Economics Answers

Each unit of output sells for $10.00. Calculate the value of the marginal product of each

worker (VMPL)

(b) Suppose the price of wheat in the world market is lower than the domestic price of wheat in Grainland. Assume now Grainland wants to trade wheat in the world market.

Suppose the wage rate is $28, the price of capital also is $28 per unit, and the firm currently is producing 30.3 units of output per period using four units of capital and two units of labour. Is this an efficient resource combination? Why? ( Hint: Compare the marginal products of capital and labour at the initial input combination.)

For this question, refer to the Bank of Ghana’s Monetary Policy Committee Press

Release of November 2015.

a) Explain the difference between monetary loosening and monetary tightening.

According to the statement, the MPC increased the monetary policy rate by 100 basis

points. Does this constitute a monetary loosening or monetary tightening? Explain.

b) When deciding whether to whether to tighten or loosen monetary policy, central

banks weigh the relative risks to price stability and growth. Mention two indicators that

4

the MPC use to gauge the risk to inflation and two indicators the MPC use to gauge the

risk to growth.

c) Based on the information in the Press Release, in the thinking of the MPC did the

risk to growth outweighed the risk to inflation or vice versa? Refer to specific points

from the press release to back up your argument.

d) Using the money market diagram studied in class, explain the effect of this policy

measure on the real interest rate.