Economics Answers

Draw a circular flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of money for each of the following activities:

a) Joe pays $8 for buying a coffee at Starbucks.
b) Joe earns $50 per hour working as an accountant to Deloitte.

Your parents gave you 200 KD. You have a choice between spending the money now or investing your money and buy shares of a company. You will receive 20 KD as a dividend after one year.

a) What is the opportunity cost of spending 200 KD now? (10 points)

b) Based on your understanding define opportunity cost. Justify your answer with an example. (20 points)

25) Your firm is one of the largest bakery’s in the area. As part of your risk management process, you are considering using options to hedge the price risk on your biggest input – wheat. You have determined that a price of R52/per ton would allow for you to keep the same profit margin as last year. The following wheat options offer a strike price of R50/per ton expiring in 1 month:
 Call options on wheat are selling at a premium of R0.87 per ton.
 Put options on wheat are selling for R0.72 per ton.
(a) Given the information above, will you need a call or a put option?
(b) If each option is for 100 tons, and you require 1000 tons of wheat, demonstrate the outcome if, at expiry, the spot price of wheat is (i) R40 per ton and (ii) R60 per ton.

Given the statistics for a small economy called Abua below, derive the GDP deflator and assert if there is evidence of inflation or otherwise.
Real GDP = $650 million
Nominal GDP = $400 million
Inflation rate = 9%
Unemployment rate = 15%

What is the present value of CD with 4% annual interest that matures in 1 year with the value of $3000? What is the future value? What factor would determine which value you chose to use?

11. Unsustained…… occurs when prices in the goods and services market are high relative to resource prices and other costs (a) economic recession (b) economic boom (c) inflation (d) deflation
12. Why do people hold M1? (a) To earn interest on their money (b) To carryout transactions (c) As a hedge against inflation (d) As a means to have enough liquid assets to buy bonds and other securities
13. Decreases in Aggregate Demand lead to …… and …. (a) boom, full employment (b) recession, cyclical unemployment (c) boom, cyclical unemployment (d) recession, full employment
14. The type of expectation that asserts that individuals make use of both present and past information to make future predictions is ……… expectation (a) rational (b) future (c) speculative (d) anticipated
15. …. in the exchange rate value of the nation’s currency will shift the Aggregate Demand curve inward. (a) Reduction (b) Shock (c) Increase (d) Boom

11. Unsustained…… occurs when prices in the goods and services market are high relative to resource prices and other costs (a) economic recession (b) economic boom (c) inflation (d) deflation
12. Why do people hold M1? (a) To earn interest on their money (b) To carryout transactions (c) As a hedge against inflation (d) As a means to have enough liquid assets to buy bonds and other securities
13. Decreases in Aggregate Demand lead to …… and …. (a) boom, full employment (b) recession, cyclical unemployment (c) boom, cyclical unemployment (d) recession, full employment
14. The type of expectation that asserts that individuals make use of both present and past information to make future predictions is ……… expectation (a) rational (b) future (c) speculative (d) anticipated
15. …. in the exchange rate value of the nation’s currency will shift the Aggregate Demand curve inward. (a) Reduction (b) Shock (c) Increase (d) Boom

Why economic protection in the world oil market regarded as the main reason for joining opec?

21. Open Market Operations, Reserve Ratio, Discount Rate and Stabilization Securities are …. (a) Qualitative measures of monetary policy (b) Quantitative measures of monetary policy (c) Fiscal policy measures (d) None of the above.
22. If the Central Bank reduces the bank rate, this will cause …… (a) commercial banks to reduce lending (b) commercial banks to merge (c) money supply to increase (d) money supply to reduce
23. A change in the real value of wealth that causes spending to change when the level of prices changes is known as: (a) interest rate effect (b) International-Substitution effect (c) Consumption effect (d) Real Balance effect
24. If the economy is in an inflationary period, what action would Fiscal authority most likely take? (a) Decrease taxes (b) Decrease the discount rate (c) Increase government spending (d) Increase taxes

Rural communities in Ghana are scattered,have smaller population and population densities and therefore it is economically unwise to provide them with social amenities to the expense of densely populated urban communities. In the light of the above
a.explained two reasons to agree with the above statement
b.explain three reasons in support of rural development