Macroeconomics Answers

1. In the year 2010, the government decided to construct a thermal plant in a small town. Discuss its impact on equilibrium wage in the small town in the short and long-term. (5 Marks)

2. Kwabena earns $15 per hour for up to 40 hours of work each week. He is paid $30 per hour for every hour in excess of 40. Kwabena faces a 20 percent tax rate. Kwabena receives $80 from the government as part of the Livelihood Empowerment Against Poverty (LEAP) program which is tax-free. There are 110 (non-sleeping) hours in the week. Graph Kwabena's weekly budget line. (10 Marks)

3. Suppose that the supply curve for private schoolteachers is Ls = 20,000 + 350W, and the demand curve for such schoolteachers is Ld = 100,000 - 150W, where L = the number of teachers and W = the daily wage.

(a). Plot the supply and demand curves.

(b). What are the equilibrium wage and employment levels in this market?

(c). What will be the effect on labour demand and supply if the government imposes a minimum wage of 200 GHS. (10 Marks)

4. Akua gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 110 hours. Her utility function is U (C, L) = C × L. Akua receives $660 each week from her great-grandmother—regardless of how much she works.

(a). What will be Akua's marginal rate of substitution.

(b). What will be Akua's reservation wage? (Explain in detail)

In an open economy, where consumption depends only on disposable income and national saving is 300. Investment =400-20r and world interest is 10 per cent. If govt spending increases by 100, does investment change. Why

a. let β>0 be the discount factor, present and solve for both the competitive equilibrium and the steady state of the two-sector economy. With the use of phase diagram, identify the saddle path.

b. Fourth, explain how you can incorporate a government into your model in Part (c) to illustrate the crowding-out effect.

c. Finally, suppose now we allow the output price level in Part (b) to vary. Explain how we can introduce nominal rigidities and therefore price dynamics to this economy. You should explain both methods commonly used in the macroeconomic literature. 

How do I solve this NI question when MPC is increased by 20% and government spending is increased by 6%?

Given:

C= 200+0.6Y

I= 250

G= 200

R= 20

Suppose you have been told that the marginal propensity to consume for Kenya is 0.75. By how much will consumption and savings change if aggregate expenditure (i.e. Disposable income) is increased by ksh.1million?

GIVEN: Ca = 5,000       

mps = 0.1          

I = 6,000            

G = 4,000

          Ta = 1,000   

mpt = 0.2  

   TR = 1,500

REQUIRED: Answer the following questions. Show the solutions.

1.   Formulate the consumption function.

2.   Formulate the savings function.

3.   Derive the equilibrium income for an economy consisting of HHs only and prove that Y = C  &  S = 0 using any approach of your choice.

4.   Derive the equilibrium income for an economy consisting of HHs & BFs and prove that Y = C + I and S = I using any approach of your choice.

5.   Derive the equilibrium income for an economy consisting of HH, BF & G does not impose taxes and prove that Y = C + I + G & S = I + G using any approach of your choice.

6.   Derive the equilibrium income for an economy consisting of HH, BF & G imposes fixed taxes and prove that Y = C + I + G & S + T = I + G using any approach of your choice.

7.   Derive the equilibrium income for an economy consisting of HH, BF & G imposes fixed & behavioral taxes and prove that Y = C + I + G & S + T = I + G using any approach of your choice.

8. Derive the equilibrium income for an economy consisting of HH, BF & G imposes fixed & behavioral taxes but grants transfer payments and prove that Y = C + I + G & S + T = I + G + TR using any approach of your choice. 

In an economy C= 200 + 0.5 Y is the consumption function where C is the 

consumption expenditure and Y is the national income. Investment 

expenditure is ₹ 400 crores.

Is the economy in equilibrium at an income level ₹1500 crores? Justify your 

answer.

GIVEN: Ca = 5,000       

mps = 0.1         

 I = 6,000            

G = 4,000

          Ta = 1,000 

   mpt = 0.2  

   TR = 1,500

REQUIRED: Answer the following questions. Show the solutions.

1.   Formulate the consumption function.

2.   Formulate the savings function.

3.   Derive the equilibrium income for an economy consisting of HHs only and prove that Y = C  &  S = 0 using any approach of your choice.

4.   Derive the equilibrium income for an economy consisting of HHs & BFs and prove that Y = C + I and S = I using any approach of your choice.

5.   Derive the equilibrium income for an economy consisting of HH, BF & G does not impose taxes and prove that Y = C + I + G & S = I + G using any approach of your choice.

6.   Derive the equilibrium income for an economy consisting of HH, BF & G imposes fixed taxes and prove that Y = C + I + G & S + T = I + G using any approach of your choice.

7.   Derive the equilibrium income for an economy consisting of HH, BF & G imposes fixed & behavioral taxes and prove that Y = C + I + G & S + T = I + G using any approach of your choice.

8.   Derive the equilibrium income for an economy consisting of HH, BF & G imposes fixed & behavioral taxes but grants transfer payments and prove that Y = C + I + G & S + T = I + G + TR using any approach of your choice.

Government spending is 700; investment is 310 and consumption is given by 

C=250+0.8Yd

Net tax T=-50+0.25Y

I. Cal equilibrium income

Ii. Assume investment falls by 80units,compute new level of equil income and the value of budget deficit/surplus at that level.of income.

Iii. Suppose that government raises lump-sum taxes by the any of deficit /surplus in order to bal the dudget,what will be the new level.of equil income?

Derive the conditions for steady state growth in the Solow model. What are its implications? In what respects is the golden rule different from the steady state?