Macroeconomics Answers

The following data show the different combinations of coffee and cars that can be produced by an economy, given a particular amount of resources, and a particular state of technology. Draw the corresponding production possibility frontier to answer the questions below:

Type of Production Production Alternatives

A B C D E F

Coffee (tons) 100 80 60 40 20 0

Cars (units) 0 8 12 15 17 18

1.Given the production possibility frontier above,can the economy produce the combination of 50 tons of coffee and 5 units of cars?What does this combination suggest about the use of the resources?Are they fully utilized?

2.Given the production possibility frontier above,can the economy produce the combination of 80 tons of coffee and 12 units of cars,and why?

3.What is the opportunity cost of increasing coffee production from 40 to 60 tons per year,assuming that resources are fully utilized?

 Defi ne carefully the difference between movements along the AD curve and shifts of the AD curve. Explain why an increase in potential output would shift out the AS curve and lead to a movement along the AD curve. Explain why a tax cut would shift the AD curve outward (increase aggregate demand). 

To counteract the fact that an economy is performing above its potential, then to cool down the economy the central bank could:

a.  buy government securities/bonds on the open market and reduce the reserve requirement

b.  sell government securities/bonds on the open market and increase the reserve requirement

c.  buy government securities/bonds on the open market and raise the discount rate

d.  sell government securities on the open market and lower the discount rate

Which of the following would not be included in aggregate demand/GDP spending?

a. an increase in firms’ inventories.

b. purchases of goods by households.

c. depositing money at a bank.

d. firm's’ purchases of newly produced machinery

Total spending in the economy is most likely to increase by the largest amount if which of the following occur to government spending and taxes, all things equal?

Government Spending                  Taxes

a. Decrease                                       Increase

b. Decrease                                       No change

c. Increase                                         Increase

d Increase                                         Decrease 

For a bank,

a.        loans granted are liabilities and deposits by individuals are assets

c.         both loans granted  and deposits by individuals are assets

c.         both loans granted and deposits by individuals are liabilities

d.          loans granted are assets and deposits by individuals are liabilities

An expansionary monetary policy aimed at increasing economic activity will

a.        decrease the money supply and increase the interest rate

b.        increase the money supply and decrease aggregate demand

c.         increase the money supply and decrease the interest rate

d.        increase both the money supply and the interest rate 

In a period of high unemployment and in order to stimulate the economy a central bank would probably:

a  raise the discount rate

b  raise the required reserve ratio

c  buy bonds through open market operations

d  increase government spending and cut taxes

      If the central bank decreases reserve requirements to stimulate the economy, which of the following is most likely to happen to interest rates and gross domestic product all things equal?

Interest Rates                     GDP

a. Increase                            Decrease

b. Increase                            Increase

c. Decrease                           Decrease

d. Decrease                          Increase 

If the required reserve ratio is 5% and the central bank buys $200 worth of securities, the maximum increase in the money supply will be

a. $ 2,000       b. $ 4,000      c. $ 600          c. $ 1,000

Which one of the following statements is correct about the creation of money?

a.

Money is created by printing notes only.

b.

The quantity of money is dependent on demand for money and interest rate only.

c.

The SARB regulates the amount of money in circulation by controlling the interest rate.

d.

The SARB regulates the amount of money in circulation by controlling the inflation targeting range only and not the interest rate.

Why a nation’s overall balance of payment must equal zero? Explain.

Why should the income approach and the product approach to computing GDP both yield the same value? Explain.