Macroeconomics Answers

Assume that the treasury is currently running large surpluses (tax collections exceed new government spending). On a S/D diagram show the effect on Treasury Bond markets of using these surpluses to buy back outstanding treasury securities and reduce the governments' outstanding debt.

1.The global economic downturn since 2008 has affected the Jamaican economy and the general question from the Jamaican people is that when will the economy recover from the recession. To find an answer to the state of the economy’s health, a television reporter interviews Mr. Carter, a local car dealer. Mr. Carter said “I do not see any recovery. In the third quarter of this year we sold more cars compared to the second quarter but sales in these two quarters were far below that in the first quarter.”
a. Is Mr. Carter correct?
b. Are these observations consistent with the peak, recession, trough or recovery phase of the
business cycle?

Suppose you borrow $10,000 from a NCB at 5% interest rate for one year and the inflation rate for that year is 10%.
c. Was this loan advantageous to you or to the bank?

2. Why is growth in GDP different from growth in a nation's standard of living? Is it possible for
a nation's GDP to grow while its standard of living falls?

Explain how each of the following occurrences will impact on the macroeconomic equilibruim (i.e level of output and the price level),using the AD-AS model:

a)A depreciation of the rand.
b)A sudden fall in the value of shares trade on the stock exchange.
c)An unexpected increase in the interest rate as happened in June 2012.
d)An increase in workers' wages (consider the supply and demand sides).
e)The government implements a Skills Development Levy,payable by businesses.

Suppose the nominal rate of interest in an economy is 10% and rate of inflation is 6% per annum respectively,
a)Determine the real rate of interest.
b)Discuss two factors that lead to a change in the general level of interest rate.

Economist are generally divided between two camps-those of a monetarist persuasion,and those of a Keynesian persuasion.Both sets of economist advance arguments and models in favour of their perspectives.
1.Outline the differences in arguments of the Monetarists and Keynesians in the following areas: a)money holding
b)effect of money supply growth
2.State any five roles that the Namibian Stock Exchange (NSX) plays in the Namibian economy. 3.graphically Illustrate the Loanable Funds Theory of interest rate determination.
4.Discuss two main differences between the money market and capital market.

marginal propensity to save (MPS)=0.2 , Tax rate (t)=0.2 ,Autonomous savings=-50,Investment spending(I)=100, Government expenditure(G)=150, Exports(X)=200, Autonomous imports =30, Marginal propensity to import(m)=0.15
a)derive the consumption equation from the information given.
b)calculate the equilibrium level of income using the AD=AS approach.
c)calculate the level equilibrium level of income using the injections=withdrawals approach.
d)calculate the fiscal surplus(or deficit)at the equilibrium level of income.
e)calculate the value of net exports at the equilibrium level of income.
f)what would the level of income have to be if net exports are zero?
g)what is the value of the multiplier in an economy:
i)consisting only of households and businesses(no government or foreign sectors).
ii)consisting of households, businesses and the government(but no foreign sector)
iii)consisting of households, businesses and the government and foreign sectors?

1) Recently the government increased the minimum wage from $4,280 per week to $5,300 per week.
The inflation rate during the same period was 9%. What is the impact on real wages?

2) In each of the following cases, specify whether the change is an injection or leakage/withdrawal in
Jamaica’s circular flow of income? In each case also specify whether the change is an increase or
a decrease assuming ceteris paribus condition.

a. The government raises tax allowance?
b. The government cuts spending on roads?
c. Firms borrow more money in order to build-up their stocks in preparation for an anticipated rise
in consumer demand?
d. A depreciation in the exchange rate affect the popularity of visiting abroad during holidays?
e. Saving is affected by a re-distribution of income from the rich to the poor.
f. Consumers demand more goods that are domestically produced (but total consumption does
not change).
g. People invest more in building societies.

1) Suppose the Jamaica biscuit producing company, located
in Kingston, has 100 ovens and the life of each oven is 5
years, and 20 ovens must be replaced each year.
a. If demand for the biscuits is constant, how many
ovens will be replaced each year?
b. If the demand for biscuits rises by 10% in the 6th
year, how many ovens will be replaced in that year?
c. If the demand for biscuits remains constant at the
new level, how many ovens will have to be replaced
each year?
d. If the rate of increase in consumer goods is not
maintained what happens to the capital goods?


2) The global economic downturn since 2008 has affected
the Jamaican economy and the general question from the
Jamaican people is that when will the economy recover
from the recession. To find an answer to the state of the
economy’s health, a television reporter interviews Mr.
Carter, a local car dealer. Mr. Carter said “I do not see

Year Demand (Lakh in tones) Price (1970-71 = 100)
1975 – 76 36.9 168.9
1976 – 77 37.5 173.1

The comment of a prominent politician on this data is as follows :
“This clearly shows that the law of demand is not operating in the Indian sugar MARKET. The price went up yet consumers bought more. We cannot rely on MARKET. The price went up yet consumers bought more. We cannot rely on outdated economic concepts from the previous century for an analysis of current problems.”
Do you agree with this observation? How would you interpret the above given data ?