Macroeconomics 1st Edition Errol Dsouza - Solutions

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To earn extra money in the summer, you grow tomatoes and sell them at a local farmers’ market for 30 cents per pound. By adding compost to your garden, you can increase your yield as shown in the accompanying table. If compost costs 50 cents per pound and your goal is to make as much profit as
Why do the keypad buttons on drive-up automated teller machines have Braille dots?Braille dots on elevator buttons and on the keypads of walk-up automated teller machines enable blind people to participate more fully in the normal flow of daily activity. But even though blind people can do many
Should a basketball team’s best player take all the team’s shots?A professional basketball team has a new assistant coach. The assistant notices that one player scores on a higher percentage of her shots than other players. Based on this information, the assistant suggests to the head coach
If the marginal benefit of each launch had been not $6 billion but $9 billion, how many rockets should SpaceX have launched?
How many rockets should SpaceX launch?SpaceX must decide how many rockets to launch. The benefit of each launch is estimated to be $6 billion, and the total cost of the program again depends on the number of launches as shown in Table 1.1. How many rockets should SpaceX launch?
Should SpaceX expand its launch program from four launches per year to five?SpaceX accountants have estimated that the gains from the company’s jumbo rocket launch program are currently $24 billion a year (an average of $6 billion per launch) and that its costs are currently $20 billion a year(an
How much should you eat at an all-you-can-eat restaurant?Sangam, an Indian restaurant in Philadelphia, offers an all-you-can-eat lunch buffet for $10. Customers pay $10 at the door, and no matter how many times they refill their plates, there is no additional charge. One day, as a goodwill gesture,
Refer to given information in Example 1.3, but this time your frequentflyer coupon expires in a week, so your only chance to use it will be for the Cancun trip. Should you use your coupon?
Should you use your frequent-flyer coupon to fly to Cancun for spring break?With spring break only a week away, you are still undecided about whether to go to Cancun with a group of classmates at the University of Iowa. The round-trip airfare from Cedar Rapids is $500, but you have a frequent-flyer
Should you walk downtown to save $10 on a $2,020 laptop computer?You are about to buy a $2,020 laptop computer at the nearby campus store when a friend tells you that the same computer is on sale at a downtown store for only $2,010. If the downtown store is half an hour’s walk away, where should
You would again save $10 by buying the wireless keyboard downtown rather than at the campus store, but your cost of making the trip is now$12, not $9. By how much would your economic surplus be smaller if you bought the keyboard downtown rather than at the campus store?
Should you walk downtown to save $10 on a $25 wireless keyboard?Imagine you are about to buy a $25 wireless keyboard at the nearby campus store when a friend tells you that the same keyboard is on sale at a downtown store for only $15. If the downtown store is a 30-minute walk away, where should
Why do poverty traps arise, and what can be done to lift an economy out of such traps?
What is absolute convergence and conditional conver- gence? Do economies converge? What accounts for this?
Why is the Solow model an example of an exogenous growth theory? What is endogenous growth and what are its advantages over exogenous growth as an explanation for the growth of an economy?
If there is no technological progress, how do we arrive at the savings rate associated with the maximum steady-state consumption per capita?
Why does an increase in the savings rate have only a temporary and no long-run effect on the growth rate? How does it impact the level of output?
What is the steady state of the Solow model? Comment on its stability properties.
State the elements of the Solow growth model. How does the capital stock per capita in this model grow over time?
What is the shape of the production function in per capita terms, and why?
Decompose the sources of economic growth and state the contribution of each source to growth.
What is economic growth and what are the stylized facts about economic growth?
In what way is commitment to a policymaking rule beneficial when rational expectations prevail? How can a policymaker achieve credibility that a rule will be adhered to?
How do rational expectations account for surprise infla-tions engineered by a central bank?
In what way may a central bank attempt to inflate an economy once the private sector forms its expectations through discretion in monetary policy?
What are the properties of the social welfare function that form the basis of the central bank policy?
What is time inconsistency? In what way is it an outcome of discretionary policymaking?
What is nominal GDP targeting and in what way does it smoothen out the conflict between the ultimate price level and output targets?
When supply shocks prevail, is it better to target the inter-est rate or the money supply and why?
Why are the choices of money stock and the interest rate irrelevant as intermediate targets in a deterministic envi-ronment, and which is superior in a stochastic environment subject to demand shocks?
What are the alternative intermediate targets of monetary policy that have been suggested and used by central banks?
What are intermediate targets of monetary policy and why are they employed by monetary authorities?
To what extent are credit-risk assessment skills and human capital responsible for the preference for government securities in bank portfolios?
What is the initial response of banks to the scaling down of preemptions of their portfolio and liberalization of interest rates on government securities?
Explain how banks decide on the equilibrium supply of bank loans and demand for deposits?
How do banks decide on the proportion of assets to hold in government securities and in loans?
What are the major financial reforms that have been initiated in India and what was the expected outcome of these reforms?
What is financial repression, and how does it impact aggregate savings and investment?
What are the functions of financial markets? What are the types of risk that banks face in the loan market?
In what way is the market for bank loans different from the bond markets and stock markets?
What are adverse selection and moral hazard and how do financial markets attempt to mitigate the consequences of their prevalence?
In what way are financial markets different from the market for goods and the market for money?
What is the value of evaluating the permanent current account position of an economy from a policy perspective?
When is the trade deficit associated with a permanent current account surplus or a permanent current account deficit?
How does the net foreign asset Investment position of the economy evolve over time?
An economy is running a current account deficit. The fiscal deficit is reduced by reducing public investment expenditure. With the aid of a diagram demonstrate what impact this can have on the current account and on GNP.
An economy is running a current account deficit. How does a reduction in the fiscal deficit affect the current account and the gross national product (GNP) in the medium run?
In the medium run how does investment expenditure affect the economy's supply of output?
How do the productivity of investment and the nature of shocks to the economy (temporary or permanent) affect the trade balance of an economy?
What motives result in a country running up trade imbalances and resorting to international capital markets?
Demonstrate how the intertemporal accounts of a nation can be written as: (a) the discounted value of the aggregate consumption equal to the discounted value of the national output net of investment, (b) the sum of the present value of the trade balance over time equal to zero, and (c) the sum of
What is the advantage of the intertemporal over the Mundell-Fleming approach to the current account?
If the policy objective is to attain the sustainability of defi-cits which definition of the deficit-fiscal or primary-is more meaningful and why? Why then do you think are targets for fiscal responsibility fixed in terms of the fiscal deficit and not the primary deficit?
The text demonstrated that the primary deficit in the recent past has been sustainable, Notice that the slope of the trend line of the fiscal deficit is mildly positive whereas the slope of the trend line of the primary deficit is negative.What policy decision(s) can result in a reduction of the
What do you notice about the trend of the primary deficit and the fiscal deficit over the period? Do the primary deficit and fiscal deficit diverge over time? If so, what is the root cause of the phenomenon that the difference between the fiscal deficit and the primary deficit increases over time?
Insert a trendline for each of the two line graphs that you created in Step 6.
Create a graph of the primary deficit and fiscal deficit as a percentage of GDP for the years 1980-1981 to 2005-2006.
Calculate the Primary Deficit and Fiscal Deficit as a percentage of GDP for each year. For the year 1980-1981 for instance, the primary deficit was INR 78.18 billion and the GDP was INR 1325.20 billion. The primary deficit as a per cent of GDP in 1980-1981 then was(78.18/1325.20) X 100 = 5.90. In a
Then click on "Table 1: Macro-economic Aggregates (at current prices)" and insert data on GDP at factor cost (Base 1999-2000) for the period 1980-1981 to 2005-2006.
Click on "Table 118: Combined Deficits of Central and State Governments" and insert data into a spreadsheet on the Gross Fiscal Deficit and the Gross Primary Deficit from 1980-1981 to 2005-2006.
Then under the classification of Annual data, click on"Handbook of Statistics on Indian Economy"
(a) Go to the home page of the Reserve Bank of India(URL: www.rbi.org.in/home.aspx).(b) Click on the "Database" icon.
Suppose there is an increase in the price level in an open economy with flexible exchange rates. What happens to the nominal exchange rate and the real exchange rate?Can an appreciation of the nominal exchange rate be associated with a depreciation of the real exchange rate?
What results in the LM curve becoming endogenous in the case of fixed exchange rates and the IS curve becoming endogenous in the case of flexible exchange rates?
An economy's exchange rate is fixed and has imperfect capital mobility. Analyse the effect on the economy in the short and long runs of a reduction in taxes.
Currently the US economy is subject to a consumption boom that has Increased it trade balance substantially.Suppose capital mobility is perfect and the dollar-renminbi exchange rate floats. The US government is trying to prevail upon Beijing to reduce government spending. Is this a good policy from
As an economy increasingly integrates with the world economy during this era of globalization, should it maintain fixed or floating exchange rates? Why?
An economy with a flexible exchange rate and perfect capital mobility is expanding too fast and overheating.Should the monetary or the fiscal authority take the lead in attempting to contain income growth?
Suppose an economy with a flexible exchange rate has perfect capital mobility. Explain how a contractionary fiscal policy affects the value of its currency and the composition of the balance of payments.
Suppose an economy with a fixed exchange rate allows capital flows without any controls. What is the impact of a contractionary fiscal policy on the economy?
Suppose an economy maintains a fixed exchange rate and its monetary policy involves no sterilization. How does a contractionary monetary policy affect the balance of payments and the aggregate income?
What is the BP schedule for an open economy? What determines its slope? What causes shifts in the BP curve?
How successful would aggregate demand management be in dealing with unemployment when firms pay efficiency wages or wage setting is influenced by insider power?
How does a supply shock affect the relationship between wages and employment in an insider-outsider model?
Distinguish between the hiring, retention, and firing phases of employment within a firm that is subject to insider power.
What sort of market power do insiders wield, and how does it impact on employment in the firm?
Differentiate between insiders, entrants, and outsiders in the labour market.
Why is the long-run aggregate supply curve inelastic even though the short-run aggregate supply curve is elastic?
What is staggered wage setting and why is it prevalent?
Why are nominal wages sticky in the short run? How would the aggregate supply curve differ in the situation when the wage adjustment is slow as compared to the case where the wage adjustment is fast?
Why do firms pay efficiency wages, and what prevents the market from clearing in an efficiency wage labour market?
Briefly outline the various approaches to explaining the phenomenon of Involuntary unemployment.
The real business cycle approach to macroeconomics ignores the demand side of the economy and portrays business cycles as a pure supply-side phenomenon. What is the advantage of this approach to macroeconomics?
Explain how productivity shocks affect real wages in the real business cycle model.
What are shocks? What differential impacts do demand and supply shocks have on the economy?
What are the main channels through which monetary policy may affect economic activity?
It is often argued that active policymaking is unnecessary as the economy has a tendency to self-correct. Elaborate on the pros and cons of this view.
How does the presence of lags inherent in the policy process affect the use of monetary versus fiscal policy?
Draw a mistaken expectations aggregate demand-aggregate supply diagram with the economy away from the natural rate of output. Describe how the economy gets to long-run equilibrium over time.
Suppose the AS curve of the economy is Keynesian.How does monetary and fiscal policy affect the level of investment in the economy? As investment adds to capacity, comment on the possible long-run impacts.
How can fiscal and monetary authorities affect the position of the AD curve of an economy?
What is aggregate demand and how is it determined?
Suppose that the responsiveness of investment and consumption to the interest rate reduces in the IS-LM set-up. Would the change in the interest rate be required to be larger or smaller in order to have the same final impact on aggregate income?
Suppose that in an economy with a balanced budget the government, in order to increase voter support, decides to temporarily reduce tax rates. After a year the tax rate will return to its original level. Meanwhile the government issues perpetual bonds to cover the cost of the tax cut.What would be
Demonstrate using the IS-LM model whether it may be necessary to have negative interest rates in order that the economy achieves a given level of income that policymakers seek.
"Tax financing of government expenditure is less expansionary than bond financing." Examine the conditions under which this proposition is true.
Under what circumstances is fiscal policy more effective in influencing the level of income in the economy than monetary policy and vice versa?
What factors restrict the effectiveness of using fiscal policy as a means to increasing aggregate income? When is fiscal policy most effective?
What makes the IS curve and the LM curve steeper, or more inelastic, and why?
Why is the LM curve a depiction of equilibrium in the money market? What causes the LM curve to shift to the right or left?

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Macroeconomics 1st Edition Errol Dsouza - Solutions

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