Macroeconomics Answers

3.4Suppose that the real GDP increase by R5,000 billion when government expenditure on the construction of new roads increase by R1,500 billion. What is the value of the marginal propensity to consume?
3.5Assuming that the central government decides to cut taxes by R100 billion to stimulate the economy. The relevant marginal propensity to consume is 0.6 (60 percent). What will be the impact of such fiscal policy on equilibrium GDP?

3.2If a R200 billion increases in investment spending creates R200 billion of new income in the first round of the multiplier process and R160 billion in the second round. Calculate:
a. the marginal propensity to consume (MPC).
b. the value of the expenditure multiplier in this closed economy.
3.3 Assuming a private closed economy whereby the marginal propensity to consume is 0.9 and investment spending decreases by R1000 billion. What will be the change on equilibrium GDP?

2.3Assuming that South Africa economy experience a high level of inflation. The SARB makes use of monetary policy to decrease the inflation rate.
a. Mention one of the instruments of monetary policy and describe how the SARB will manipulate it.
b. Explain by the use of graphs, the impact of such monetary policy on aggregate output. In your explanation, describe the interaction between the Money market, IS-LM and AD-AS Model.

2.2Assuming that South Africa economy is over heated (a period of very high level of inflation and production). The government decides to slow down the economy by decreasing public expenditures.
Explain by the use of graphs, the impact of such fiscal policy on aggregate output. In your explanation, describe the interaction between the Money market, IS-LM and AD-AS Model.

3) The following relations are given for an economy:
Autonomous Consumption 460
Marginal Propensity to Save 0.3
Autonomous Investment 18
Induced Investment Coefficient 0.1
Government Expenditure (Exogenous) 162
Transfer Income (Exogenous) 48
Exports (Exogenous) 25
Marginal Propensity to Import 0.05
a) Calculate the equilibrium level of Income, consumption, investment and import in the
above economy.

(a) Explain the COVID 19 effect on aggregate supply. As a result of this change in aggregate supply, what is expected to happen to national income? Illustrate your answer on an appropriate diagram. (11 marks)
(b) Discuss appropriate monetary and fiscal policy which the government can use to remedy this situation. Also discuss the limitations of the proposed policies. (11marks)

What is the effect of Monetary Policy under Fixed Exchange Rate and Flexible Exchange Rate regime? Explain
it using IS-LM analysis.

As a policy advisor, explain how you would use the OMO to secure 2-3% economic growth and reduce unemployment in an economy in slight recession?

Imagine that the banking system received additional desposits of $100 million and that all the individual banks wish to retain their current liquidity ratio of 20%

In the AD-AS model, an expansionary fiscal policy may lead to a...
1.rightward shift of aggregate demand and demand-pull inflation.
2.leftward shift of aggregate demand and demand-pull inflation.
3.rightward shift of aggregate supply and cost-push inflation.
4. leftward shift of aggregate supply and cost-push inflation.