Economics Answers

Assuming that South Africa economy experience a severe recession due to COVID-19. The SARB makes use of monetary policy to increase AD to boost the production level (GDP).
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

If a R200 billion increases in investment spending creates R200 billion of new income in the first round of the multiplier process and R160 billion in the second round. Calculate:
a. the marginal propensity to consume (MPC).
b. the value of the expenditure multiplier in this closed economy.
3.3 Assuming a private closed economy whereby the marginal propensity to consume is 0.9 and investment spending decreases by R1000 billion. What will be the change on equilibrium GDP?
3.4 Suppose that the real GDP increase by R5,000 billion when government expenditure on the construction of new roads increase by R1,500 billion. What is the value of the marginal propensity to consume?
3.5 Assuming that the central government decides to cut taxes by R100 billion to stimulate the economy. The relevant marginal propensity to consume is 0.6 (60 percent). What will be the impact of such fiscal policy on equilibrium GDP?

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?

Consider 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)
13
MAE206D /April 2020
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 spendin

suppose all firms in a monopolistically competitive industry were merged into one large firm. would that new firm produce as many different brands?

Which of the following statements are correct?
a. If spending equals to production and income, there is no tendency for production and income to change
b. If spending is greater than production and income, the level of production and income will decrease
c. If spending is greater than production and income, the level of production and income will increase
d.If spending is less than production and income , the level of production and income will decrease
e. Spending may be equal to income, but smaller than production

1. b and e
2. a, c and e
3. a, b,c and e
4. a and d

Consider the following information to answer questions
Government spending = R550
Exports = R330
Autonomous consumption = R280
Autonomous imports = R170
Investment expenditure = R120
Marginal propensity to consume =0,75
Full employment level of income =R5700
A. Autonomous expenditure is equal to
1. R900
2.R960
3. R1 040
4. R1 110

B. What is the marginal propensity to save?
1. 1
2. 1,60
3. 0,25
4. 0,40

C. What is the value of the multiplier?
1. 2
2. 2,50
3. 4
4. 3

C. What is the equilibrium level of income Y*?
1. R5 120
2. R4 440
3. R4 400
4. R 5 260
D. An increase in government spending in the Keynesian model leads to ...
1. Demand that is greater than supply
2. Demand that is lesser than supply
3. Demand that equals supply
4. Decrease in production

A The equilibrium level of income is 17000m.The full employment income is 22000m and the marginal propensity to consume is 0,8.By how much should the investment expenditure change to bring national income to full employment equilibrium?
1. R1 000m
2. R1 000m
3. R4 000m
4. R5 000m
B. C= 100+0,80Y, what is the following savings function in the simple Keynesian model?
1. S= -100+0,20Y
2. S= 100+0,20Y
3. 0,20
4. 5
C. Which of the following statements is correct about the 45-degree line?
1. A negative relationship exist between aggregate spending and aggregate income
2. At any point above the 45-degree line, there is excess supply of goods and services
3. When aggregate spending than total production, firms experience an unplanned increase in their inventories and respond by lowering their production
4. The 45 -degree line shows the equality between the variable measured on the vertical axis and the variable measured on the horizontal axis

Suppose that the economy wide expected future marginal product of capital is MPKf = 20 - 0.02K, where K is the future capital stock. The depreciation rate of capital, d, is 20% per period. The current capital stock is 900 units of capital. The price of a unit of capital is 1 unit. Firms pay taxes equal to 15%. Suppose that the real interest rate is 10% per period. What are the values of the tax-adjusted user cost of capital, the desired future capital stock, and the desired level of investment?

The production function is given by the equation Y = K1/2 N1/2 and the wage rate is W = 0.5 and K = 4.
(i) Find the marginal benefit of adding an additional unit of labor to this economy.
(ii) Show using sketches the point of profit maximization.
(iii) What is the profit maximizing the number of workers hired?