Macroeconomics Answers

2.1 Consider a closed economy that is described by the following model:

C = 280m + 0.72Y

Where:

C = Consumption Y = Income

I = 150m I = Investment

G = 300m G = Government spending

T = 22% t = Tax rate

2.1.1 Calculate the multiplier. (3)

2.1.2 Calculate the total autonomous spending. (2)

2.1.3 Calculate the equilibrium income. (3)

2.1.4 Calculate the level of savings at equilibrium. (2)

2.1.5 Calculate the amount of tax collected at equilibrium. (3)

2.2 Use the Keynesian diagram to explain and illustrate the effect of an increase in investment on employment and output in the economy. (7)

Taxes.......

a. are the level of autonomous spending

b. raise the level of autonomous spending

c. leave the multiplier unchanged

d. are a withdrawal or leakage from the flow of income and spending

e. lower the level of autonomous spending

What are the various types of inflation? What are the criteria used for differentiating

between them? Explain.

What are the differences between the Fisherian and Cambridge versions of the

quantity theory of money?

State various economic transactions, which are used to study circular flow of an

economy.

Why might governments intervene to encourage firms to develop and adopt new technologies

During the Revolutionary War, the American colonies could not raise enough tax revenue to fully fund the war effort. To make up the difference, the colonies decided to print more money. Printing money to cover expenditures is sometimes referred to as an inflation tax. Who do you think is being taxed when more money is printed? Why?

use a foreign exchange diagram to illustrate and explain the effect of the increase in commodity prices on the rand-dollar exchange rate, ceteris paribus.

1. consider the following information for a hypothetical economy:

C = 200 + 0.75(Y – T)        I=G=250    T=200    where, Y=C+I+G

All figures are in millions except the measures of responsiveness.

1. What is the value of marginal propensity to save(MPS) ?Interpret it.
2. Find the equilibrium level of national income
3. Find the government expenditure multiplier ? using this multiplier , find the effect of 50 million increase in government purchase on equilibrium income ?

1. suppose you have the following information for a given economy (the values are in billion Birr)

GDP  = 5000

Factor income from abroad  = 40

Factor payment to abroad = 15

Capital accumulation allowance (depreciation) = 450

Personal tax and non tax payments = 600

Social security contributions = 550

Government transfers to individuals = 755

Corporate profit = 300

Dividends = 120

Indirect business taxes = 400

Calculate :

1. GNP 
2. National income 
3. disposable income