Macroeconomics Answers

Which one of the following statements is FALSE? (2)
(a) There are four broad groups of decision‐making units in the economy:
households, firms, government and the foreign sector;
(b) Savings are an important injection into the circular flow of income and
spending in the economy;
(c) Taxes are a leakage or withdrawal from the flow of income and spending in
the economy;
(d) Spending by households on consumer goods and services is called
consumption spending.

2) Graphically illustrate the effects of business investment on aggregate demand. Would you expect it to have a multiplier effect? Why or why not? 3 marks

Assume a union is established in one market, graphically illustrate the effect of the union on the market in which it is formed when the union has successfully negotiate a raise of wage above the equilibrium level.

3) Pipeline Asia Group working with Saudi Pipeline Group aims to create giant natural gas transmission business. 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.

Autonomous Consumption = 465 Marginal propensity to consume = 0.6 Autonomous Investment =295 Government expenditure = 450 Exports = 225
Imports = 130 + 0.1Y
T = 0.2Y
Yf = 2 237.9
Show all calculations:
Q.1.1. Calculate the level of autonomous spending in this economy

3. Suppose the economy is in income–expenditure equilibrium. How will each of the following situations affect planned investment and unplanned inventory investment?
a. The Federal Reserve decreases interest rates.
b. Major economic indicators decrease business optimism about growth in real GDP.
4. In a simple, closed economy (no government and no foreign sector), autonomous consumer spending is $100 and planned investment spending is $300. The marginal propensity to consume is 0.75.
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a. Solve for the equilibrium level of real GDP.
b. If real GDP is $2,000, what is unplanned inventory investment?

A closed economy with household, business and government sectors. Individuals
receive income of k760 and pay taxes of k100 to the government: consumer spending
is k560: gross investment is k110: depreciation is k40: government spending is k130.
i) Find GDP and household saving.
ii) What are the leakages and injections for this closed economy?
iii) What are direct and indirect taxes?
iv) If income increased by 100 given that your marginal propensity to consume is 0.80,
how much of the additional income would go to consumption?
v) Give a brief explanation why theoretically the national income figure should be the
same whichever method is used in its measurement.
vi) Give three reasons why national income accounts are not very useful in making
comparisons of living standards between countries.

discuss the costs and consequences associated with unemployment