Macroeconomics Answers

. Assume the country of Freedonia has $500 of capital per worker and has a workforce of 20 million. Also assume that labor and capital split output evenly between themselves.

a. Ignoring total factor productivity. What is output per worker? What is total output?
b. If actual output per worker is $1000 what is total factor productivity? What is the wage rate? What is the return to capital?
c. Suppose a wizard appears and suddenly makes half of the capital stock disappear. What is output per worker? What is the wage rate? What is the return to capital? (Assume everything for question 1b holds initially) Do you think that perhaps the wizard owned some of the capital stock left over? Why?
d. Suppose aliens visit earth and bring with them technological advances that double total factor productivity. What is output? What is output per worker? What is the wage rate? What is the return to capital? (assume everything for question 1b holds initially)

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if prices are slow to adjust then it is possible that

Explain how credibility might affect the cost of reducing inflation.

Why are some economists against target of zero inflation?

Explain how credibility might affect the cost of recording inflation.

a. According to the Rule of 70, how many years will it take a country to double its output at each of the following annual growth rates?

0.5 percent: ___ years

1 percent: ____ years

1.4 percent: ____ years

2 percent: ____ years

2.8 percent: ___ years

3.5 percent: ____ years

7 percent: ____ years

What is the effect of the new expenditure plan impact on income and consumption?

(ii) What is the effect of the new expenditure plan impact on income and consumption?

(iii) What is the effect of monetary policy in an economy where capital mobility is perfectly elastic?

(a) Given that money supply is KSh 1400 millions, autonomous consumption is KSh120 million, while the responsiveness of consumption to changes in disposable income is estimated to be 80% by the ministry of planning. Aggregate autonomous investment is ksh 200 million investment while one % increase in interest rate changes investment by KSh10 millions. The government collected KSh 200 million as tax revenue and wishes to increase expenditure by 10% above the revenue collected. The transactionary and precautionary demand for money function is expressed as mt/p=0.1y while the speculative money demand ms/p is -100r .
(i)Solve for equilibrium real output and equilibrium interest rate
(ii) What is the effect of the new expenditure plan impact on income and consumption?