Macroeconomics Answers

Which factor has not contributed to the growth of international trade?
-the spread of reliable communications
-a change in the tariffs charged on many foods
- reduction of shipping costs
-favorable changes in government policies

Describe the equilibrium levels of income and the interest rate.

an increased saving at a given level of income in an economy means?

In 2003 to 2004, the Canadian dollar appreciated against the US dollar. Explain the effects of this appreciation on each of the following.
a. Canadian importers of goods from the US
b. Canadian firms that sell commodities to US buyers
c. American tourists who come to Canada
d. US investors who had purchased Canadian securities prior to this currency appreciation

a. Describe an export subsidy, and explain the gains and losses that might arise
from such practice.
b. Why are developing countries in Africa especially affected by export subsidies in industrial countries?

7. Suppose that Canada can produce 1000 tons of wheat or 500 tons of steel, and that Brazil can produce 750 tons of wheat or 1350 tons of steel.
a. What is the opportunity cost of 1 unit of wheat in Canada? Show your work.
b. What is the opportunity cost of 1 unit of steel in Brazil? Show your work.
c. Which country has a comparative advantage in producing steel? Explain why.
d. Suppose that trade takes place between Canada and Brazil. Which good will Brazil import from Canada? Explain why.

Describe the contrasting views of the Keynesians and the monetarists with regard to an appropriate expansionary policy to bring an economy out of a period of high unemployment caused by insufficient aggregate demand.

5. The economy has seen the unemployment rate decrease from 8.56 percent to 6.15 percent, the inflation rate increase from 1.4 percent to 3.2 percent, and there has been a 17 percent increase in consumer spending and a 22.5 percent increase in investment spending in the same time period.
a. Given the above, what would you predict about the overall direction of the economy? Explain your answer by referring to each of the indicators cited.
b. Describe the fiscal policy that will already be automatically operating, as well as the appropriate discretionary fiscal policy that the government should adopt, given the above situation.
c. Describe the appropriate monetary policy that the Bank of Canada should be operating, given the above situation

a. Explain the concept of the multiplier, and explain the role of the marginal
propensity to save (MPS) in determining the size of the multiplier.
b. Explain how the size of the multiplier will change when one brings in the role of the marginal tax rate.
c. Using the concepts in parts a and b above, calculate the slope of the AE curve and the size of the multiplier if MPS = 0.20. Then, calculate the revised slope of the AE curve and the multiplier when you know that the imports and the marginal tax rate will reduce the slope of the AE curve by another 0.25.

3. The economy of Kenya is in recession, and the recessionary gap is large. The World Bank hires you as its economist and asks you to

a. describe the discretionary and automatic fiscal policy actions that might occur.
b. describe a discretionary fiscal stimulation package that could be used that would not bring a budget deficit.
c. describe the risks of discretionary fiscal policy in this situation.
d. explain the argument that lower corporate tax rates can increase tax revenue in Kenya. Consider the Laffer curve in your explanation.