owing to a drop in investor confidence, the autonomous component of investment drops

by 90. (2pts)

c. By how much do income, the interest rate, and investment drop? (3pts)

d. By how much should the money supply be changed in order to return GDP to its original

level? What will the new interest rate be? (3pts)

e. Draw three graphs to illustrate the equilibria in b, c, and d. (6pts)