Macroeconomics Answers

You are given the following information about an
economy:
Gross private domestic investment = 40
Government purchases of goods and services = 30
Gross national product (GNP) = 200
Current account balance = -20
Taxes = 60
Government transfer payments to the domestic private
sector = 25
Interest payments from the government to the domestic
private sector = 15 (Assume all interest payments by
the government go to domestic households.)
Factor income received from rest of world = 7
Factor payments made to rest of world = 9
Find the following, assuming that government investment
is zero:
a. Consumption
b. Net exports
c. GDP
d. Net factor payments from abroad
e. Private saving
f. Government saving
g. National saving

What are the social costs and economic costs of unemployment

Discuss the economic and social costs of unemployment in your country.

A chocolate manufacturing company’s production function is Q = 5KL, where Q is output rate, L is the amount of labour it uses per period of time, and K is the amount of capital it uses per period of time. The price of labour is GH¢1.00 per unit of labour, and the price of capital is GH¢2.00 per unit of capital. The company hires you to determine which combination of inputs to use to produce 20 units of output per period.
a) Determine the combination of labour and capital that the company should hire in order to maximize profits.
b) Suppose that the price of labour increase to GH¢2.00 per unit. What effect will this have on output per unit of labour?
Is the company’s production subject to decreasing returns to scale? Why or why not?

a) Suppose the own price elasticity of demand for good X is -2, its income elasticity of demand is 3, its advertising elasticity of demand is 4, and the cross-price elasticity of demand between it and good Y is -6. Determine how much the consumption of this good will change if:

i. The price of good X increases by 5 percent.
ii. The price of good Y increase by 10 percent.
iii. Advertising decreases by 2 percent.
iv. Income falls by 3 percent.

Suppose the demand function for a firm’s product is given by:

lnQx = 3 – 0.5lnPx -2.5lnPy +lnM + 2lnA

where Px = GH¢10, Py = GH¢4, M = GH¢20,000 and A = GH¢250.

i. Determine the own price elasticity of demand, and state whether demand is elastic, inelastic or unitary elastic.
ii. Determine the cross-price elasticity of demand between good X and good Y, and state whether these two goods are substitutes of complements.
iii. Determine the income elasticity of demand, and state whether good X is normal or inferior good.
iv. Determine the own price elasticity of demand.

The demand for good X is given by:

Qx = 200 – 0.5Px + 0.25Py –0.75Pz + 0.1M,

Research shows that the prices of related goods are given by Py = GH¢900, Pz = GH¢100, while the average income of individuals consuming this product is M = GH¢5,000.

The supply function of the company is given by: Qx = 50+ 2Px

Requirements:
a) Indicate whether goods Y and Z are substitutes or complements for good X.
b) Is X an inferior or a normal good?
c) Determine the price and quantity that will clear the market for good X.
d) Suppose an excise tax of GH¢5 per unit is imposed on the good and the company adjusts the supply function to include tax.
i. Determine the new equilibrium price and quantity in the market.
ii. Compute the deadweight loss associated with this excise tax.
e) The company has acquired a new technology which enhances its production. As result, the new supply function is Qx = 250+ 2Px. Determine the new equilibrium price and quantity in the market.

In Juiceland company Ltd, the relationship between output(Q) and number of hours of skilled labour (S) and unskilled labour(U) is :
Q=500S + 100U - 0.2S^2 - 0.3U^2
The hourly wage of skilled labour is $15, and the hourly wage of unskilled labour is $5. The firm can hire as much labour as it wants at these wage rates.
a) Juiceland COO recommends that the firm hire 400 hours of skilled labour and 100 hours of unskilled labour. Evaluate this recommendation.
b) If Juiceland decides to spend a total of $5000 on skilled and unskilled labour , how many hours of each type of labour should it hire?
c) If the price of a unit of output is $5 ( and does not vary with output), how many hours of unskilled labour should the company hire?

A company hires an econometrician to estimate the demand function for its products (x).
The econometrician concludes that this demand function is
Qx=100Px^-3.1I^2.3Py^1.5A^0.1

Where Qx is the quantity demanded of product x per capita per month, Px is the product price ($) , I is per capita disposal income ($), Py is the price of a related product y, and A is the firm advertising expenditure ($).
i. What is the own price elasticity of demand?
ii. Will increases in price result in increases or decreases in the amount spent on the company product?
iii. What is the income elasticity of demand?
iv. What is the advertising elasticity of demand?
v. What is the cross-price elasticity of demand between good x and good y? What type of goods are x and y?
vi. If the population in the market increases by 10 percent, what is the effect on the quantity demanded if Px, I, Py and A are held constant ?

A marketer of motorbikes determines that in 2017, the demand function for its products is
P=2000 - 50Q
Where P is the price ($) of motorbike, and Q is the number of motorbikes sold per month.
i. To sell 20 motorbikes per month, what price should be charged?
ii. If the motorbikes sell at a price of $500, how many motorbikes will be sold per month?
iii. What is the price elasticity of demand if the price equals $500?
iv. At what price, if any, will the demand for motorbikes be unitary elastic?