Economics Answers

Suppose due to a war in a neighbouring country, the country received refugees
which increased the labour force. Also, there is a huge reduction in global oil prices.
By using the Aggregate Supply curve, show the possible effects of these two changes
on the price level and aggregate output in the Short-Run. Explain each step in your
graph.

Scenario 1: Rabbit Ltd has, in the past always depreciated its factory buildings over 25 years. As a result of new information obtained by the company during the current year a decision was made to reduce the expected life of the buildings to 18 years.
Scenario 2: During the preparation of the financial statements it was discovered that a flood occurred in the previous financial year that destroyed some raw materials which were stored off-site and that were expected to have a long useful life. The materials were uninsured. No expense was recorded in the previous year in relation to the flood damage. The material was valued at $75000 and the expense is considered to be material and will be permitted as a deduction for tax purposes. The tax rate is 30 per cent.
Required
Identify which of the two scenarios outlined above is a change in accounting estimate and which is a prior period error. Also provide any necessary journal entries.

Assume company ABC’s only product is priced at K20 per unit
and its variable costs amount to K15 per unit while fixed costs
are K3,600.
a. Compute the quantity required to achieve a profit of K2
per unit (5marks)
b. Define the term: Degree of Operating Leverage and how it
can be computed (5marks)

What combination of monetary and fiscal policy should the government use if it wants to reduce the budget deficit, but without reducing the output? Explain using a diagram.

Kirkland is a small country described by the following, Y =8000;G=2500;T =2000;
C = 1000 + .66(Y − T )
I = 1200 − 100r
Y =C+I+G
(a) For Kirkland, compute private saving, public saving and national
saving?
(b) Find the equilibrium interest rate?
1
(c) Suppose G is reduced by 500, compute private saving, public sav- ing and national saving?
(d) Find the new equilibrium interest rate?

The price elasticity of gasoline supply in the U.S is 0.4. If the price of gasoline rises by 8% , what is the expected change in the quantity of gasoline supplied in the U.S?

1. A privately owned summer camp for youngsters hasthe followingdata for a 12-weeksession:
Charge per camper $120 per week
Fixed costs $48,000 per session
Variable cost per camper $80 per week
Capacity 200 campers

(a) Develop the mathematical relationships for totalcost and total revenue.
(b) What is the total number of campers that willallow the camp to just break even?
(c) What is the profit or loss for the 12-week sessionif the camp operates at 80% capacity?

A. To be counted into the pool of unemployment, a person must be
1. any age above 15 years
2. discouraged work seeker
3. economically active
4. hired and looking for a second job
B. Unemployment can decrease if
1. there is an economic recession
2. education system improves
3. investment spending increase
4. aggregate demand decrease
C.The original Phillip curve
1. indicates the inverse relationship between the inflation rate and the unemployment rate
2. Illustrate the positive relationship between the inflation rate and the unemployment rate
3. shows the phenomenon stagflation
4. shifts to the right when aggregate demand increases

A. If AS curve shifts to the left as productivity decreases, it will result in a combination of
1. lower output, higher unemployment, and higher inflation
2. lower output, lower unemployment, and lower inflation
3. higher output, lower unemployment , and lower inflation
4. higher output, higher unemployment and higher inflation.

B. Inflation is likely to
1. reduce the cost of living
2. raise the standard of living
3. reduce the purchasing power of currency
4. increase the purchasing power of a currency
C. In AD-AS model, an expansionary fiscal policy may lead to a
1. rightward shift of aggregate demand and demand-pull inflation
2. leftward shift of aggregate demand and demand-pull inflation
3. rightward shift of aggregate supply and cost- push inflation
4. leftward shift of aggregate supply and cost-push inflation

If you were following into current year:

the budget deficit is 3% of the GDP.

the real economic growth is 6%

unemployment rate is 3,5%.

supply of money is growing at constant rate of 3,5% per year.

demand for money is constant

price of oil increased by 9%

the deficit of the balance of trade is 7% of the GDP

Based on the quantity theory of money the inflation rate is ____%?