Microeconomics Answers

Consider the following equations for a small open economy for both the goods and money markets.

C = 3000 + 0.8Y^d; T = 1000 + 0.3Y; G = 6000; TR = 500; I = 4000 + 0.24Y – 100r; M = 3000 + 0.2Y; X = 2000; L_P = 1000 + 0.15Y; L_T = 2000 + 0.25Y – 15r; Ls = 1000 – 35r; MS = 40,000; P= 4

a.     Derive both the IS and LM equations for the economy and compute the Equilibrium level of Income and Interest Rate.

b.    At this equilibrium level of income and interest, compute the levels of disposal income, total transactions demand for money, investment demand and the value of net exports.

c.     Suppose the government raises govt. expenditure by 20% in order to increase aggregate demand. Show how this policy results in the crowding out effect.                                                                             

a.     Discuss using the IS-LM framework, how President Uhuru’s tax cuts and Central bank’s expansionary monetary policy may steer the economy out of Recession caused by Covid-19. Ensure that you draw diagrams and discuss the long run effects too. b.    Answer True or False, then justify your response with practical economic examples:                                             

i.      Open Market Operations are more effective in a developing country like Kenya when compared with the Bank Rate Policy.                                                                          

Since Quantitative credit control instruments are more targeted and more objective, it is always advisable that they be applied at all times over the Selective instruments

Employment and Social Development Canada (ESDC) reported that the Canada mean

unemployment insurance benefit was $573 per week (Government of Canada, 2020). A

researcher in the state of Manitoba anticipated that sample data would show evidence that mean

weekly unemployment insurance benefit in Manitoba was below the national average.

a) Develop appropriate hypotheses such that rejection of H 0 will support the researcher’s

contention.

b) For a sample of 100 individuals, the sample mean weekly unemployment insurance

benefit was $566 with a sample standard deviation of $80. What is the p-value?

c) At α = 0.05, what is your conclusion?

d) Repeat the preceding hypothesis test using the critical value approach.

Consider the following hypothesis test:

H 0 : μ ≤ 13

H a : μ > 13

A sample of 26 provided a sample mean x̄ = 15 and a sample standard deviation s = 5.32.

a) Compute the value of the test statistic.

b) Use the t distribution table to compute a range for the p-value.

c) At α = 0.01, what is your conclusion?

d) What is the rejection rule using the critical value? What is your conclusion?

Consider the following hypothesis test:

H 0 : μ = 16

H a : μ ≠ 16

A sample of 50 provided a sample mean of 15.15. The population standard deviation is 3.

a) Compute the value of the test statistic.

b) What is the p-value?

c) Write the rejection rule using the p-value. Using α = 0.05, what is your conclusion?

d) Write the rejection rule using the critical value. What is your conclusion?

Consider the following hypothesis test:

H 0 : μ ≥ 21

H a : μ < 21

A sample of 50 provided a sample mean of 20.4. The population standard deviation is 2.

a) Compute the value of the test statistic.

b) What is the p-value?

c) Using α = 0.05, what is your conclusion?

d) Write the rejection rule using the critical value. What is your conclusion?

If a duopolist has a linear demand curve of the form Q=400-P, assuming each firm has total cost of TC= 3000+100Q. Calculate the profit maximizing price-quantity combinations using the following four oligopoly pricing models listed below demonstrating that:

a) Under the Cournot model, both firms will earn the same level of profit and determine industry profit and explain why this would be the case.

b) Under the cartel model, each firm earns a higher profit than Cournot

c) under the Quasi-competitive model,the firm will make a loss equivalent to fixed costs.

d) Under the Stackelberg's model,the leader will earn more than twice the profit of the follower and that total industry profits will be lower than both Cournot and Cartel models. Explain why this would be the case.

a. Suppose you are a manager of a County government project that is meant to provide rent-regulated housing units in low-income settlements. Using your knowledge of equilibrium, advice the Governor whether this policy will be a success.

b. A Monopolist producing and supplying cooking gas to Mombasa city faces the demand function.

Q = 8800 – 20P. Its cost function is given by TC = 20Q + 0.05Q2.

i. Determine the quantity of cooking gas she will produce and the price she will charge to maximize profits and determine her profit.

ii. Explain how her profits she will affected if regulators forced her to operate like a perfectly competitive firm.

iii. Illustrate and compute dead-weight loss and lost consumer surplus associated with her Monopoly operations.

Suppose you are a manager of a County government project that is meant to provide rent-regulated housing units in low-income settlements. Using your knowledge of equilibrium, advice the Governor whether this policy will be a success.

If a duopolist has a linear demand curve of the form Q=400-P, assuming each firm has total cost of TC= 3000+100Q. Calculate the profit maximizing price-quantity combinations using the following four oligopoly pricing models listed below demonstrating that:

a) Under the Cournot model, both firms will earn the same level of profit and determine industry profit and explain why this would be the case.

b) Under the cartel model, each firm earns a higher profit than Cournot

c) under the Quasi-competitive model,the firm will make a loss equivalent to fixed costs.

d) Under the Stackelberg's model,the leader will earn more than twice the profit of the follower and that total industry profits will be lower than both Cournot and Cartel models. Explain why this would be the case.