Macroeconomics Answers

The relationship between a consumer’s income and the quantity of X, he consumes is given by the equation M=1000Q²

Calculate his point price income elasticity of demand for X when his income is 64,000.

1. An individual spends all his income on three goods. He buys 550 units of X at $1 per unit, 425 units of Y at $2 per unit and 200 units of Z at $ 3 per unit. The price of X increases by 10%, but there is no change in prices of Y and Z. He now buys 440 units of Y and 190 units of Z. Calculate his price elasticity of demand for X. An individual spends all his income on three goods. He buys 550 units of X at $1 per unit, 425 units of Y at $2 per unit and 200 units of Z at $ 3 per unit. The price of X increases by 10%, but there is no change in prices of Y and Z. He now buys 440 units of Y and 190 units of Z. Calculate his price elasticity of demand for X.

True or False?

 Suppose price index that is used to guide central bank policy increases from 120 to 126. If the central bank has an inflation target of 2%, it should pursue an expansionary monetary policy. [Hint: Use an AD-AS diagram in your answer.] 

true or false?

 The yield of a bond that promises to pay 110 in one year’s time is equal to 5% if the equilibrium price of that bond is 104.76. 

true or false?

The credit card in your wallet is part of your money holdings. 

A2-5. Suppose a central bank decides to decrease its policy interest rate in an effort to decrease interest rates throughout the economy. 

1. (a) Using a diagram for the money market, explain the effects of the decision on interest rates and how the central bank must respond to support this policy decision. [Hint: make sure to discuss the adjustment to the new equilibrium in the money market.] [5] 
2. (b) Suppose the economy is a closed one. What effect will the policy change have on investment, on aggregate expenditure? Include diagrams in your answer. [5] 
3. (c) What additional effect will there be on aggregate expenditure if the economy was an open one? [5] 
4. (d) How will aggregate demand be affected, whether we treat the economy as closed or open? (Illustrate in a diagram.) Under what circumstances would this policy be appropriate for a central bank that was trying to stabilize the economy? (Illustrate in your diagram.) [5] 

Fair Bank, decides to grant loans for a total of $10 million to its account holders.

Balance sheet (millions): Fair Bank

cash:$15

checkable deposits:$215

reserves:$45

loans:$120

net worth:$45

property:$80

First, use the provided values to place the proper figures that represent Fair Bank's new situation.

Balance sheet (millions):

cash:

checkable deposits:

reserves:loans:

net worth:

property:

Suppose that the loan recipients write checks to people not holding accounts at Fair Bank for the entire $10 million. In turn, the checks are cashed by their beneficiaries at their corresponding banks. Again, use the provided values to represent the financial situation of Fair Bank after all checks are cleared.

Balance sheet (millions):

cash:

checkable deposits:

reserves:

loans:

net worth:

property:

Answer Bank

$90

$80

$120

$55

$25

$15

$5

$45

$70

$130

$225

$35

$205

$100

$215

Given that: C=$40m, I=$60m, G=$20m, T=$20m.

Find :

1. Equilibrium Level of income.

2. Consumption expenditure.

3. Level of savings.

4. New income Level if investment falls by $10m.

What will happen if the central bank responds to the increase in government expenditure by an accommodating monetary policy? Substantiate your answer with proper and completer chain of logic and well-labeled diagrams

Use a foreign exchange diagram to illustrate and explain the effect of the decline in demand on the rand-dollar exchange rate ,ceteris paribus