Economics Answers

Use an IS-LM diagram to illustrate Krugman’s contention that fiscal policy is more effective as a macroeconomic policy tool when compared to monetary policy, given that the economy is in a liquidity trap.

1. Briefly characterize the classical orientation of The Structural Stagnation Thesis (from Martin Wolf, Chapters 5, 6 or the Structural Stagnation Policy Dilemma chapter 28—R1 referenced in Final Exam Study Folder). Use Aggregate Supply and Aggregate Demand (AS/AD) analysis to show how this school portrays globalization as an economic force that limits the potential GDP and makes fiscal policy less effective during recessions

Explain Karl Marx’s labor theory of value. In your explanation be sure to expand on the
process of extended reproduction in the circulation of commodities (from C-M-C to eventually
M-C-M’). Explain the component parts of value (c,v,s) and the rate of surplus value. What
determines the rate of surplus value?

What was Leon Walras hoping to prove through the development of a general equilibrium
theory of markets? What are the properties of a general competitive equilibrium? Why is it
considered a state of efficiency? What does efficiency, in the sense of a Pareto Optimum, mean?
Did he prove the existence of a general competitive equilibrium?

Explain Alfred Marshall’s theory of a long run (long period) competitive equilibrium (the
theory still used to this day to explain the long-run outcome of perfectly competitive markets).
What is the relationship between the price of a commodity and its unit cost in the long run? What
are the processes that force market prices toward that long run outcome? Does utility play a role
in the determination of price in the long run?

Explain Thorstein Veblen’s theory of consumption. Is economic behavior, and consumption in
particular, driven by utilitarian impulses or socio-cultural factors? What is the point of
conspicuous consumption and conspicuous leisure? What is emulative consumption and
emulative leisure? What role do envy and invidious distinctions play in this process? Does this
lead to a state of happiness or misery? What does this imply for the presumed efficiency (or lack
of waste) of capitalist society?

Explain John Maynard Keynes’s concept of effective demand. How is the employment of
labor explained in this theory? How does this explanation differ from the neoclassical
interpretation of the labor market? Explain, using Keynes’s concept of effective demand, why
falling wages, in the context of unemployment, might not lead to the full employment of labor.

We always hear that Bill Gates has got a lot of money, my argument is whether
Bill Gates would be able to feed Uganda or Kenya for one day with his money?

An investor is considering the purchase of a share of a company .The stock will pay a$ 3 dividend a year from today.This dividend is expected to grow at 10 % per year for the unforeseeable future .The investor thinks that the required return on the value of this stock is 15%. Given this assessment calculate the value of a share of the company's stock.

(i) Find the price of bond with a coupon rate of 12% having 5 years to maturity. Its par value is 10,000 Br and the discount rate is 12%.
(ii) Supposing interest rates fall to 8% what will be the price of the bond?