Macroeconomics Answers

Which one of the following statements is correct?
A. Exports represent a leakage from the expenditure flow.
B. Foreign loans are made directly by the government and are not part of the BoP.
C. When South Africans buy or sell shares on the New York stock exchange it is accounted for in the BoP.
D. If the exchange rate changes from $0.11 = R1, to $0.12 = R1, the rand depreciated.

The Covid-19 pandemic and the lockdown that followed have served as multiple shocks to the South
African economy. The initial 5-week lockdown limited mobility of people and the availability of goods
and services, leading to contractions in aggregate demand and supply. Policymakers have responded
with expansionary fiscal and monetary policy. The government has implemented a R500bn support
package and the Reserve Bank has reduced the repo rate and extended liquidity in the bond market.
Apply any, or all, of the models that you have learned and explain the impact of the crisis and the
policy reaction on the level of output, the interest rate and the price level in South Africa.
Make use of graphs and explain the chain reactions and impacts in your own words.

Given information for Country X as below:

Details
$ (million)
Consumers consumption =30$ (million)
Net Investment=20$ (million)
Government Expenditure=30$ (million)
Export=20$ (million)
Import=10$ (million)
Depreciation=10$ (million)
Indirect taxes=25$ (million)
Subsidies=118$ (million)


1)Calculate Gross Domestic Product (GDP) market price for Country X

2)Calculate Gross Domestic Product (GDP) factor cost for Country X

Given C=1500+0.75y
I=Io=2500
Find the equilibrium income

Consider a two period model, populated by a representative consumer and a government. The consumer’s preferences can be described by the utility function:
u(c0, c1) = √(c0)+β√(c1),
where β = 0.95 captures the consumer’s preference for the future. The consumer has an income y0=20 in the current period and expect a future income y1 = 25. The government plans to spend G0 = 5 in the current period and G1 = 7. The interest rate is r = 10% in the economy.
(a) If the government decides to impose a tax of T0 = 7, what will be the value of T1?
(b) Is it optimal for the consumer to consume his disposable income in each period? Explain.
(c) Solve the consumer’s problem and find the optimal consumption in each period when r = 10%. Is the consumer a borrower or a lender?
(d) Is the goods market in the equilibrium in the two periods when r = 10%? Explain.
(e) What are the equilibrium values of (c0, c1) using goods market equilibrium?
(f) Compute the equilibrium interest rate r ?

Draw the graph showing producer equilibrium for a monopoly with demand, marginal revenue, and marginal cost curves. Identify the profit-maximizing output level (Qm) and price (Pm).

Suppose the monopolist sells Qm units of output at the regular price and then puts the product on sale at a lower price, Ps. Show the new price and quantity. Identify the consumer surplus of the additional sales. What happens to the firm’s profits as a result of the sale? Is price discrimination more allocatively efficient? Does price discrimination lead to a more efficient or less efficient outcome? Why or why not?

Rubric
Criteria Not Evident Developing Proficient Distinguished Weight
Correctly draw the graph for producer equilibrium, including demand, marginal revenue & marginal cost 5
Correctly identify the profit maximizing level of output and price 2
Correctly show how much sales will increase in response to the sale. (Show the new price and quantity on the graph.)

Recognise the following transactions in the accounting records(general journal)

1. Trade inventories, with a cost price of R44 000, that were taken by the owner during december 2019 for personal use,were accounted for as follows: cost of sales was debited and trade inventories were credited with R44 00. The necessary adjustment is still has to be recognised.
2. The term deposit of R900 000 was made at the bank on 30 june 2019 for a period of 12 months. The interest rate is 8% per year and the interest accrues evenly over the term of the deposit

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

In an economy with MPS=0.25 actual level of income is 6000 and desired level is 9000. Government expenditure cannot be raised. Tax is lump sum. Suggest a policy that will raise income to the desired level. [ 5 marks ]

For an economy without government and foreign trade with MPS=0.20 Describe the multiplier process if autonomous investment increases by 10 units.