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Macroeconomics
Suppose that in the beginning of the year, the exchange rate between US-dollar
and the euro is exactly 2 $/EU. At that time, a one-year US treasury bill yield
an interest rate of 5%, while a similar German treasury bill yield 3%. Inflation
during the year is expected to be 3% in the USA and 2% in the euro area.
(a) Use purchasing power parity (PPP) to forecaste the exchange rate between
the dollar and the euro at the end of the year.
(b) Use uncovered interest parity (UIP) to forecaste the exchange rate between
the dollar and the euro at the end of the year.
(c) Use covered interest parity (CIP) to compute the one-year forward exchange
rate between the dollar and the euro at the beginning of the year.
and the euro is exactly 2 $/EU. At that time, a one-year US treasury bill yield
an interest rate of 5%, while a similar German treasury bill yield 3%. Inflation
during the year is expected to be 3% in the USA and 2% in the euro area.
(a) Use purchasing power parity (PPP) to forecaste the exchange rate between
the dollar and the euro at the end of the year.
(b) Use uncovered interest parity (UIP) to forecaste the exchange rate between
the dollar and the euro at the end of the year.
(c) Use covered interest parity (CIP) to compute the one-year forward exchange
rate between the dollar and the euro at the beginning of the year.
Macroeconomics
In a closed economy the following holds:
Household consumption C is given by the consumption function:
C = 100 + 0.75Yd
Planned investments are I = 250 (independent of Y ).
Household disposable income: Yd = Y − T, where Y is production.
Taxes depend on income according to: T = −200 + 0.5Y .
Public consumption: G = 1000.
(a) Use the simple Keynesian model of the goods market to calculate equilibrium
production Y , i.e. the level of production compatible with planned
expenditure in the form of consumption and investments.
(b) What is the public budget deficit?
(c) Suppose that the government increases public consumption to G = 1100.
What is production in the new equilibrium?
(d) What is the public deficit after the increase of public consumption?
(e) What is the multiplier for an (unfinanced) increase in public consumption.
Household consumption C is given by the consumption function:
C = 100 + 0.75Yd
Planned investments are I = 250 (independent of Y ).
Household disposable income: Yd = Y − T, where Y is production.
Taxes depend on income according to: T = −200 + 0.5Y .
Public consumption: G = 1000.
(a) Use the simple Keynesian model of the goods market to calculate equilibrium
production Y , i.e. the level of production compatible with planned
expenditure in the form of consumption and investments.
(b) What is the public budget deficit?
(c) Suppose that the government increases public consumption to G = 1100.
What is production in the new equilibrium?
(d) What is the public deficit after the increase of public consumption?
(e) What is the multiplier for an (unfinanced) increase in public consumption.
Macroeconomics
In the late 1990s a growing number of economists argued that world policymakers were focusing too much on fighting inflation. The economists also argued that the technical level of potential output had risen. how did there arguments effect the as/ad model?
Macroeconomics
Following is a list of national income figures for a certain year. All figures are in billions.
Interest and investment income
$
7
Government current purchases of goods and services
32
Taxes less subsidies on factors of production
18
Indirect business taxes less subsidies
6
Personal consumption expenditures
133
Net investment (net capital formation)
37
Capital consumption allowances (depreciation)
23
Net Income of farms and unincorporated businesses
17
Net exports
-8
Profits of corporations and government enterprises before taxes
38
Wages, salaries, and supplementary labour income
108
Calculate GDP using the expenditure method.
GDP=$?? (IN BILLIONS)
Interest and investment income
$
7
Government current purchases of goods and services
32
Taxes less subsidies on factors of production
18
Indirect business taxes less subsidies
6
Personal consumption expenditures
133
Net investment (net capital formation)
37
Capital consumption allowances (depreciation)
23
Net Income of farms and unincorporated businesses
17
Net exports
-8
Profits of corporations and government enterprises before taxes
38
Wages, salaries, and supplementary labour income
108
Calculate GDP using the expenditure method.
GDP=$?? (IN BILLIONS)
Macroeconomics
In the late 1990s a growing number of economists argued that world policymakers were focusing too much on fighting inflation. The economists also argued that the technical level of potential output had risen. Show their argument using the AS/AD model.
Macroeconomics
1. The information below describes the real GDP per capita for the country of Utopia for the period of 1975 to 1991. (10 marks)
1. If a new business cycle began in 1975, how long was this cycle?
2. The peak occurred in which year? The trough occurred in which year?
3. How long was the expansion? How long was the contraction?
4. Calculate change in Real GDP per Capita (Complete the table below)
Year Real GDP per Capita Change in Real GDP per Capita
1975 6,000
1976 6,300
1977 6,700
1978 7,200
1979 7,850
1980 8,250
1981 8,450
1982 8,550
1983 8,575
1984 8,510
1985 8,370
1986 8,100
1987 7,950
1988 7,925
1989 7,960
1990 8,035
1991 8,155
1. If a new business cycle began in 1975, how long was this cycle?
2. The peak occurred in which year? The trough occurred in which year?
3. How long was the expansion? How long was the contraction?
4. Calculate change in Real GDP per Capita (Complete the table below)
Year Real GDP per Capita Change in Real GDP per Capita
1975 6,000
1976 6,300
1977 6,700
1978 7,200
1979 7,850
1980 8,250
1981 8,450
1982 8,550
1983 8,575
1984 8,510
1985 8,370
1986 8,100
1987 7,950
1988 7,925
1989 7,960
1990 8,035
1991 8,155
Macroeconomics
what is macroeconomics?
Macroeconomics
The MPC in your economy is 0.70 with an autonomous consumption of Tk 80 billion. Your economy is a open economy with I, T, R, G and XN with an exogenous amount of 20, 50, 20, 60 and 5 billion Taka, respectively. Find out your equilibrium GDP with two, three and four sector economy. Do you think your GDP will increase for:
1.TK 10 billion extra transfer payment;
2.Tk 10 billion new government purchases ; and
3.Tk 5 billion increase in the net export
4.If all of the above are considered together ?
1.TK 10 billion extra transfer payment;
2.Tk 10 billion new government purchases ; and
3.Tk 5 billion increase in the net export
4.If all of the above are considered together ?
Macroeconomics
A bank has the following assets: 60,000 in reserves, 30,000 in loans and 90,000 in checkable deposits. The reserve requirement is 25%; whats the banks amount of actual reserves?
Macroeconomics
Suppose a bond with no expiration date has a face value of $25,000 and annually pays a fixed amount on interest of $1,500. Compute and enter in the spaces provided either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown.(Bond prices: Round them to two decimal places, do not type the dollar sign ($) nor use commas to separate the thousands. Interest yield: Round to one decimal place)
Bond Price Interest Yield(%)
20000 x
x 6.4%
25000 x
x 5.5%
30000 x
Bond Price Interest Yield(%)
20000 x
x 6.4%
25000 x
x 5.5%
30000 x
