Macroeconomics Answers

For various reasons, fiscal policy changes automatically when output and employment fluctuate.

b) Explain why government spending changes when the economy goes into a recession.

c) If the government were to operate under a strict balanced-budget rule, what would it have to do in a recession? Would that make the recession more or less severe?

If the Federal Reserve raises its target inflation rate, the monetary policy reaction function ________ and the aggregate demand curve ________.

shifts upward to the left; shifts to the left

shifts downward to the right; shifts to the left

shifts downward to the right; shifts to the right

shifts upward to the left; shifts to the right

Question 6

If policymakers attempt to offset an adverse inflation shock with monetary ________, the resulting long-run equilibrium will be at ________ inflation rate compared to allowing the self-correcting mechanism return the economy to potential output.

A: The Government of Bangladesh opted for expansionary fiscal policy to fight economic depression. Identify the type of inflation it is expected to create and its impact on the wages. Illustrate the process on the graph.              (2.5 Marks, Maximum 150 words)

B:  Assume the Pakistan’s economy is in recession: Pakistan implements a combination of expansionary fiscal and monetary policy. In the absence of complete crowding out what will be the effect of these policies on each of the following: (2.5 Marks, Maximum 150 words)

      i. Aggregate demand in Pakistan

      ii. The price level in Pakistan

      iii. Interest rates in Pakistan

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. 

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)

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)

in the condition of continued rural -urban migration suggest some feasible policy guidelines to optimize employment of the immigrants?

Assume that country S and T hire 2,000 unit of labour. Each country use 50% from the labour for production of agriculture goods (A) and manufacturing goods (M). Total production as shown in the following table: Country/Goods(milli on unit) Good A Good M Country S 100 400 Country T 200 500 

i. Determine the range of exchange in terms of good M for per unit good A.

ii. Determine and explain ratio of exchange good A and M the only profitable for country T. 

n the classical model of the labour market, involuntary unemployment will increase if: 

The global pandemic 2020 has promoted a race to capture the market for introducing effective vaccine and treatments.

a.      If PFIZER is the sole vaccine provider given the following information, answer the questions below:                                                                                                (3 Marks)

Output

Price/Unit

Total Cost

1

5500

1000

2

5000

1200

3

4500

1500

4

4000

2500

5

3500

4000

6

3000

5700

7

2500

7500

8

2000

9400

9

1500

11400

10

1000

13500

                               i.           Given the tabular information above find the profit-maximizing output and price also illustrate the same using the two-dimensional labeled diagram. Show the calculation as well.                                                                                

b.      Assume if many firms enter into the business of providing vaccine determine:  (2 Marks)

                               i.           How the demand curve of PFIZER would change and how it would now maximize its profit? The kind of market structure now PFIZER is forced to operate in? Also, illustrate the same using the two-dimensional labeled diagram.

a.      Assume the number of employed people in Pakistan is 22.5 million in 2020. The number of unemployed people during 2020 in Pakistan is 6 million, and the labor force participation rate is 60 percent.                                                             (1.5 Marks)

i.                   What is unemployment rate, size of the labor force and working age-population in the year of 2020 in Pakistan?

b.     In each of the following cases, does the increase in prices affect CPI, GDP deflator, or both in Pakistan? Analyze and justify your answer.                                           (2 Marks)

i.    The price of imported capital goods used in the production of sugar has increased.

ii.  The price of Tapal tea has increased.

c.      Analyze and explain the effect of the minimum wage law on the unemployment rate. Explain your answer by using graph.                                                             (1.5 Marks)