Economics Answers

Suppose that the economy is characterised by the following behavioural equations:
C = C0 + c1Yd
Where:
C0 = 280
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MAE206D /April 2020
I = 270
G = 300
T = 200
Marginal Propensity to Save (MPS) is 0.4 (or 40%)
Solve for:
a. equilibrium GDP (Y).
b. disposable income (Yd).
c. consumption spending (C).

Suppose that the market for water is perfectly competitive. Demand is described by Q = 13-P, and supply by P = 1 + (Q/2)

Assume Aduhene economy does not trade with the outside world. In a given fiscal year, households spent 80% of their disposable income on consumption in addition to 600 consumption expenditure which is independent of income. Total government expenditure of 900 was supposed to be financed from a proportion tax levy of 40% on national income and a lump sum tax of 450. Total private investment spending is 700. Given that aggregate spending is equal to aggregate output.
1. Determine the value of the multiplier
2. Find the equilibrium level of output

1. Fiscal policy refers to.................
2. When a deficit, surplus or debt is referred to as "general government" this means.............
3. Fiscal stance refers to.......
4. Which of the following is not an automatic fiscal stabilizer
a. Income support
b. VAT
c. Unemployment benefits
d. Government expenditure on road building programs

The firm's fixed cost is given as #1000 and over head coat of #12 per CD produced. Given the demand function for the firm
P=30-0.2√q
Where q is quantity produces and p is price. If the firm aims profit (π) of #20000 per month. Howany quantity (q) should be produced to realize this firm?

Assuming that South Africa economy experience a high level of inflation. The
SARB makes use of monetary policy to decrease the inflation rate.
a. Mention one of the instruments of monetary policy and describe how the
SARB will manipulate it.
b. Explain by the use of graphs, the impact of such monetary policy on
aggregate output. In your explanation, describe the interaction between the
Money market, IS-LM and AD-AS Model.

So far, we have been assuming that the fiscal policy variable T is independent of
the level of income (exogenous). In the real world, however, this is not the case.
Taxes typically depend on the level of income, so tax revenue tends to be higher
when income is higher. In this problem, we examine how this automatic response
of taxes can help reduce the impact of changes in autonomous spending on
output.
Consider the following model of the economy:
C = C0 + c1Yd
T = t0 + t1Y
Yd = Y - T
G and I are both constant (exogenous).
a. Is t1 (marginal propensity to tax) greater or less than one? Explain.
b. Solve for equilibrium output.
c. What is the multiplier? Does the economy respond more to changes in
autonomous spending when t1 is zero or when t1 is positive? Demonstrate.

8Consider first the goods market model with constant investment that we saw in
Chapter 3. Consumption is given by:
C = Co + c1(Y-T)
And I, G and T are given.
a. Solve for equilibrium output. What is the value of the multiplier?
Now let investment depend on both sales and the interest rate:
I = b0 + b1Y -b2i
b. Solve for equilibrium output using the methods learned in chapter 3. At a
given interest rate, why is the effect of a change in autonomous spending
bigger than what it was in part (a)? Why? (Assume c1 + b1 = 1)
c.Solve for equilibrium level of investment.
d. Let’s go behind the scene in the monetary market. Use the equilibrium in the
money market M/P = d1Y – d2i to solve for the equilibrium level of the real
money supply.
How does the real money supply vary with government spending?

Consider the following IS-LM model:
C = Co + c1(Y-T)
I = b0 + b1Y -b2i
M/P = d1Y – d2i
a. Solve for equilibrium output. Assume (Assume c1 + b1 < 1).
Now let investment depend on both sales and the interest rate:
b. Solve for equilibrium level of interest rate.
Let’s go behind the scene in the monetary market. Use the equilibrium in the
money market M/P = d1Y – d2i to solve for the equilibrium level of the real money
supply.
How does the real money supply vary with government spending?

What is comparative advantage?