Macroeconomics Answers

A trader collects the below information to devise his forex management strategy during

the next year:

Spot Rate of USD: INR 74.40

Interest rates in USA: 2.5%

Interest rates in India: 6.5%

a) What is Interest Rate Parity Theory? What will be the expected exchange rate in the above

case, if the interest rate parity theory is assumed to hold good. Also calculate the forward

premium or discount.

b) What is covered interest arbitrage? If there is a one-year forward contract available at

INR 75.60, is there a CIA possible, and if yes, write the steps to earn arbitrage profit (use

an equivalent amount of INR 1000000)

The following data is for a hypothetical country. Use this data to calculate the GDP of the country.

Value of consumer goods imported from the rest of the world: R22 billion

Value of consumer goods produced by foreigners living in the country: R12 billion

Value of capital goods such as tractors imported from America: R5 billion

Value of consumer goods produced by citizens living in the country: R100 billion

Value of motor cars produced the previous year but only sold this year: R8 billion

Value of capital goods such as welding machines produced in the country: R20 billion

Provision for depreciation on capital equipment: R3 billion

The value of GDP is R____ billion. 

(Provide only the figure in your answer)

The quantity of money demanded for precautionary purposes decreases if

a.

consumer incomes increase.

b.

total output decreases.

c.

the inflation rate increases.

d.

the interest rate increases.

3. How can the economic perspective help us understand the behavior of fast-food consumers? Explain several insights it provides about customer behavior.

Suppose now that country's national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and MPC = 0.6, what will be the new household consumption?

Explain why classical theiruests beloved that there would be no long term involuntary un employment

. Which of the problems in the construction of the CPI

might be illustrated by each of the following situations?

Explain.

a. the invention of the cell phone

b. the introduction of air bags in cars

c. increased personal computer purchases in response

to a decline in their price

d. more scoops of raisins in each package of Raisin Bran

e. greater use of fuel-efficient cars after gasoline

prices increase

24. Explain the Hausman test as it is applied in discriminating between fixed effects and random effects methods.

22. Suppose you have a data set on wealth (w), and access to credit (credit) for 1000 farmers randomly selected from the Gamo-Gofa Zone over the period 2015 to 2020. The data includes individuals who did not participate in the credit scheme.

(a) Suppose you want to evaluate how wealth changed over time as a result of the credit facility. How do you specify your model?

Indicate what impacts the parameters in your model measure.

[Hint: Recall the importance of time dummies].

(b) Suppose you have a reason to believe that level of education (E), gender of the head of the household (gender ), land size (land), distance from urban centers (distance), are other major variables that are believed to affect wealth status. Can you use fixed effects method in estimating your model in (a) by including theses variables? Why or why not? What other means can you craft to apply fixed effects method on the model?

(c) Given the information in (b), under what condition a random effects method could be an option?

How to compute (pie chart) the sectoral percentage contribution to gross value added at the basic price.