Macroeconomics Answers

Suppose you are recommending monetary policy. The economy is experiencing a sharp and prolonged inflationary trend.

a. What change in open market operations would you recommend?
b. Explain how the change you advocate would affect the cash rate.
c. Explain how the change you advocate would affect the cost and availability of credit.
d. Use diagrams/graphs of the money market and also AD-AS to support your discussion.

The following is the information from the national income accounts for a hypothetical country:
GDP Rs. 6000.00
Gross Investment 800.00
Net Investment 200.00
Consumption 4000.00
Govt. purchases of goods & services 1100.00
Govt. Budget Surplus 30.00
What is
a) NDP
b) Net exports
c) Govt. taxes minus transfers
c) Disposable personal income
e) Personal Saving.

Suppose you are recommending monetary policy. The economy is experiencing a sharp and prolonged inflationary trend.

a. What change in open market operations would you recommend?

b. Explain how the change you advocate would affect the cash rate.

c. Explain how the change you advocate would affect the cost and availability of credit.

d. Use diagrams/graphs of the money market and also AD-AS to support your discussion.

Explain how the increases and decreases in the supply of money and the demand for money can impact interest rates and why.

3. In your own words, explain the difference between open market operations, the federal funds rate, the discount rate and the required reserve ratio.

Why Indirect Taxes is included in Net National Disposable Income despite being transfer payment within domestic country and other domestic current transfers are excluded.

Use the table that follows to answer the following questions. The table uses index numbers to describe the values of K, L, w, r, and Q for a business firm at three points in time. K and L are the amounts of capital and labor used in the production process. The price of labor and capital are given by w and r respectively. Q is the level of output produced. Use the midpoint method for all elasticity calculations.
Period K L w r Q
1
100
100
100
100
100
2
99
105
95
100
105
3
102
103
95
105
110
A. Using data from periods 1 and 2, compute the own-wage (w) elasticity of labor demand.
B. Using data from periods 2 and 3, compute the cross- elasticity of labor demand with respect to the price of capital (r). Are capital and labor gross substitutes or gross complements?
C. Using data from periods 1 and 2, compute the elasticity of substitution of labor and capital.

The rate of interest is a price:
a. Of what is it the price? (1 mark)
b. What determines this price? (Sketch a relevant graph of the money market). (2 marks)
c. What factors influence the demand for money? (2 marks)
d. What factors influence the supply of money? (2 marks)

Suppose you are recommending monetary policy. The economy is experiencing a sharp and prolonged inflationary trend.
a. What change in open market operations would you recommend? (1 mark)

b. Explain how the change you advocate would affect the cash rate. (2 marks)

c. Explain how the change you advocate would affect the cost and availability of credit.
(2 marks)
d. Use diagrams/graphs of the money market and also AD-AS to support your discussion.
(3 marks)

1) Assuming a system of floating exchange rates between Japan and Australia, indicate whether each of the following would cause the Japanese yen and the AUD to appreciate or depreciate.
a. Australia unilaterally reduces tariffs on Japanese products.
b. Japan encounters severe inflation.
c. Deteriorating political relations reduce Japanese tourism in Australia.
d. The Australian government invites Japanese firms to invest in oil fields in Australia.
e. The rate of productivity growth in Australia diminishes sharply. (5 marks)