Macroeconomics Answers

Monetary policy is said to be more effective in the liquidity trap. Do you agree with this statement? Kindly motivate your position by making use of a graph.

At L=4, k=4, the marginal product of labor is 2 and the marginal product of capital is 3. what is the marginal rate of substitution?

How do you reconcile the difference in the shape of the curve in the short run and the long run?

How do you reconcile the dif
ference in the shape of the
curve in the short run and the long run

Given that:
C = 0.5Y + 50
I = -10r + 650
Ms = 3000
L1 = 0.4Y
L2 = -15r + 2750
Md = L1 + L2

Where:
L1 = Transaction and Precautionary demand for money
L2 = Speculative demand for money

Determine the equilibrium values of national income (Y) and interest rate (r) on the assumption that the commodity and money markets are in equilibrium. Show the equilibrium values of Y and r on a graph

An open macroeconomic model for a hypothetical economy is represented as follows

Y= C0 +Io+Go+X0-M, M=mo+m1yd,C=co+c1yd, T=tY and Yd=Y-T

Show that equal change in tax and government expenditure are expansionary to the economy
Derive the equilibrium level of savings in the economy above
Derive the investment multiplier

b) Using appropriate model, illustrate the effect of an expansionary fiscal policy in an open economy operating in free exchange rate regime .Assume perfect capital mobility. What is the effect if the government uses monetary policy alternatively?

c. The full effect of fiscal policy may not be realized if not matched with changes in monetary policy, explain using the IS/LM model

IF the national income accounting equation is Y=C+I+G+E-M

Where: C=8+0.6Yd
I=25
G=10
E=70
M=15+02Y
T=7+0.3Y
R=25-0.3Y

1.1 Determine the economy's national income/output
1.2 Determine the economy's multiplier applicable to government spending and interpret its meaning
1.3 Use the multiplier applicable to exports and explain how a N$100 billion decline in the demand for exports could affect the following variables:

i) GDP
ii) Balance of trade
iii) Government budget

Suppose the consolidated balance sheet of an economy’s banking system is shown in the following table:
Assets: Liabilities:
Currency 10 Deposits 2000
Deposits at the central bank 90
Government Bonds 300
Loans Outstanding 1800 Capital 200
Total 2200 Total 2200
In answering the following questions, assume that the banking system is initially in equilibrium and that
the public holds all of its money in the form of deposits in the banking system.
Briefly explain how the commercial banks respond to this new situation. Show the eventual effect on the balance sheet when the banking system has returned to equilibrium. What is the new level of the money supply?

Respond to the following question:

Suppose a country has a national debt of $5,000 billion, a GDP of $10,000 billion, and a budget deficit of $100 billion.

How much will its new national debt be?
Compute its debt-GDP ratio.
Suppose its GDP grows by 1% in the next year and the budget deficit is again $100 billion. Compute its new level of national debt and its new debt-GDP ratio.
Explain your answers for all of these questions (one well composed paragraph for each question).

The full effect of fiscal policy may not be realized if not matched with changes in monetary policy, explain using the IS/LM model