Macroeconomics Answers

Compensation=$329
Consumption=$370
Export=$55
Net foriegn factor income =$3
Government spending=$43
Gross investment=$43
Import=$63
Net interest=$49
Profit=$69
Rental income=$46
Calculate GDP and GNP with both approaches to national income accounting?

1. Real GDP is nominal GDP adjusted for: A) double counting. B) changes in prices. C) population. D) imports.

2. Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect: A) the money demand curve to shift outward. B) the money demand curve to shift inward. C) a downward movement along a fixed money demand curve. D) an upward movement along a fixed money demand curve.

3. Paul, who is 60 years old and has been a steelworker for 35 years, is unemployed because the steel plant in his town closed and moved to Cape Town. Sam is experiencing: A) cyclical unemployment. B) permanent unemployment. C) frictional unemployment. D) structural unemployment.

It is clear that the South African economy needs to grow. We need to make up for lost incomes, lost
jobs, lost tax revenue. Our fiscal stance will be more sustainable if GDP grows. Apply your knowledge
of the drivers of growth and explain what can drive long-run economic growth for South Africa. You
can use models, graphs and explain in your own words what plans you propose to get the drivers of
growth going.

Which one of the following statements is correct?
A. A decrease in the repo rate restrains the money creation process.
B. The SARB can withdraw money from circulation by buying bonds in the secondary market.
C. Expansionary monetary policy shifts the money supply curve to the left.
D. An increase in the repo rate restrains the money creation process.

Let the National income model be:

Y = C + I + G0
C = C0 + cY
I = I0 – Yi

• Find equilibrium level of National Income, Consumption and
Investment by using Matrix Inversion method and Cramer’s rule. In
this model i represent interest rate.
(FULL SOLUTION)

Given the following National Income Model

Y = C + I0 + G0 + X0 – Z
Where C = C0 + bYd
Yd = Y – T

T = T0 + Ty and Z = Z0 + ZYd
In this equation X and Z are export and import
• Identify endogenous and exogenous variables and parameters.
• Find out equilibrium level of Y and C
(full solution)

If the exchange rate changes from $0.11 = R1, to $0.12 = R1, the rand depreciated

Management of AG Travel and Tour has identified two groups of individuals that would be interested in the vacation package consisting of room and board and/or entertainment. The maximum amount that group 1 is willing to pay for room and board is GHC 2500 and for entertainment is GHC 500. For group 2, the maximum amount they are willing to pay for room and board is GHC 1800 and for entertainment is GHC 750. Although AG Travel and Tour is not able to identify members of either group, it does know that each group values the components of the package differently. Assuming there are an equal number of members in each group and that the total membership in each group is a single individual. If the marginal cost of providing the service (room and board and/or entertainment) to each group is GHC 1000. i. How much will the hotel charge members of each group for the vacation package if it could identify the members in each group? (5 marks) ii. How much will the profit for AG Travel and Tour be?

Recently, the owner of KFC Franchise decided to change how she compensated her
top manager. Last year, the manager received a fixed salary of GHC50,000 and KFC
made GHC110,000 in profits (excluding the manager’s compensation). She feared
that her store’s performance was connected to the top manager shirking on the job
and expected that changes to her top manager’s compensation structure would
improve sales. Therefore, this year she decided to offer him a fixed salary of $40,000
plus 5 percent of the store’s profit. Since the change, the store is performing much
better, and she forecasts profits this year to be $300,000 (again, excluding the
manager’s compensation). Assuming the change of compensation is the reason forthe increased profits, and the forecast is accurate, how much more money will the
owner make (net of payment to her top manager) because of this change?
Does the manager make more money under the new payment scheme?

The U.S. economy suffered from stagflation problem towards the mid-seventies .To cut the recession short the FED (the U. S Central Bank), regardless of what it was saying,started expanding the money growth (money supply) and this policy became the usual pattern in the U.S. for couple of years following the recession and helped the economy recover from the recession. Afterwards, American economy fell into the problem of relatively high inflation, which became the central issue for the policy makers. And the FED managers declared that they will be quite serious about stopping the inflation.
Now, suppose that, in the USA, people did not believe that the FED was serious about stopping the inflation in 1979, 1980 and1981. How can you reconcile the 1981 - 1982 recession experienced in the United States with the rational expectations approach? Explain clearly through the help of the relevant diagram(s). (Start your explanation assuming that economy is in the long-run equilibrium initially)