Economics Answers

(I) Distinguish the difference between the following concepts in relation to company accounting 

(a) Bonus issue and Rights issues 

(b) Loan stock or Bonds

(c) Preference shares and Ordinary shares

(d) Redeemable and Irredeemable

(e) Reserves and Provisions

(f) Unlimited and limited liability

(g) Share capital and Share premium 

(II) Briefly explain the advantages and disadvantages of Bonus and rights issue 

(a) Define the term corporation and briefly discuss the major characteristics of a corporation 

(b) Write few notes on the following headings

(i) Authorisedshares 

(ii) Called-up capital.

(iii) Issued capital

(iv) Paid-up capital.

(v) Par Value

(c) Explain the meaning of treasury stock 

(d) Outline the characteristics of preference shares 

Consider an economy descried by the production function: 𝑌 = 𝐹(𝐾, 𝐿) = 𝐾^0.3 L^0.7

a) Derive the per-worker production function

b) Assuming no population growth or technological progress, find the steady state capita stock per worker, output per worker and consumption per worker as a

function of the saving rate and depreciation rate.

c) Define the Golden rule level of capital.

d) Under the Solow growth model, explain the effects of population growth on the steady-state level of capital and on output per worker (Show on a sketch).

Consider an economy descried by the production function: 𝑌 = 𝐹(𝐾, 𝐿) = 𝐾^0.3L0.7.

a) Derive the per-worker production function

b) Assuming no population growth or technological progress, find the steady state capita stock per worker, output per worker and consumption per worker as a

function of the saving rate and depreciation rate.

c) Define the Golden rule level of capital.

d) Under the Solow growth model, explain the effects of population growth on the steady-state level of capital and on output per worker (Show on a sketch).

Suppose the velocity of money (V) is constant, Money supply (M) is growing at 5% per year, output (Y) is growing at 2% per year and interest rate (r) is 4%. Using the knowledge of the quantity theory of money and the Fischer effect;

a) Solve for i (nominal interest rate)

b) If the Central Bank increases the money supply by 2 percentage point per year, find the change in nominal interest rate

c) Suppose the growth rate of Y falls to 1% per year, what will happen to inflation? What can the Central Bank do if it wishes to keep inflation constant?

Using the IS-LM model,

a) Illustrate a situation in which fiscal policy does not lead to crowding out

b) Illustrate the economic importance of the crowding out effect of fiscal policy

Explain the types of risks in 2008 financial crisis?

Suppose the market for widgets can be described by the following equations: Demand: P = 10 - Q Supply: P = Q - 4 where P is the price in dollars per unit and Q is the quantity in thousands of units. Then: a. What is the equilibrium price and quantity? [2] b. Suppose the government imposes a tax of $1 per unit to reduce widget consumption and raise government revenues. What will the new equilibrium quantity be? What price will the buyer pay? What amount per unit will the seller receive? [5] c. Suppose the government has a change of heart about the importance of widgets to the happiness of the American public. The tax is removed and a subsidy of $1 per unit granted to widget producers. What will the equilibrium quantity be? What price will the buyer pay? What amount per unit (including the subsidy) will the seller receive? What will be the total cost to the government? 

Suppose the government wants to limit imports of a certain good. Is it preferable to use an import quota or a tariff? Motivate why you recommend one over the other