Macroeconomics Answers

There is an economy with three firms, two of which make intermediate goods (Firm 1 produces an input for Firms 2, who produces an input for Firm 3), and one (Firm 3) which constructs a final good. Complete the following table.

                     Firm1   Firm 2   Firm 3    Totals

Sales                                                            ——–

Inputs             0          6000                        ——–

Labor           4,300     850       1,700

Rent             260         75                          650

Interest         200                         600

Profit                           750                      4,875

Value Added            2,000     5,500

Calculate GDP in this economy, and show that payments to factors of production, spending on final goods, and total value added are equal.

Using prices in 2020 as a base year, calculate real GDP in 2020 and 2021.

Q 2020         price 2020 Q 2021  price 2021

Apples                   1          240               3

oranges                 2           90               4

plams                    4          120               5 Output Quantity (Q) and prices in a simply economy

Suppose a worker loses their job; they want a new job, immediately searches for a new job, are available for work if offered.

(a) Is this worker unemployed? Will the labor force participation rate go up, down, or remain unchanged when this happens?

Suppose five weeks pass, without this worker searching for a job again. They still want a job and are still are available for work.

(b) Is this worker unemployed? Explain your answer.

(c) Will the labor force participation rate go up, down, or remain unchanged, relative to

part 5a?

For each of the following, identify which part of aggregate spending t is part of, and whether it is part of US value added.

(a) A computer CPU produced in Taiwan, that is bought by Dell to be part of a personal computer it plans to sell later.

(b) A computer CPU produced in California, that is bought by a US retailer to be sold

directly to a US consumer, but which has not been purchased yet.

(c) A personal computer produced by Dell in Texas by a US library district to be used in a

public library.

Assume function is as follows:

           C =   500 + 0.75Yd

a) Determine the national income if investment is 200 using expenditure and injection leakage approach. (5marks)

b) Draw the national income equilibrium (consumption and saving curves) based on information in question (a). (5marks)

a)     The following are some assumptions for an economy:

·        Marginal propensity to consume (MPC) is 0.75

·        Autonomous consumption is $6,000 million.

·        Autonomous investment is $3,500 million.

What is the level of equilibrium national income using expenditure and injection-leakage approach? (5marks)

Assume function is as follows:

C = 500 + 0.75Yd

a) Determine the national income if investment is 200 using expenditure and injection-leakage approach. (5 marks)

b) Draw the national income equilibrium (consumption and saving curves) based on information in question (a). 5 marks

a) The following are some assumptions for an economy:

• Marginal propensity to consume (MPC) is 0.75

• Autonomous consumption is $6,000 million.

• Autonomous investment is $3,500 million.

What is the level of equilibrium national income using expenditure and injection-leakage approach? 5marks

COVID-19 all around the world has restricted the economic activity. To stop the spread of the virus Pakistan like many other countries adopted the policy of smart lockdown. Shutting down of the industry has created adverse supply shock in the economy. While, the slowdown in business and economic activities the country is in the recessionary phase of the business cycle as the GDP growth for the FY 2020-21 is expected to be -0.2 accompanied by high unemployment and poverty rate.

a.     Reflecting on the above situation justify whether the State Bank of Pakistan should opt for easy or tight monetary policy as a stabilization policy. Also illustrate it graphically. 

                                                                                              (2.5 Marks, Maximum 200 words)

b.    Reflecting on the above situation justify whether the Government of Pakistan should opt for expansionary or contractionary fiscal policy as a stabilization policy. Also illustrate it graphically.                                                                           (2.5 Marks, Maximum 200 words)

Due to COVID-19 situations the oil prices fall in international market. Let’s assume that output starts at its natural level.

a.    What happens to the Pakistan’s economy (output and price) in the short run? Explain your answer using AS-AD graphs. (2.5 Marks, Maximum 150 words)

What happens to Pakistan’s economy (output and price) in the long run? Explain your     answers using graphs.

suppose the consumer wants to consume 2 goods . Price of goods are rs 4 and rs5 respectively . The consumers income is rs 20

write down the equation for budget line

Cappin trade is the only tool available to regulators to manage high carbon emissions