Macroeconomics Answers

Consider the following numerical example of the simple Keynesian model with no government spending, taxes, or a foreign sector (all figures in R millions): C = 100 + 0,9Y I = 50 Answer the following questions.
(a) What is the value of the marginal propensity to consume (MPC) in this model? 2 (b) Use a graph to illustrate the equilibrium level of output.5 (c) Calculate the equilibrium level of output.4 (d) In equilibrium, what is the value of consumption spending? Use this number to verify that the sum of C and I in equilibrium equals the value for equilibrium output you obtained above.5 (e) What is the value of the multiplier in this economy?3 (f) Suppose the level of output that creates full employment in the economy is 1 800. Using the multiplier, determine the level of investment spending that would create full employment in this economy.5

State whether the following statement is true or false and support your answer with facts and figure:
‘‘In the past few decades, primary sector has created maximum jobs in Pakistan.’’

GDP Growth of 6% over last year Inflation= 3% Unemployment. Businesses are offering signing bonuses for new employees. Economists are worried that prices may get out of control in the near future.

US dollar has recorded a jump of 5.50 paise per dollar (p/$) in the last one month; this situation might bring smiles and sorrows to different types of traders (exporters and importers).’’ Justify the given statement.

Assume nominal income is shown below.
Year. Money income CPI. Real income. P. Power
2005. 430220. 1090.6.
2006. 470000. 1130.6
2007. 500900. 1180.3
2008. 540600. 1240.3
I) determine your real income in 2005
ii)compute purchasing power of dollars for the year 2008
iii)the inflation rate between 2005 and 2006

Assume that millennials, who spend an average of RM100 a day, are expected to spend at a higher rate in the next ten to fifteen years. 37 percent of millennials report higher spending today than a year ago, while 42 percent of millennials say they are spending more. Furthermore, millennials are spending more on rent or mortgages and leisure activities than they were spending a year ago. Graphically illustrate the macroeconomic equilibrium after the change in spending by millennials:

a) If Malaysia’s economy operate below full employment equilibrium before the change in spending.
b) If Malaysia’s economy operate at a full employment equilibrium before the change in spending.

What determines the supply of loanable funds?
What affect the supply curve of loanable funds and how does it change?

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?

Based on your understanding of the Phillips curve, is it possible for the unemployment rate to increase while inflation increases? Explain.