Macroeconomics Answers

IS-LM-BP Model
Goods Market
C = Co + cYD
YD = Y- T +TR
T = To + tY
I = Io – bi
G = Go, TR = TRo
X = Xo + λθ + γYf
M = IMo + mY – ψθ

Money Market
L = kY - hi
Ms/P = Mo/P + ΔRE/P

Foreign Exchange Market
NX = NXo – mY + vθ + γYf
CF = CFo + f (i – if)
ΔRE/P = NX + CF
Endogenous Variables: C, YD T, I, X, IM, L, Ms, CF, NX, Y, i and .RES/P
Exogenous Variables: Co, To, Io, Go, TRo, Xo, Yf, IMo, Mo, CFo, NXo, i, if and P
Parameters: c, t, b, λ, γ, ψ, m, f, k, h and v
Policy variables: Fiscal policy: (G, t and TR) Monetary policy: (Mo, P) and Exchange Rate: (θ)

1. Explain the general role of parameters λ, γ, ψ, m, f, k, h, v in the algebraic model (2 marks)
2. For the macroeconomic model given, identify the ER (exchange rate) system and the extent of capital mobility (perfect or imperfect) in this economy. (2 marks)

c) What are the equilibrium levels of income (Yo) and interest rate (io) (2 marks)

Why are we assured that when the money and product markets are in equilibrium the bonds market will also be in equilibrium?

Your prescribed text explains that the money stock (M) can be determined endogenously or exogenously. Explain which approach is used in the South Africa macroeconomy

given the function of using C = 700 = 0.75yd, T = 100, I = 200, R = 50, G = 300 X = 250 and M = 200 + 0.1y. Calculate the equilibrium income

In the banana Republic economy, autonomous consumption expenditure is $400 billion, investment is $120 billion, and government expenditure is $90 billion. The marginal propensity to consume is 0.75, and the tax rate is a flat rate of 30% of every $ of every income and autonomous net export is 10 billion. Assumed that the price is fixed in this economy.

a) what is the consumption function?
b) what is the equation of the AE curve?
c) calculate the equilibrium expenditure?
d) calculate the multiplier?
e) if the government run a policy of fiscal discipline where the government expenditure decrease to $30, what is the change in the equilibrium expenditure?

Goods market:
C=250+0.8YD
YD=Y+TR-T
T=100+0.25Y
I=300-50i
G=350
TR=150

Money market:
L=0.25Y-62.5i
Ms/P=250

Goods market equilibrium condition:
Y=C+I+G+X-M

Money market equilibrium condition:
L=Ms/P

Solve for Y=C+I+G+X-M

Goods Market Money Market
C = 250 + 0.8YD L = 0.25Y – 62.5i
YD = Y + TR – T Ms/P = 250
T = 100 + 0.25Y
I = 300 – 50i
G = 350; TR = 150

Goods market equilibrium condition: Y = C + I + G + X-M
Money market equilibrium condition: L = Ms/P
c) What are the equilibrium levels of income (Yo) and interest rate (io)

Goods Market Money Market
C = 250 + 0.8YD L = 0.25Y – 62.5i
YD = Y + TR – T Ms/P = 250
T = 100 + 0.25Y
I = 300 – 50i
G = 350; TR = 150

Goods market equilibrium condition: Y = C + I + G + X-M
Money market equilibrium condition: L = Ms/P

a) What is the equation that describes the IS curve (YIS)?

3. The value of manufactured goods (things made in factories and plants) produced each year in the United States has more than doubled over the last 30 years. Also over the last 30 years the number of Americans employed in manufacturing has significantly decreased. What does this tell you about the productivity of workers in the manufacturing industry?