Macroeconomics Answers

Q: Given the demand equation, Q = 12,000 - 10P2.
a. For this equation, write the expression for the point price elasticity of demand as a function of P
b. over what range of prices is the demand inelastic ?

discuss the optimal voting rule and its suitability for South Africa

The storm created shortages of power generators. As a result, those products sold at prices much higher than normal. These high prices provoked cries of “price gouging” and calls on the government to impose price controls to prevent gouging. While no one likes to pay a higher price than normal for something, consider what would have happened with a price ceiling. The economic intuition is revealing. Draw a diagram showing the market for generators with an equilibrium price at $250. Now impose a price ceiling at $200 per generator. What would be the impact of the price ceiling on the quantity demanded? On the quantity supplied? Who would benefit from the price ceiling and who would be harmed? Did the price ceiling help the people it was designed to help? Explain the economic reasoning behind your analysis.

(Absolute and Comparative Advantage) information concerning the production of wheat and corn in the United States and Russia?
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Millions of tons of grain produced in one year

Russia wheat 15 Corn 150
U.S Wheat 60 Corn 300

a. What is the opportunity cost of producing a unit of wheat in Russia? In the United States?
b. Which country has an absolute advantage in producing wheat? In producing corn?
c. Which country has a comparative advantage in producing wheat? In producing corn?
d. Which country should specialize in producing wheat? In producing corn?

Part III: Diagram & Analysis
(f) Expansionary Monetary Policy: Suppose the money supply increased to M=P = 1840. Solve
for Y,i,C, and I, (repeat parts (a) through (e)) and describe in words the eects of an expansionary
monetary policy. Show the change on the diagram below. Label your diagram. Identify the old and
the new equilibrium.
(g) Expansionary Fiscal Policy: Suppose the money supply is at its initial value of 1600 but gov-
ernment increases its spending to G = 400. Solve for Y,i,C, and I, (repeat parts (a) through (e))
and describe in words the eects of an expansionary scal policy. Show the change on the diagram
below. Label your diagram. Identify the old and the new equilibrium.

(a) Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on
the right.)
(b) Derive the LM relation. (Hint: It will be convenient for later use to rewrite this equation with i on
the left side and everything else on the right.)
Part II: Solve for equilibrium
(c) Solve for the equilibrium real output. (Hint: Substitute the expression for the interest rate given by
the LM equation into the IS equation and solve for output.)
(d) Solve for equilibrium interest rate. (Hint: Substitute the value you obtained for Y in part (c) into
either IS or LM equations and solve for i. If your algebra is correct you should get the same answer
fromn both equations)
(e) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by adding C, I
and G.

The Goods Market & The Financial Markets : The IS-LM Model
Suppose that the economy of Biscuitville is characterized by the following goods market behavioural
equations:
C = 200 + 0:25YD
I = 150 + 0:25Y - 1000i
G = 250
T = 200
where there is only one good produced and consumed in the economy: biscuits! Suppose additionally that
nancial markets are characterized by the following equations:
(M=P)d = 2Y - 8000i
M=P = 1600

This problem asks you to consider a company refining crude oil into gasoline. The company hires
workers to process an input (crude oil) into an output (gasoline). You should assume both the (output)
market for gasoline and the labor market for workers are perfectly competitive, and that the firm must
pay the equilibrium wage set in the labor market and charge the equilibrium price for gas set in the
market for gas.

Consider the following model of national income determination
C = 300 + 0.75 (Y-T)
T = 100
I = 475
G = 150

i) List the entire exogenous and endogenous variable. (2 marks)

ii) Solve for the equilibrium value for all the endogenous variables. (2 marks)

iii) Suppose government expenditure increase by 50 find the new equilibrium values of the endogenous variables. Assume the economy of Kenya is described by the following information
Y = C + I + G (x - M) x = 20
C=20+0.8Yd M = 4 + 0.3Y
T = 30 Yd=Y-T
G = 22 I = 30 (8 marks)

Consider the following model of national income determination
C = 300 + 0.75 (Y-T)
T = 100
I = 475
G = 150

i) List the entire exogenous and endogenous variable. (2 marks)

ii) Solve for the equilibrium value for all the endogenous variables. (2 marks)

iii) Suppose government expenditure increase by 50 find the new equilibrium values of the endogenous variables. Assume the economy of Kenya is described by the following information
Y = C + I + G (x - M) x = 20
C=20+0.8Yd M = 4 + 0.3Y
T = 30 Yd=Y-T
G = 22 I = 30 (8 marks)