Macroeconomics Answers

Question 2

a. Henry L. Moore’s early work established him as a leader in integrating statistical methods  with economics. Kindly outline how he developed interest in J. B. Clark’s marginal  productivity theory of wages. State the implications of Clark’s Theory. Briefly explain how  he positively contributed to the development of Macroeconometrics?

b. Briefly explain Moore’s Demand Curve and the Identification Problem. Hint: Use graphs  to earn extra marks

c. Henry Schultz’s (1893-1938) contribution came as a derivative of his analysis of tariffs,  which required him to estimate a demand curve. Will you please explain the interesting  discovery of Henry Schultz about Independent and Dependent variables?

d. W.S. Jevons (1835-1882) was one of the pioneers in mathematical techniques and utility  theory. For that work he was highly lauded. Can you please explain his sunspot theory?

How to calculate the autonomous spending

C = 200 + 0.75Y

Where:

Y = income

C = consumption

I = 250 I = investment

G = 400 G = government spending

T = 0.25Y T = taxes

X = 150 X = exports

M = 180 M = autonomous imports

Yf = 2 500 Yf = full employment income level 

3. About the IS-LM model

a) Discuss the market under consideration.

b) State Walras law.

c) Explain the reason for the negative relationship between interest rates and income in the goods market.

d) Making relevant assumptions, show the graphical derivation of the IS curve.

e) Making relevant assumptions, show the graphical derivation of the LM curve .

f) Within the IS-LM framework, explain how contractionary fiscal policy works using tax as a policy tool.

g) Assuming the Zambian economy is characterised by the minimum interest rate below which it cannot change, discuss monetary policy within the situation.

Question 1

a. Almost all economists believe that economics must ultimately be an empirical discipline, 

that their theories of how the economy works must be related to (and, if possible, tested 

against) real-world events and data. But economists differ enormously on how one does 

this and what implications can be drawn afterward. Kindly distinguish the following four 

(4) different approaches to relating theories to the real world: Common-sense empiricism, 

Statistical analysis, Classical econometric analysis and Bayesian econometric analysis. 

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

econometrics.

In January 2018, Bank Negara Malaysia (BNM), raised its interest rates for the first time since July 2014. Economists speculated that it is one time event and that there won’t be interest rate hikes given that Malaysia’s growth is steady and inflation is mild.

Why some economist speculated that the interest rate hike is one time event?

An economy can be described by the production function, 𝑌 = 𝐹(𝐾, 𝐿) = 𝐾 𝛼𝐿 1−𝛼 (a) Show that this production function exhibits constant returns to scale?(b) What is the per-worker production function? (c) Assuming a version of the Solow growth model with population growth but no technological progress, find expressions for the steady-state capital-output ratio, capital stock per worker, output per worker, and consumption per worker, as a function of the saving rate (𝑠), the depreciation rate (𝛿), and the population growth rate (𝑛). (You may assume the condition that capital per worker evolves according to ∆𝑘 = 𝑠𝑓(𝑘) − (𝑛 + 𝛿)𝑘.) [4 marks] Now consider a specific economy described by the production function, 𝑌 = 𝐹(𝐾, 𝐿) = 𝐾 0.6𝐿 0.4 The economy has no technological progress and has a depreciation rate of 5% per year. The economy starts in a steady-state with growth in output (𝑌) of 5% per year. Further, the economy exhibits a capital-output ratio of 2 in this steady-state.

 Suppose a man marries his maid. After they are married, his wife continues to perform the home duties as before, and he continues to support her as before (but as a wife rather than as an employee). How does the marriage affect GDP? How should it affect GDP?

Suppose that in 2020, the government runs a primary budget deficit of 2% of GDP, the nominal interest rate is equal to 5% per year and GDP grows at 3% per year.

(a) Starting with the government budget equation, derive the steady-state debt to GDP ratio.

(b) Is this steady state stable or unstable? Explain your answers.

(c) Explain the difference between the primary deficit and the reported deficit.

(d) Assume that in 2020, the government had a debt to GDP ratio of 25%. How big was the reported deficit to GDP ratio?

 why a country with a lower budget deficit tends to increase its trade surplus? 

1. if you are an analyst at the ministry of transport and the minister proposes that the toll of 50p would now be 1.00ghc and the elasticity of demand for the motorway is 0.3. Do you think this is politically a good decision?

2. Do you think the price support system would help farmers in Ghana?

3. Explain the concept of market failure.