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endogenously or exogenously (i.e. there are two different approaches to
determining the value of M).
Explain which approach is used in the South African macroeconomy.
a. Can your roommate’s statement be deduced from the unemployment rate statistic? Why?
(20 marks)
b. What information would you need to determine whether there are really fewer people with jobs?
The total demand for money is equal to the transactions demand plus the asset demand
for money.
(a) Assume that each dollar held for transactions purposes is spent on the average five
times per year to buy final goods and services.
If the nominal GDP is $10,000 billion
($10 trillion), what is the transaction demand?
(b) The table below shows the asset demand at certain rates of interest.
Using your answer to part (a), complete the table to show the total demand for money at various rates of interest.
Interest rate Asset demandTotal demand
(in %)(billions)(billions)
10
$
30
$_____
8
60
_____
6
90
_____
4
120
_____
(c) If the money supply is $2,060 billion, what will be the equilibrium rate of interest?
(d) If the money supply rises, will the equilibrium rate of interest rise or fall?
(e) If GDP rises, will the equilibrium rate of interest rise or fall?
1) Decreasing returns to scale and diminishing returns to production are two ways stating the same thing.
2) Increasing returns to scale is a short-term concept and diminishing returns to production is a long-run concept.
3) Constant returns to scale is a short-run concept and decreasing returns to scale is a long-run concept.
4) None of the above.
Given the utility function:
U = X 3/4 . Y1/4
Estimate the demand functions of commodity X and commodity Y using Lagrange method, if it is given that price of X is Px and price of Y is Py and Income is M.
