Macroeconomics Answers

A consumer spend income 5000 on food and cloth draw the budget line and identify intercept food price is100 and cloth price is 250

Suppose the Ricardian Equivalence proposition holds. What does this imply about the ability of fiscal policy to affect GDP? Explain.

Explain the macroeconomic effects of a tax cut according to the Ricardian Equivalence proposition. Include in your answer the IS-LM graph that shows the effects of this tax cut.

(a)  An open economy with flexible exchange rates. While UIP stand for the uncovered interest parity condition.

(1)  In an IS-LM-UIP diagram, show the effect of a decrease in foreign output, Y*, on domestic output. Explain.

(6 Marks)

(2)  Discuss the effects of foreign fiscal policy expansion on foreign output, Y*, and on the foreign interest rate, i*? 

What are the determinants of foreign exchange rate? Show this graphically [15 marks]

Government saving is defined as T- (G+TR+INT).

Here, G includes both govt. consumption and govt. investment. But ideally, we should not include investments while calculating savings.

But even if we do not separate the two components out of G, we get the same answer, i.e., both the definitions of uses-of-savings identity hold true. (The difference arises only because of some statistical discrepancies)

It would indicate that govt. investments are nil. Why does this happen?

A dozen eggs cost $0.88 in January 1980 and $2.11

in January 2015. The average wage for production

workers was $7.58 per hour in January 1980 and

$19.64 in January 2015.

a. By what percentage did the price of eggs rise?

b. By what percentage did the wage rise?

c. In each year, how many minutes did a worker

have to work to earn enough to buy a

dozen eggs?

d. Did workers’ purchasing power in terms of eggs

rise or fall?

The chapter explains that Social Security benefits are

increased each year in proportion to the increase in

the CPI, even though most economists believe that the

CPI overstates actual inflation.

a. If the elderly consume the same market basket

as other people, does Social Security provide the

elderly with an improvement in their standard of

living each year? Explain.

b. In fact, the elderly consume more healthcare com-

pared to younger people, and healthcare costs

have risen faster than overall inflation. What

would you do to determine whether the elderly

are actually better off from year to year?

Consider an economy with a different levels of aggregates as follows: c=0.8(1-t)Y t=0.25 I=900-50r G =800 L=0.25y-62.5r money supply: M=1000 price level :p=2 a) derive the IS and LM equation b) determine the equilibrium levels of income and interest rate c) calculate the government spending multiplier d)By how much income and interest change for a unit change in government spending? e) determine the amount of ''crowd out'' and interpret it

One has the following information about the sector of companies: Direct tax: 23% of the Profits from production and patrimony (income) Distributed Profits: 38% of the Profits from production and patrimony (income) Current transfers toward other sectors: 7% from the Disposable Income Disposable income: 75.5 billion Euro Profits from production and patrimony (income): 97.4 billion Euro Use an account of the sector of companies and compute the value of the current transfers received from other sectors!

with steps of solution

a. The value of the current transfers received from other sectors is 14.6 billion Euro

b. The value of the current transfers received from other sectors is 5.6 billion Euro

c. The value of the current transfers received from other sectors is 2.1 billion Euro

d. The value of the current transfers received from other sectors is 1.0 billion Euro

e. The value of the current transfers received from other sectors is 17.7 billion Euro