Macroeconomics Answers

You have the following information regarding the indicators included in the computation of HDI, for 4 different countries (A / B/ C / D): Life expectancy at birth (A / B/ C / D): 75.5 / 76.5 / 77 / 75.8. Average number of education (A / B/ C / D): 12.8 / 12.5 / 12.1 / 12.7. Expected number of education years (A / B/ C / D): 16.2 / 15.5 / 15.2 / 15.8. GNI /inhabit. at ppp (Purchasing power parity in USD) (A / B/ C / D):40000 / 43000 / 42000 / 44000 Some additional information for computing the HDI are: Life expectancy at birth: min. 20 years - max. 85 years, Average number of education: min. 0 years - max. 15 years, Minimal expected number of education years: min. 0 years and max. 18 years, GNI /inhabitant at ppp. (Purchasing power parity in USD): min 100 - max. 75000 USD.

The correct answer is: ? with steps

Explain the difference between heterodox and orthodox stabilization programs.

(a) Write out the equation that represents the Taylor rule. Then, discuss how the Taylor rule is used to explain the implementation of monetary policy.

(b) Central bank is very importance to determine the economic performance of the country.

(1) What can be done to increase central bank credibility?

(2) Why is central bank credibility important?

(c) Discuss the time inconsistency problem and explain how it relates to monetary policy.

a. Suppose the central bank increases the rate of growth of the money supply. What effect will this increase in money growth have on seignorage in:

(1) The short run; and

(2) The medium run? Explain.

b. What is meant by debt monetization? Explain your answer with appropriate graph of the IS-LM model.

Consider the following data

Y

X

5

64

2

87

12

50

9

71

15

44

6

56

25

42

16

60

Plot a graph of Y against X

Find the correlation between Y and X

Test at 5% level of significance whether the correlation is significant or not

The Bok Chicken Factory is trying to figure out how to minimize the cost of producing 1200 units of chicken parts. The production function is q = 100L0.5 K0.5. The wage rate is birr 9 per hour and the rental rate on capital is birr 4 per machine hour.

Find the minimum cost of producing 1200 units.

Find the maximum output that can be produced for a total cost of birr 720.

Q.2 Show diagrammatically the impact on the firms profit if in the short run demand 

or the product reduces.

(a) Which island has an absolute advantage in producing coconuts? Explain.

(b) Which island has a comparative advantage in producing coconuts? Explain.

(c) Assume Zeetopia and Freshland decide to specialize according to their comparative advantages and 1 ton of coconuts is exchanged for 1 ton of mangoes. Are specialization and trade under these terms beneficial to both Zeetopia and Freshland? Explain.

(d) Assume the two islands experience constant opportunity costs in the production of the two products. Draw a correctly labeled graph illustrating Zeetopia’s and Freshland’s production possibilities, showing coconuts on the horizontal axis and mangoes on the vertical axis. Plot the numerical values from the table above on your graph.

(e) On your graph in part (d), show a combination of coconuts and mangoes, labeled as point X that is unattainable for Freshland but feasible and inefficient for Zeetopia.

if the central bank is able to keep the inflation rate equal to the target inflation rate every period, will there be dramatic fluctuations in unemployment?

Explain in detail the process of Monetary Policy transmission of an increase in the cash interest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cash rate ripple through the economy and lead to the target policy goal. (Three connected diagrams should be used: (1) money supply and demand (2) investment demand schedule (3) AS/AD diagram. Interest rates is the variable that connects the first and second diagram)