Macroeconomics Answers

Higher interest rates to combat inflation and inflation targets are often criticized of
suppressing development and lowering the quality of life of many people. It is for this
reason that trade unions often oppose to inflation targets and the traditional
measures to achieve this. Are all these arguments true and relevant? Evaluate and
discuss this critically?500-600 words

Explain why the sum of MPC and MPS equals to 1.
Consider an individual consumption function, which is the standard textbook consumption function, that is, has a y-intercept of autonomous consumption and is linear in the disposable income. Assume that the slope of this consumption function equals 0.7, and that the autonomous consumption equals $20 billion in the aggregate economy.

a. Write down the consumption function for this economy.
b. What is the marginal propensity to save (MPS) in this example?
c. Suppose there is an increase in real income of $500 billion in this economy. Given your consumption function, what is the change in consumption given this change in real income?

Discuss how the following changes would affect the natural (or frictional) rate of unemployment:

a. Elimination of unions.

b. Increased participation of teenagers in the labor market.

c. Larger fluctuations in the level of aggregate demand.

d. Increase in unemployment benefits.

e. Elimination of minimum wages.

f. Larger fluctuations in the composition of aggregate demand.

What are the two (2) assumptions when GDP increasing over the years?

Explain the multiplier intuitively. Why is it that an increase in planned
investment of 100 pesos raises equilibrium output by more than 100
pesos?

What entity is involved when banks agree to pay the discount rate for direct borrowing?

Illustrate the possible effects of the following policy measures on the AS and AD curves:
(a) a cut in income tax rates
(b) a rise in government expenditure
(c) a decrease in the cost of borrowing by firms and households
(d) a fall in the value of the domestic currency on the foreign exchange market
(e) a rise in consumer confidence.

2. Adam is the owner of a small grocery store in a busy section of Boulder, Colorado. Adam’s annual revenue is $200,000 and his total explicit cost (Adam pays himself an annual salary of $30,000) is $180,000 per year. A supermarket chain wants to hire Adam as its general manager for $60,000 per year.

a. What is the opportunity cost to Adam of owning and managing the grocery store?
b. What is Adam’s accounting profit?

c. What is Adam’s economic profit

Consider a malthasian economy which is initially at a steady state consumption percapita of capital and labour per capital of /*.A shock hits this economy changing the steady state level of land per capital