Macroeconomics Answers

2.      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 domestic government generates a surplus budget. a) There will be an outflow of capital, the real exchange rate will appreciate and net exports will decline b) There will be an outflow of capital, the real exchange rate will depreciate 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 inflow of capital, the real exchange rate will appreciate and net exports will decline

e)     Do not answer this question

3.      An increase in the interest rate leads to a decrease in the value of Tobin’s q A)Yes b) No c) Do not answer

1.      In a small open economy the interest rate cannot deviate from the world interest rate in the long run. A) Yes b) No  c) Do not answer

2.      Winning the lottery affects the consumer’s permanent income?

A)    Yes   b) Noc) Do not answer

3.      According to the Keynesian consumption function, the average propensity to consume is constant a) Yes  b) No  c) Do not answer

1.      Consider a small economy described by the following equations by the following equations: Y=10,000 mil Eur G=2,000 mil Eur T=2.500 mil Eur, C=500+0.8(Y-T), I=4.000-250r (r denoted in %). Select any number of options. None of the options may be correct as well of them may be correct.

a)     In this economy, private saving, public saving and national saving equal 3,500, 500, 4,000 respectively

b)     In this economy, private saving, public saving, and national equal 1,000, 500, 1,500 respectively

c)      The equilibrium interest rate is 10% p.a

d)     The equilibrium interest rate is 2% p.a

e)     Now, supposing the same economy to be open and NX =4,500-3000*R, the equilibrium real exchange rate is 1.

f)      Do not answer this question

Competition authorities increasingly consider the concept of network effects. Explain what network effects are & an e.g of a market where these might exist. What outcomes might you expect in a market with network effects, & what competition problems might arise?

Suppose a credit market with a good borrowers and 1 − a bad borrowers. The

good borrowers are all identical, and always repay their loans. Bad borrowers

never repay their loans. Banks issue deposits that pay a real interest rate r1 , and

make loans to borrowers. Banks cannot tell the difference between a good bor-

rower and a bad one. Each borrower has collateral, which is an asset that is worth

A units of future consumption goods in the future period. Determine the interest

rate on loans made by banks.

The weekly demand for reams of paper in thousands is P= -.25Q + 60. The marginal cost is P= .5Q +10. The government has decided to implement a program to print all environmental regulations and make them available to every library in the United States. The demand for paper is projected to increase solely from government purchases to P = -.25Q + 75.

A.What price did private consumers pay for paper prior to the government’s purchase of paper?

B. What price will the government and private buyers of paper pay after the government program is implemented?

C.What will be the total weekly government expenditure on paper?(Remember your quantities are in 1000 units).

D.Does this expenditure equal the social opportunity cost of the paper?How should we adjust the expenditure to better reflect the social

opportunity costs? What would be your final estimate of the social opportunity cost of government expenditure on paper for this project?

Given the following macro-economics model :

Y = C+I+G

C = 20+0.07Y

I = 12+0.1Y

G = 10

a. Express the model in matrix form.

b. Using Cramer's Rule , calculate the equilibrium values of national income (Y) , consumption (C) and investment (I)

c. what is the income multiplier?

A new method of farming is developed that increases output by one-third. What will impact?

Macro economic policies (fiscal and monetary policies) in the new Keynesian approach?

1. Suppose the aggregate demand and short‐run aggregate supply for an economy whose potential output equals $2,700 are shown by the chart.

a) What is the short‐run equilibrium level of real GDP and the price level.

b) Characterize the current economic situation. Is there an inflationary or a recessionary gap? If so, how large is it?

2. An economy is characterized by the values in the table for aggregate demand and short‐run aggregate supply.  Its potential output is $1,500. 

a) State the equilibrium level of real GDP and the price level.

b) Characterize the current economic situation. Is there an inflationary or a recessionary gap? If so, how large is it?