ECO403 Assignment # 1 Solution

Solution 1


Nominal GDP      Real GDP      GDP reflector     Inflation rate

92575                   92575                100                   ---
94115                   82355               114.3               14.3%
145800                112450              129.7               15.4%

Formulas
For calculation nominal gdp Multiply Ps & Qs from same year llike 200*140+315*205=92575
Etc etc
Asy he bqi b calculate krni ha
Or real gdp me prices 1st wali use hongi or quantities sub ki baribari lagai jaengy
Llike 200*14+315*205=92575
200*70+315*217=82355
200*200+315*230=112450
GDP Deflator = Nominal GDP /Real GDP *10
Or inflation rate 1st --, or 2nd 114.3-100=14.3%
3rd 129.7-114.3=15.4%

Solution 2

labor force = employment * unemployment
= 164.5+8= 172.5 million
number of people not in labor force= not employed= 8 million
Labor-Force Participation Rate = Labor Force/Adult Population x 100
=172.5/329.8*100 = 52.30 million
Unemployment Rate = Number of Unemployed /Labor Force*100
=8 /17505*100= 4.64 million

ECO403 GDB Solution

“Consider IS curve and LM curve in an open economy as explained in a Mundell Flemming model. By having expansionary fiscal policy, there is an increase in government purchase and the IS curve shifts towards right. There is no change in LM curve and it remains vertical. Due to the shift of IS curve, the interest rate and income level remains same but the exchange rate varies”.

Required:
Keeping in view of open economy in the above scenario, if the government want to use expansionary fiscal policy to increase the income level then it cannot do that, why?

Solution:
If the govt. want to use expansionary fiscal policy to increase the income level then it cannot do that, because there is no change in the interest rate it is given and the LM is vertical LM curve, if use expansionary fiscal policy only the exchange rate become high and the income level remains fixed

ECO403 Assignment Solution

ECO403 Assignment Solution:
Question#1
What will be the effect of following events on the IS and LM curve?
A. A decrease in money demand caused by the introduction of a new
electronic money card
B. A decrease in the money supply
C. An increase in government taxes
Solution:
A. No effect on the IS curve and LM curve shifts to the downward
B:negative effect on the IS curve and LM curve shifts on the Upward
C : Is curve moves to the leftward and LM curve have no effect
Question#02
(A)In the Keynesian cross, assume that the consumption function is given by:
C = 100 + 0.5 (Y-T)
If planned investment = 100
Government purchases and taxes are both 50
Then calculate the equilibrium level of income.
Solution:(This is just 4 an idea plz complete all the steps)
you can use the formula for this:
Y= C + I + G
Y = 100 + 0.5(Y – 50) + 100 + 50
after calculation we get
Y = 450
and Y is the Equibilium level of income
(B) Suppose that money demand function is:
(M/P)d = 1000 – 100r
Where r is the interest rate in percentage, money supply (M) is 1000 and the
price level (P) is 2. What is the equilibrium interest rate?
Solution:
(M/P)d = 1000 – 100r
(1000 / 2) = 1000 - 100r
after calculation we get
r = 5

ECO403 Quiz

Final goods and services" are those that are:


Select correct option:
Double counted in the calculation of GDP.
Sold to ultimate or final purchasers.
Produced outside the country.
Used in the production of other goods and services.



Flexible exchange rates have the benefit of:

Select correct option:
Changing as the price levels and interest rates between countries change.
Being under the full control of the government.
Making international transactions easier and cheaper.
None of the given options.



A government wishing to reduce the level of unemployment through the use of fiscal policy would be most likely to:

Select correct option:
Boost the money supply by relaxing credit controls.
Cut interest rates.
Increase the size of the budget deficit.
Encourage a depreciation of the exchange rate.



The short run consumption function has:

Select correct option:
Rising Average Propensity to Consume.
Falling Average Propensity to Consume.
Constant Average Propensity to Consume.
First rising then falling Average Propensity to Consume.



All models of aggregate supply predict:

Select correct option:

An upward-sloping SRAS curve.
A vertical LRAS curve.
That the actual level of output is equal to its natural rate in the long run.
All of the given options.


Okun’s law states a relationship between the GDP gap and the:

Select correct option:
Trade deficit.
Government budget deficit.
Actual and expected inflation rate.
Actual unemployment rate and the natural rate of unemployment.



A common misperception about inflation is that it reduces real wages; this is:

Select correct option:
True only in the short run.
True only in the Long run.
True only in Command economies.
None of the given options.



Which of the following is TRUE regarding Constant returns to scale?

Select correct option:

Output doubles when the amounts of all factor inputs double
Output remains constant over time
The marginal productivity of labor equals the marginal productivity of capital
The marginal products of capital and labor do not change


In a poor country:

Select correct option:


The supply of capital is low.
The demand for capital is low.
Both the supply of and demand for capital are low.
None of the given options.


Trade restrictions have no effect on income under floating exchange rates because:

Select correct option:

Net exports increase but investment decreases.
The exchange rate rises to offset the initial increase in net exports.
The fall in imports equals the rise in exports.
All of the given optio