Macroeconomics Answers

A. Unemployment can decrease if........

1. There is an economic recession
2. Education system improves
3. Investment spending increase
4. Aggregate demand decrease

If injection exceed withdrawals, will GDP go on rising indefinitely, or will new equilibrium be reached?

Suppose that changing climate increases the price of hops (an input in the production of
alcohol). How will this affect the market for alcohol? Assuming that the price floor or tax on
alcohol sales is operating, what does the government need to do in order to maintain an
efficient level of alcohol consumption

Which curve will be affected as a result of bleak economic outlook and below per expected return on investment? IS or LM? Depict the impact using diagram.provide appropriate explaination.

1. If this analysis is correct, namely that a reduction in wages will reduce the aggregate
demand for goods, what assumption must we make about the relative proportions of wages
and profits that are spent (given that a reduction in real wage rates will lead to a
corresponding increase in rates of profit)? Is this a realistic assumption?
2. If government is running a budget deficit, does this necessarily mean that GDP will
increase? Explain.
3. Assume that the central bank announces a rise in interest rates and backs this up with open market operations. What determines the size of the resulting fall in aggregate demand?
4. If the government decide to cut the basic rate of income tax, which will be the
larger effect – the income effect or the substitution effect – for people (a) on low incomes
just above the tax threshold and (b) on very high incomes? What will be the effect on hours
worked in each case (assuming that the person has a choice)?

Why will the multiplier effect of government transfer payments, such as child benefit,
pensions and social security benefits be less than the full multiplier effect from government
expenditure on goods and services?

Given: C = 500 + .6Yd I = 200 + .3Y - 2000i G = 300 T = 200



(M/P)d = 4Y -12000i M/P = 3000



Show your solution:

a. Derive the IS relation or equation.

b. Derive the LM relation or equation.

c. Solve for the equilibrium interest rate.

d. Solve for the equilibrium output.

Which one of the following statements is/are correct?

a) When the price elasticity of demand is relatively elastic, taxes levied should be low.
b) Price inelastic goods generate more tax revenue in comparison to price elastic goods provided the tax rate is the same.
c) It is more efficient to levy low tax rates on a broad tax base than high tax rates on a narrow base.
d) The size of the excess burden depends on whether the taxed good is a necessity or luxury.

Which of the following statements is/are correct?

a) When the average tax rate increases as the tax base increases, the tax rate structure is progressive.
b) Requiring students to pay university fees, is an application of the ability-to-pay principle
c) When luxury goods are taxable by law, we can easily determine if the tax is fair or not..

Peter drives a new BMW and pays R20 toll at the Robme toll road plaza. Lizzy drives a battered VW Beetle and also pays R20. Peter earns R50000 a month and Lizzy earns R20000 a month. Which of the following statements is/are correct? The toll fee is

a) unfair according to the horizontal ability-to-pay principle
b) progressive with respect to the unit of taxation (i.e number of cars)
c) fair in terms of the benefit principle of taxation
d) proportional with respect to the monetary value of the tax base.