Macroeconomics Answers

Work out questions1.Given the following information (in millions of Birr)Government final consumption expenditure = 1400Change in stocks = 210Private final consumption expenditure = 820Net domestic capital formation = 275Exports = 175Imports = 225Depreciation = 80Factor income to abroad = 78Factor income from abroad = 194FindA.GDP by expenditure approach(2 Point)B.GNP(2 point)C.NNP(2 point)

How would you describe the relation among interest rate (specify which one), GDP, unemployment rate, value of assets (common stocks, bonds, real estate etc.), firms‘ investment (you can add whatever variable you find relevant)?

Could you make a list and provide a brief description of some measures adopted by governments (/central banks) worldwide to support economy during Covid-19 pandemy? Explain the logic behind these monetary/fiscal- policy instruments using IS-LM model.

Could you explain what „yield to maturity“ of a bond measures? How could we „read it“ as a measure of risk?

All of the following will shift the investment demand curve to the right

EXCEPT

A. A decrease in the corporate income taxes

B. An increase in the productivity of new capital

C. An increase in real interest rates

D. An increase in corporate profits

The national poultry producers published the following estimates of demand and supply relationships for plucked chicken:

QD = 60.000 – 10.000P

QS = 20.000P

a) Calculate the perfect competition equilibrium price and quantity that will result in the market for plucked chicken (6marks)

b) If the poultry industry was organized as a cartel, calculate the price and quantity that would maximize profits for cartel members.

(Hint: The Total Revenue function for the cartel would be: TR= 6Q – 0.0001Q2, and the Supply function could also be expressed as follows: P= 0.00005Q) (4.5marks)

c) Comparing your answers in parts a) and b), what is the effect on price and output in this market when the cartel is allowed to operate? What is the effect on consumer surplus (do not calculate, only describe/explain)? (4.5 marks)

Imagine a society that produces military goods and consumer goods, which we’ll call

“guns” and “butter.”

A. Draw a production possibilities frontier for guns and butter. Using the concept of

opportunity cost, explain why it most likely has a bowed-out shape.

B. Show a point that is impossible for the economy to achieve. Show a point that is feasible

but inefficient.

C. Imagine that the society has two political parties, called the ABC (who want a strong

military) and the XYZ (who want a smaller military). Show a point on your production

possibilities frontier that the ABC might choose and a point that the XYZ might choose.

D. Imagine that an aggressive neighbouring country reduces the size of its military. As a

result, both the ABC and the XYZ reduce their desired production of guns by the same

amount. Which party would get the bigger “peace dividend,” measured.

1. now we look at the role taxes play in determining equilibrium income. Suppose we have an economy described by the following functions:

C = 500 + 0.8YD

I  = 700

G = 300

TR = 100

TA =  400

NX = -100

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

b. Calculate also the budget surplus, BS.

c. Suppose that TA increases to 500. What is the new equilibrium income? 

Suppose that the seller decrease Price for his/her good by5 percent.Discuss how total revenue changes when 1) ed=0.3 2) end =1 3). ed =1.5

The college graduates of 2000 could hardly have asked for better luck. The unemployment rate lowered to 4.1% in May 2000 roughly the lowest level in a generation and employers were literally dying for new hires.Set up salaries rose many graduating seniors had many job offers and some firms even offered $10000- $20000 bonuses to students who signed the dotted line. 3 years later the job market for the Class of 2003 was rather different US economic growth had slowed to a crawl and then to a halt. Firms that had stocked up on recent college grads in the tighter labour markets of 1998-2000 found themselves with more than they knew what to do with in 2002 and 2003.They weren’t eager to hire more. Bonuses and other perks died job offers became thinner With the unemployment rate around 6% in May and June of 2003, the job market was far from the worst ever. But it was nothing like the glory days of 2000. Examine 2 fiscal policies and 2 monetary policies that the US government may have used to correct this situation.