Macroeconomics Answers

The Bok Chicken Factory is trying to figure out how to minimize the cost of producing 1200 units of chicken parts. The production function is q = 100L0.5 K0.5. The wage rate is birr 9 per hour and the rental rate on capital is birr 4 per machine hour.

Find the minimum cost of producing 1200 units.

Find the maximum output that can be produced for a total cost of birr 720.

Q.2 Show diagrammatically the impact on the firms profit if in the short run demand 

or the product reduces.

(a) Which island has an absolute advantage in producing coconuts? Explain.

(b) Which island has a comparative advantage in producing coconuts? Explain.

(c) Assume Zeetopia and Freshland decide to specialize according to their comparative advantages and 1 ton of coconuts is exchanged for 1 ton of mangoes. Are specialization and trade under these terms beneficial to both Zeetopia and Freshland? Explain.

(d) Assume the two islands experience constant opportunity costs in the production of the two products. Draw a correctly labeled graph illustrating Zeetopia’s and Freshland’s production possibilities, showing coconuts on the horizontal axis and mangoes on the vertical axis. Plot the numerical values from the table above on your graph.

(e) On your graph in part (d), show a combination of coconuts and mangoes, labeled as point X that is unattainable for Freshland but feasible and inefficient for Zeetopia.

if the central bank is able to keep the inflation rate equal to the target inflation rate every period, will there be dramatic fluctuations in unemployment?

Explain in detail the process of Monetary Policy transmission of an increase in the cash interest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cash rate ripple through the economy and lead to the target policy goal. (Three connected diagrams should be used: (1) money supply and demand (2) investment demand schedule (3) AS/AD diagram. Interest rates is the variable that connects the first and second diagram)

Assume that an economy is initially operating at the natural rate of output (full employment output). Use the AD-AS model to illustrate graphically the effects on price and output of an increase in government spending and a decrease in the cash rate. Explain your assumptions with respect to the range of aggregate supply of your analysis

a) Give the definition of GDP and explain what items are not included in its calculation? b) How is GDP calculated using the expenditure approach? c) How is GDP calculated using the income approach? d) Explain the problem of "double-counting" and how it can be avoided in calculating GDP

On what market imperfection does the four theories of aggregate supply rely?

 Suppose individual demand schedules for A, B and C are given as follows:Find:(a) market demand schedule(b) market demand curve;(c) elasticity when price falls form $15 to $10; and(d) elasticity when price rises from $10 to $5.

Given closed economy model: ( )

i. Drive the balanced budget multiples and show it does not have multiples effect.

(Hint dG = dT)

ii. Find the government multiplier for a variable tax

iii. Suppose the lump sum tax rate has increased. Derive the tax rate multiplier and show

increase in tax rate is regressive.