Economics Answers

Identify and define the macroeconomic variables that can be used to measure whether the strategy was successful or not.

identify and define macro economic variables that can be used whether the strategy was successful or not

Given the following macroeconomic model.

Y = C + I0 + G0 Equilibrium Income (Y)

C = a + b(Y – T0) Consumption with Taxes (T), where: a > 0, 0 < b < 1

G = gY Government Spending function, where 0 < g < 1



What is the economic interpretation of the parameter "g"?

What parameter restrictions are necessary for a solution to exist?

Consider a simple Keynesian model in linear parametric form based on the following models:

i) Y = C + I0 + G0 Equilibrium Income (Y)

C = a + b(Y − T) Consumption with Taxes (T), where: a > 0, 0 < b < 1

T = d + tY Tax function, where: d > 0, 0 < t < 1

Note: I0 = exogenous income, G0 = exogenous govt. spending

ii) Y = C + I0 + G0 Equilibrium Income (Y)

C = a + b(Y – T0) Consumption with Taxes (T), where: a > 0, 0 < b < 1

G = gY Government Spending function, where 0 < g < 1



were taxes and government spending are both endogenous. Assume that a balanced budget is not necessary.

a) Solve for Y*.

b) Discuss the effect (increase or decrease) of an increase in the parameter "g" on Y*.

1. Given the following supply and demand model:
QD = a − bP + eY0 Demand
QS = −c + dP + fPr Supply
QD = QS Equilibrium
where: a, b, c, d, e > 0, Y0 is exogenous income, Pr is the exogenous price of a related good.
a) What are the necessary conditions for positive equilibrium prices and quantities?
b) What is the economic interpretation of the parameter "f"?
c) What will be effect (increase or decrease) of an increase in exogenous income on P*, the equilibrium price?

2) Given the following macroeconomic model.

Y = C + I0 + G0 Equilibrium Income (Y)

C = a + b(Y − T) Consumption with Taxes (T), where: a > 0, 0 < b < 1

T = d + tY Tax function, where: d > 0, 0 < t < 1

Note: I0 = exogenous income, G0 = exogenous govt. spending

Discuss the effect (increase or decrease of an increase in the tax rate, t, on the equilibrium income Y. using the effect of increasing t on the equilibrium solution.

The income effect of a price decrease …
1. refers to the influence of real income changes rather than nominal income changes on consumer purchases.
2. refers to the influence of nominal income changes rather than real income changes on consumer purchases.
3. measures the effect of both real and nominal income changes on consumer purchases.
4. does not relate to changes in real or nominal income, but rather to the perception of change in the mind of the consumer

The core elements of the Growth Employment and Redistribution (GEAR) strategy of the South African government in 1996, under the leadership of the then finance minister Trevor Manuel were amongst other things:  budget reform to strengthen the redistributive thrust of expenditure  monetary policy to prevent a resurgence of inflation  a reduction in tariffs to contain input prices and facilitate industrial restructuring, compensating partially for the exchange rate depreciation
1.1 With reference to the above, identify the macroeconomic objectives in these elements

The core elements of the Growth Employment and Redistribution (GEAR) strategy of the South African government in 1996, under the leadership of the then finance minister Trevor Manuel were amongst other things:  budget reform to strengthen the redistributive thrust of expenditure  monetary policy to prevent a resurgence of inflation  a reduction in tariffs to contain input prices and facilitate industrial restructuring, compensating partially for the exchange rate depreciation

With each tool in 1.2, provide a detailed explanation on how it can be measured. (11 marks)

how can macroeconomic variables be measured