Macroeconomics Answers

Imagine that you are a policymaker trying to decide whether to reduce the rate of inflation. To make an intelligent decision, what would you need to know about inflation, unemployment, and the tradeoff between them?

Assume that Malaysia is a closed economy without a government. Now under new leadership they decided to introduce government and taxation into the economy. Use the following information to solve the question.

Autonomous consumption = 2 000 million

Autonomous investment = 1 500 million

Autonomous government spending = 1 200 million

Full employment = 6 500 million

c = 0.65

t = 0.15

The multiplier is…… (round to 1 decimal)

Assume that the multiplier has a value of 3. Now assume that the government decides to increase aggregate demand in an attempt to reduce unemployment. It raises government expenditure by N100 million with no increase in taxes. Firms, anticipating a rise in their sales, increase investment by N200 million, of which N50 million consists of purchases of foreign machinery. How much will national income rise

 Two firms together employ 20 units of labour and 12 units of capital. Firm A which uses 5 units of labour and 8 units of capital, the marginal products of labour and capital are MPLA=20 and MPKA=40. For firm B, which uses 15 units of labour and 4 units of capital, the marginal products are MPLB=60 and MPKB=30.

i)             Draw an Edgeworth box for inputs that shows the allocation of inputs across these two firms.                            [5 Marks]

Is this allocation of inputs economically efficient? Why or why not? If it is not, identify a reallocation of inputs that would allow both firms to increase their outputs.