Macroeconomics Answers

If a country follows a fixed exchange rate regime, what macroeconomics variables could cause the fixed exchange rate to be devalued?

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

Real GDP in Canada is produced using the following production function: Y = AK^0.5 N^0.5 Where A is productivity, K is the capital stock and N is the size of the labour force. Households save a constant fraction of output: S=0.3Y The labour force grows at a rate of 5% and capital depreciates at a rate of 5%, therefore: n=0.05 and d=0.05

a) Suppose that productivity, A, is constant at A=5. What is the steady state capital per capita, output per capita and consumption per capita?

b) In order for output per worker to double in the steady state, what must be the increase in A if nothing else changes? Solve for the new level of A.

c) Suppose that the savings rate increase to 0.5. What is the new steady state capital, output and consumption per capita?

d) Based on your result in part c), do you think the initial savings rate of 0.3 was the golden rule level of saving?

Consider an open economy that is described by the following model:

C = 200 + 0.75Y

Where:

Y = income

C = consumption

1.Calculate the equilibrium income.  

2. Calculate the amount of tax that the government collects at equilibrium.  

3.Calculate the government budget, and explain whether there is a surplus or a deficit.

4. Calculate the change in investment required to reach a full employment level of income.

Assume that the United States is operating in a short-run equilibrium where the actual unemployment rate is higher than the natural rate.

a. If the Federal Reserve decides to close this output gap using monetary policy, what open market operation should they pursue?

b. Based on your answer to part (a), indicate the effect of the open market operation on each of the following

i. The nominal interest rate.

ii. The real interest rate.

keynesian theory of demand for money

Assume Country X’s economy is currently at full employment.

(a) If country X’s net exports decrease, what will happen to the price level in Country X? Explain.

(b) Draw a correctly labeled graph of the money market, and show the effect of the change in the price level identified in part (a) on the nominal interest rate.

(c) Based on your answer to part (b), what will happen to the price of previously issued bonds?

(d) Identify an open market operation that country X’s central bank can use to offset the change in the nominal interest rate from part (b).

Saving is setting aside money you don't spend now for emergencies or for a future purchase. In an economy the saving function is specified as S = -a + bYd. Using the above information what the effect will be on an economy if everybody in the economy saves thereby increasing the saving function.

10 ma

Ramsay model including stochastic element. Policy function now: c∗t (kt) = (1 − αβ)A(kt)^αlpha,  

and thus function. kt+1(kt) = αβAkt + εt. Decribe how the ramsay model is effected by this after a temporary shock to investment

b. Briefly discuss the distinctions among mathematical economics, statistics and econometrics.

c. One of the most influential econometricians of the late 1920s and early 1930s was the  Norwegian economist Ragnar Frisch (1895-1973). Frisch’s primary work is found in his  book Statistical Confluence Analysis by Means of Complete Regression Systems (1934). 

Kindly explain his main arguments in his book as he worked together with his best friend,  Jan Tinbergen (1903-1994). d. Trygve Haavelmo (1911- ), a Norwegian economist who studied with Ragnar Frisch, has 

been credited with introducing the probabilistic approach to econometrics and to economic  theory. Briefly explain his arguments for probabilistic approach.