Macroeconomics Answers

In the simple Keynesian model, an increase of one dollar in autonomous expenditure will

cause equilibrium income to increase by a multiple of this one dollar increase. Explain the

process by which this happens using different approached of explanations

Suppose that initially equilibrium income was 200 units and that this was also the full employment level of income. Assume that the consumption function is C = 25 + 0.8YD and that, from this initial equilibrium level, we now have a decline in investment of 8 units. What will be the new equilibrium level of income? What increase in government spending would be required to restore income to the initial level of 200? Alternatively, what reduction in tax collections would be sufficient to restore an income level of 200?

Assume that Pipeline Asia Group working with Saudi Pipeline Group aims to create giant natural gas transmission business. Suppose the deal will create a 91,000-kilometer natural gas pipeline system. Show on a graph the effect of Pipeline Asia Group going to the loanable funds market to finance the deal with Saudi Pipeline Group. Explain the effect on the real interest rate, private saving, and investment. 

1)     Assume the economy has a natural rate of unemployment of 5%. Graphically illustrate when the actual inflation is 4% and expected inflation is 2%. What will happen to the economy when expected inflation adjust to the actual inflation in the long-run?

1)     Explain the meaning of purchasing power parity. Give an example of what will happen when purchasing power parity does not hold in two economy.

Table below shows the domestic price of paper and plastic in Malaysia and Thailand.

Domestic Price for Paper (per rim) and Plastic (per kilogram)

In Malaysia and Thailand

Malaysia Thailand

Paper MYR5 100 baht

Plastic MYR3 80 baht

Domestic Price for Paper (per rim) and Plastic (per kilogram)

In Malaysia and Thailand

Malaysia Thailand

Paper MYR5 100 baht

Plastic MYR3 80 baht

a) At exchange rate MYR1=10 baht, will there be a bilateral trade? Explain your answer.

b) At exchange rate MYR1=25 baht, will there be a bilateral trade? Explain your answer.

1. There is a right shift of demand curve for MYR from D1 to D2. Use a graph to answer the following questions:

S

D1

D2

0.20

0.15

Quantity of MYR

Dollar/MYR

0.10

0.05

a) Briefly explain whether Malaysian Ringgit is appreciated or depreciated relative to the US dollar.

b) Which of the following event will shift the demand curve to the right? Explain why?

i) Interest rate in the US has dropped.

ii) Tax in the US has increased.

iii) Speculator believed that Malaysian Ringgit expected to be lower in the future.

2. 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(million unit)

Good A

Good M

Country S

100

400

Country T

200

500

Based on the above information:

a) Determine and explain the goods that will be produced by each country using the:

i. absolute advantage

ii. comparative advantage

b) Assume that both countries agree to trade after specialization in production by using a comparative advantage. Ratio of exchange is 1A: 40M. After trade country S will use 100 unit of good A. Using this information show in the table the effect after trade for the consumption of good A and M in country S and T.

c) 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.

Explain the classical theory of labor supply and comment on the shapes of the labor supply function

1. a) Explain the concept of demand curve for loanable funds.

b) Explain the concept of supply curve for loanable funds.

c) Explain the effect of increasing in government expenditure through selling of bonds on interest rate in classical model.

2. Please use a graph to produce aggregate supply in classical model under the assumption of nominal wage or money wage.

3. Explain the effect of increasing in money supply on price and national income using a classical theory.

4. Explain how interest rate is determined in a classical theory