Macroeconomics Answers

1. Given that IS-LM model:
C = 100 + 0.5(Y −T) ,
I = 100 −10r , G = T = 50
Where, M = 1000 and P = 5;
a) Please get the IS and LM equations. Get the equilibrium real income and interest rate;
b) If the government expenditure increases by 50, get the new equilibrium for income and interest rate. Calculate the crowding out effect value.
c) Given the money demand function as the following:
m/p+100y-r
Calculate the equilibrium value for IS-LM model. Given that G increase by 50, calculate the crowding out effect for this case;
d) Given that; m/p+100-200r
Analyse the above as the c) case.
e) Compare the case c) and d), what is the conclusion that you can explain for the fiscal policy effectiveness.

1. Show the crowding out effect for the following cases:
a) Inelastic LM curve
b) Elastic IS curve
2. Assume that there is a negative monetary shock causes the decreasing in money supply.
a) Please use IS-LM analysis and explain the effect.
b) Based on case 2(a), please use IS-LM analysis to show how fiscal policy can recover the economy back to initial level of income.

Discuss how talented entrepreneurs and effective managers can enhance average labor productivity

Household saving rates in Japan are very high. Is this fact good for the Japanese economy? Why or why not?

Team Justice economy has exports of K6000 and marginal propensity to import of 0.2. Its
autonomous imports are K5000 while the tax rate is 20% of income. Investment spending is
K1500, autonomous savings is negative (–) K2500 and the marginal propensity to save is 0.5.
a. Write down:
i. The import function for the economy
ii. The consumption function for the economy
b. What is the value of total autonomous expenditure?
c. What is the value of the multiplier for this economy?
i) When closed without government .
ii) When closed with government
iii) When the economy is open
d. What is the value of induced consumption expenditure at the equilibrium level of
income?
e. What is the value of the budget deficit or surplus at the equilibrium level of income?
f. What is the value of Net exports or trade balance at the equilibrium level of income?
g. Given that full employment is reached at a level of 14, 300, by how much should we
change investment so as to achieve full employment income?

given a model with the following structural quations
y = c + I + G + (X - M) where
C = 30 + 0.75Y
I = N80 million
G = 120 million
X = 20 million
M = 5 + 0.2 y
determine
i) equilibrium national income
ii) income multiplier
b analyze the import demand equation
use a numerical example to define and explain the concept of multipier

Colombia is the world’s biggest producer of roses. The global demand for roses increases and at the
same time, the central bank in Colombia increases the interest rate. In the foreign exchange market
for Colombian pesos, what happens to?
a. The demand for pesos?
b. The supply of pesos?
c. The exchange rate of the peso against the U.S. dollar?

given a model with the following structural quations
y = c + I + G + (X - M) where
C = 30 + 0.75Y
I = N80 million
G = 120 million
X = 20 million
M = 5 + 0.2 y
determine
i) equilibrium national income
ii) income multiplier
b analyze the import demand equation
use a numerical example to define and explain the concept of multipier