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Evaluate, with the use of an appropriate diagram (s), whether fiscal policy will always reduce a negative output gap. (25 marks)
The consumption function is C=250 +0.75Y) - 400r, and the investment function is given by I=1300 - 100r. Here Yo is disposable income and r is the real interest rate. Net taxes are T=1000. Government spending is G=1450. The economy is in the long run where real GDP is Y = 5000.
(A) Give a real-life example of a transaction that would count towards investment I.
(B) Derive the total savings function S.
(C) Find the equilibrium on the loanable funds market: find , S, and I at equilibrium
(D) The new president is concerned about the current budget deficit, and she orders to adjust G in such a way that the budget becomes balanced. Find the new equilibrium: find r. S. and I at the new equilibrium
The time it takes for something to double is approximately equal to, divided by the growth rate
Explain what is meant by national income equilibrium and how it may change
Suppose the market demand and supply function for cookies per day in Puri city is given as Qd = 20-2P and Qs = - 8+2P, where Qd, Qs and P refers to quantity demanded, quantity supplied and price respectively. Draw the demand and supply graph and show the market equilibrium price and quantity. Analyse the market situation if the actual price of cookies is Rs. 10 per unit by drawing a well labeled graph.
The South African income tax system is
Consider the case of a chemical plant that discharges polluting waste into a river. Further downstream, this water is used for irrigation purposes by a group of farmers. Thereafter it flows harmlessly into the sea, where the pollutants are quickly dispersed. Which of the following would constitute appropriate intervention(s) to deal with any potential economic externalities?
Q2: Collate CPI data for the last 20 years and prepare a graph of CPI vs Year. From graph identify the periods of high and low inflations.
First, suppose we have a representative individual living for two periods and has utility, U = ln C1 + ln C2. Let his/her labour income in the first period to be Y1 and zero in the second period. Let the rate of return to savings, r, to be influenced by a random shock, find the first-order condition for his/her choice of C1. Explain how, if at all, does consumption respond to the uncertainty in the rate of return?
Second, suppose we extend the time horizon to infinitely lived agents, and let the individual also supply capital to a representative firm in the economy. Formulate and solve the firm’s profit maximization problem. You can assume price level to be fixed and normalized to one, but you should explain the economic intuitions of the first-order conditions.
First, suppose we have a representative individual living for two periods and has utility, U = ln C1 + ln C2. Let his/her labour income in the first period to be Y1 and zero in the second period. Let the rate of return to savings, r, to be influenced by a random shock, find the first-order condition for his/her choice of C1. Explain how, if at all, does consumption respond to the uncertainty in the rate of return?
Second, suppose we extend the time horizon to infinitely lived agents, and let the individual also supply capital to a representative firm in the economy. Formulate and solve the firm’s profit maximization problem. You can assume price level to be fixed and normalized to one, but you should explain the economic intuitions of the first-order conditions.
