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Macroeconomics
1. The following equations describe an economy. (Think of C , I , G , etc., as being measured in
billions and i as a percentage; a 5 percent interest rate implies i = 5.)
C 0.8(1 t ) Y (P1)
t 0.25 (P2)
I 900 50 i (P3)
−−
G 800 (P4)
L 0.25 Y 62.5 i (P5)
−−
M −
P 500 (P6)
a. What is the equation that describes the IS curve?
b. What is the general definition of the IS curve?
c. What is the equation that describes the LM curve?
d. What is the general definition of the LM curve?
e. What are the equilibrium levels of income and the interest rate?
billions and i as a percentage; a 5 percent interest rate implies i = 5.)
C 0.8(1 t ) Y (P1)
t 0.25 (P2)
I 900 50 i (P3)
−−
G 800 (P4)
L 0.25 Y 62.5 i (P5)
−−
M −
P 500 (P6)
a. What is the equation that describes the IS curve?
b. What is the general definition of the IS curve?
c. What is the equation that describes the LM curve?
d. What is the general definition of the LM curve?
e. What are the equilibrium levels of income and the interest rate?
Macroeconomics
What is the Equation of Exchange presented in the form of an Identity? ___________________________________________________ _____________ where: M represents Money Supply; V represents Velocity; ≡ means must be equivalent to; P represents Price; and Q represents Real G DP.
Macroeconomics
(a) What is the proÖt-maximizing amount of labor for this monopson- istic Örm? What wage will it pay each unit of labor? Illustrate your answer diagrammatically and explain your result intuitively.
(b) Show the wage and the employment level that would prevail under perfect competition. If there is a deadweight loss under monop- sony, identify the area that represents it in a diagram.
(c) Let wmin be the minimun wage imposed by the government, Use the diagram in part (a) and discuss the e§ect of minimum wage on the wage and employment level. If there is a deadweight loss, identify the area that represents it. Is it smaller or larger?
(d) Suppose Company X is able to practice the first-degree wage dis- crimination. Whatistheemploymentlevelinthiscase? Identify it in the same graph. Is there any deadweight loss?
(b) Show the wage and the employment level that would prevail under perfect competition. If there is a deadweight loss under monop- sony, identify the area that represents it in a diagram.
(c) Let wmin be the minimun wage imposed by the government, Use the diagram in part (a) and discuss the e§ect of minimum wage on the wage and employment level. If there is a deadweight loss, identify the area that represents it. Is it smaller or larger?
(d) Suppose Company X is able to practice the first-degree wage dis- crimination. Whatistheemploymentlevelinthiscase? Identify it in the same graph. Is there any deadweight loss?
Macroeconomics
Suppose the goods market in an economy is represented by the following equations.
C = 500 + 0.5YD I = 500 – 2000 i + 0.1Y G = 500
X = 0.1Y* + 100e Q = 0.2Y - 100e T = 400
Y* = 1000 i = 0.05 (5%) e= 1
Z = C + I + G + X - eQ Y = Z (equilibrium condition)
a. Solve the model and find the equilibrium value for GDP (Y).
b. Given your answer in a, calculate C, I, X and Q.
c. At this level of output, is the economy experiencing a trade surplus or deficit?
d. Suppose G increases by 100 (to 600). Calculate the new equilibrium level of output. What is the size of the multiplier?
e. Based on your answer to d, calculate the new level of Q. Calculate the change in net exports caused by this increase in G.
f. Suppose the marginal propensity to imports (in imports equation) decreases from 0.2 to 0.1. Assume all other variables are the same. What happens to the size of multiplier? Compare the changes in Y caused by the increase in G in part d and with a new marginal propensity to imports (0.1).
C = 500 + 0.5YD I = 500 – 2000 i + 0.1Y G = 500
X = 0.1Y* + 100e Q = 0.2Y - 100e T = 400
Y* = 1000 i = 0.05 (5%) e= 1
Z = C + I + G + X - eQ Y = Z (equilibrium condition)
a. Solve the model and find the equilibrium value for GDP (Y).
b. Given your answer in a, calculate C, I, X and Q.
c. At this level of output, is the economy experiencing a trade surplus or deficit?
d. Suppose G increases by 100 (to 600). Calculate the new equilibrium level of output. What is the size of the multiplier?
e. Based on your answer to d, calculate the new level of Q. Calculate the change in net exports caused by this increase in G.
f. Suppose the marginal propensity to imports (in imports equation) decreases from 0.2 to 0.1. Assume all other variables are the same. What happens to the size of multiplier? Compare the changes in Y caused by the increase in G in part d and with a new marginal propensity to imports (0.1).
Macroeconomics
• Total Output: R 30
• Total Income: R 30
• Consumption: R 22
• Government Spending: R 6
• Total tax revenue: R 5.5
• Transfer payments: R 1.5
Use the above data to calculate:
a. disposable income, savings and net taxes.
b. Is the government running a budget surplus, budget deficit, or balanced budget? Demonstrate.
c. Determine planned investment. (note that investment is equal to the sum of private and public saving)
• Total Income: R 30
• Consumption: R 22
• Government Spending: R 6
• Total tax revenue: R 5.5
• Transfer payments: R 1.5
Use the above data to calculate:
a. disposable income, savings and net taxes.
b. Is the government running a budget surplus, budget deficit, or balanced budget? Demonstrate.
c. Determine planned investment. (note that investment is equal to the sum of private and public saving)
Macroeconomics
Consumers expect higher price levels in the future. What happens to aggregate supply and aggregate demand what happens to the price level and real GDP
Macroeconomics
The stock market crashes; billions are lost. What happens to aggregate supply and aggregate demand. What happens to price level in real GDP?
Macroeconomics
Pessimistic about the future firms cancel plans to build new factories what happens to aggregate supply and aggregate demand include what happens to price level in real GDP
Macroeconomics
With the aid of a diagram, discuss the welfare effect of this new legislation if the new minimum wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour hours as your quantity variable.
Macroeconomics
Consider the closed economy with C = 800, G = 250, S = 100, and the private saving = -50 (notice “-“).
2.a. Answer the total income and the investment.
Total income:
Investment:
2.b. Answer the tax revenue and the public saving. Does the public saving increase or decrease the national saving?
Tax revenue:
Public saving:
Increase or Decrease?
2.a. Answer the total income and the investment.
Total income:
Investment:
2.b. Answer the tax revenue and the public saving. Does the public saving increase or decrease the national saving?
Tax revenue:
Public saving:
Increase or Decrease?
