Macroeconomics Answers

Blue Kashmir Sapphires i generally believed to be a rare gemstone. use demand and supply curves to illustrate and explain why such a rare item is sold at such high price.

Velocity is constant and nominal GDP increases by 5%, what is happening to the money supply?

Suppose that the economy is in expansion (has an inflationary gap) in year x. Explain what
kinds of monetary policy the government may adopt. Explain also how such policies affect
(i) the market for bank reserves, (ii) the money market, (iii) the market for loanable funds,
and (iv) real GDP and the price level in the economy.

The U.S. government treats the goods produced by a firm in a year that are not sold in that year as increases in inventories and includes them in that year's GDP at market prices. In other words, the government assumes that the firm itself buys those goods for future resale. With this convention in mind, place a 1 in a box if you think the statement is 100% true, place a 0 otherwise.

1.Any good produced in a year will be included in that year's GDP. ( )

2.Any good produced in a year will be included in that year's GDP, except those produced by households for household consumption. ( )

3.Any good produced and sold in a year will be included in that year's GDP. ( )

4.Any good produced and sold in a year will be included in that year's GDP, except those produced by firms that are not sold. ( )

5.Any good sold in a year will be included in that year's GDP. ( )

6.Any service sold in a year will be included in that year's GDP. ( )

The Economy Tomorrow section provides estimates of time spent in traffic delays. If the average worker produces $90 of output per hour, what is the opportunity cost of
a) Current traffic delays?
b) Estimated delays in 10 years?

Using the cardinalist approach of consumer behaviour, distinguish between income and substitution effects of a price rise for a normal good

Suppose that the economy is at full-employment equilibrium.
(a) Explain what the Keynesian multiplier effect is in macroeconomics. Using the Keynesian
cross, explain mathematically why the Keynesian multiplier effect is greater than 1.
(b) In the Keynesian cross, suppose that the consumption function is given by:
C = 100 + 0.6 x (Y – T).
Also suppose that the planned investment (I) is 50 and the government expenditure and
taxes are both 200. Assume that there is no international trade (both exports and imports
are zero).
(i) Calculate the equilibrium level of GDP (income).
(ii) Calculate the equilibrium level of GDP (income) when the government decreases its
expenditure from 200 to 150.
(iii) Suppose that the government attempts to achieve an output (GDP) of 1,000. What level
of government expenditure is required?

Briefly explain two exceptions to the definition of an indifference curve

4. Given the following demand function
QX = 100 – 2P2
(a) Calculate the price elasticity of demand when price is Ksh. 6.
(b) Calculate the price elasticity of demand in the price range Ksh. 3 and Ksh. 5.

Using the cardinalist approach of consumer behaviour, distinguish between income and substitution effects of a price rise for a normal good.