Macroeconomics Answers

2, See the following scenario and say it is perfectly inelastic, elastic or

inelastic. Draw the diagram and write values(o, 1, <1 or >1)

A. There is a huge jump in the ticket price of a cricket match . However Sumner

of seats in the gallery is fixed. (4 MARKS)

B. Fewer people want to fly in the month of June than any other month. The

airlines increase about 10% of their flights , as ticket prices increased about 20%

during this month. (4 MARKS)

QUESTION 1. Suppose Zambia is a closed economy in the Long run described by the following equations:

Y= C+I+G 

Y=5000

C= 200+0.75 (Y-T)

I= 750- 25r 

T= 1000

G= 800

Where Y is national output/income, C is consumption, I is investment, r is interest rate, G is government spending and T is taxes. 

(a) Solve for private saving, public saving and national saving.(2 marks)

(b) Solve for the equilibrium interest rate, and the level of investment (2 marks)

(c) Plot the equilibrium condition: Savings=investment (1 marks)

(d) Now suppose taxes are increased to 875:

(i) Calculate the new level of public savings, private savings, national savings, interest rate and investment.(2 marks)

(ii) Explain in few words the effect of this policy on savings, investment and interest rate. (2 marks)

(ii)Graph the new equilibrium (together with the old) for the economy due to the fiscal policy (1 marks)

A consumer has $25 in budget to purchase goods X & Y. Assume Px = 3 and Py=1. What is the maximum amount of Y that she can buy?

A1-1. Suppose two countries with the same population each start with 10 unemployed workers and 90 employed workers. Subsequently 5 workers in country A find jobs and become employed, while in country B, all 10 of the unemployed become discouraged and leave the labour force. Because country B’s rate of unemployment falls from 10% to 0%, while country A’s only falls from 10% to 5%, we can say that the labour market outcome in Country B is superior to that in Country A. 

Suppose that the economy of Stormwind has the following​ features:

The level of private saving is ​$200.

The level of investment expenditure is ​$100.

The level of exports is ​$75.

The level of imports is ​$125.

If​ Stormwind's economy is in​ equilibrium, the level of public saving would be equal to ​$

nothing

. ​(Round your response to the nearest​ dollar.)

The level of public saving shows that the government in Stormwind has a budget ▼

deficit

surplus

.

If the level of government purchases is ​$200 in​ Stormwind, the level of taxes must be ​$

nothing

. ​(Round your response to the nearest​ dollar.)

The government of Selgina is serious about drugs. Possession of drugs is illegal and is severely penalized. However, a black market exists which the government has failed to dismantle despite serious attempts. Khusenichho Chamling, the health minister, is worried about the situation. In early 2019, a consultant working with health ministry suggested that the government should increase the price of a pack of cigarettes from 200 Selgina dollars ($) to $600. A survey conducted in December 2019 suggested that over the year, the quantity demanded of marijuana decreased from 2,000 kgs per day to just 800 kgs. Calculate the cross elasticity of demand and tell why the policy has proved so effective.                                    

In the light of Keynes's view about the difference between risk and uncertainty, explain each of the following ideas from Keynes:

a: It might be rational (rather then simple illusion) for workers to make labor supply decision based on relative money wages rather than real wages;

b: Households base their consumption and savings decisions on current income rather than wealth

What is implied about the relationship between money and interest rate when money is made the independent variable - that is when the demand for money function is inverted?

In what way is it favourable to monetarist views if the demand for money is correctly specified in real terms?

Compare and contrast the Monetarist theory of money demand curve with the Keynesian theory of money demand. Specifically, make sure to talk about how each model views the behavior of velocity over the business cycle.