Economics Answers

The change in the R/$ exchange rate from R13.50 = $1 to R15.50 = $1 may …

• A. lead to a decline in imports and exports.
• B. lead to an increase in imports and a decrease in exports.
• C. lead to a decline in imports and an increase in exports.
• D. lead to an increase in imports and exports.

Suppose an economy has 10,000 people who are not working but looking and available for work and 90,000 people who are working. What is its unemployment rate?

Now suppose 4,000 of the people looking for work get discouraged and give up their searches. What happens to the unemployment rate? Would you interpret this as good news for the economy or bad news? Explain.

Suppose that a typical firm in a monopolistically competitive industry faces a demand curve given by:

q = 60 − (1/2)p, where q is quantity sold per week.

The firm’s marginal cost curve is given by: MC = 60.

1. How much will the firm produce in the short run?
   
2. What price will it charge?

Now we look at the role taxes play in determining equilibrium income. Suppose we have an 

economy of the type in Sections 9-4 and 9-5, described by the following functions:

C -

 50  .8YD

 −

I -

 70 

 −−G -

 200

 −−TR -

 100

 t -

 .20 

 a. Calculate the equilibrium level of income and the multiplier in this model. 

 b. Calculate also the budget surplus, BS.

c. Suppose that t increases to .25. What is the new equilibrium income? The new multiplier? 

 d. Calculate the change in the budget surplus. Would you expect the change in the surplus 

to be more or less if c -

 .9 rather than .8? 

 e. Can you explain why the multiplier is 1 when t -

 1?

The present value of an annuity of R pesos payable annually for 8 years, with the first payment at the end of 10 years, is 187, 481.25. Draw the cash flow diagram and find the value of R if money is worth 5%.

How much money must you invest today in order to withdraw 1, 000 pesos per year for 10 years if interest rate is 12%?

Consider the utility function 𝑈(𝑥, 𝑦) = 𝑥𝑦 + 𝑥, with 𝑀𝑈𝑥 = 𝑦 + 1 and 𝑀𝑈𝑦 = 𝑥. (Verify these.) 

a. is the assumption of “more is better” (non-satiation) satisfied for both goods x and y? 

b. does the marginal utility of 𝑥 diminish, remain constant, or increase as the consumer buys more 𝑥? Explain. 

c. what is 𝑀𝑅𝑆𝑥,𝑦? 

d. is 𝑀𝑅𝑆𝑥,𝑦 diminishing, constant, or increasing as the consumer substitutes 𝑥 for 𝑦 along an indifference curve? 

e. on a graph with 𝑥 on the horizontal axis and 𝑦 on the vertical axis, draw a typical indifference curve (not necessarily exactly to scale, but should reflect whether 𝑀𝑅𝑆𝑥,𝑦 is diminishing or not). Label the curve as 𝑈1. 

f. on the same graph, draw a second indifference curve 𝑈2, where 𝑈2 > 𝑈1