Questions.

Using a Phillips curve diagram, illustrate how a reduction in the rate of growth of money supply may lead to a reduction in the rate of inflation. Use the labels LRPC and SRPC for long run and short run Phillips curves respectively. |34 Use the following data for a hypothetical Keynesian economy to answer the questions below. Consumption expenditure is f425 million plus 80% of disposable national income. The tax rate is 15% of national income. Investment expenditure is f265 million. Government expenditure is f210 million. Export expenditure is f230 million. Imports are 10% of national income. (() Calculate the level of consumption expenditure when GDP is $2400 million. [1] (ii) Calculate the surplus or deficit on the balance of trade when GDP is $2400 million. [1] (iii) Calculate the equilibrium level of GDP. 35 (i) Outline the economic benefits which arise from international trade. [2] (ii) Explain the expression the terms of trade . [2] [Total 4] 36 (() Describe the relationship between the marginal productivity of labour and short run marginal costs. (ii) Describe the relationship between average long run costs of production and (a) economies of scale (b) diseconomies of scale 37 (i) Describe an indifference curve and discuss briefly the assumptions which underpin indifference curve analysis. [5] (ii) Use indifference curve analysis to explain the effect of a price change on the demand for a normal good and a Giffen good