Macroeconomics Answers

Paul and Anita value consumption in period 0 (C0) and in period 1 (C1) using the same utility function u = ln(C0)+0.8In(C1). Paul's income in period 0 (y0) is 102 while that in period 1 (y1) is 132. Anita's income is 132 in period 0 and 99 in period 1. Both Paul and Anita pay 22 in taxes in period 0 and in period 1 (i.e. t0 =t1 = 22). Anita can borrow or save at the interest rater. However, everybody knows that Paul is dishonest; As a result, nobody is willing to lend to him. Of course, Paul can still save at the interest rate r. Suppose that r=0.1.

Suppose that the timing of taxes is changed: taxes in period o are reduced to t0 = 12 while those in period I are increased to t1 = 33.

c) How does this change in taxes affect Anita's wealth? Does it change Anita's optimal decisions (C0.C1.S0) from those in b)? Explain. Illustrate with a graph.

d) How does this change in taxes affect Paul's wealth? Does it change Paul's optimal decisions (C0.C1.S0) from those in a)? Explain. Illustrate with a graph.

Paul and Anita value consumption in period 0 (C0) and in period 1 (C1) using the same utility function u = ln(C0)+0.8In(C1). Paul's income in period 0 (y0) is 102 while that in period 1 (y1) is 132. Anita's income is 132 in period 0 and 99 in period 1. Both Paul and Anita pay 22 in taxes in period 0 and in period 1 (i.e. t0 =t1 = 22). Anita can borrow or save at the interest rater. However, everybody knows that Paul is dishonest; As a result, nobody is willing to lend to him. Of course, Paul can still save at the interest rate r. Suppose that r=0.1.

a) Determine how much money Paul would consume in period 0 and in period 1 if he was able to borrow. Determine his actual consumption in period 0 and in period 1. Illustrate both allocations on a graph. What is the cost of this credit constraint?

b) Determine Anita's optimal consumption plan. Find the value of so which allows Anita to achieve this plan.

In closed, private economy the level of planned investment is 300 and the savings function is s=-100+0.25y.the equilibrium level of income and consumption respectively is

Discuss whether a government should encourage an increase in savings.

The value of the multiplier associated with changes in autonomous spending is given by k.
a) Find the value of the multiplier when MPC=0.50, 0.75 and 0.80.
b) What is the relationship between the value of the multiplier and MPC?
c) Find the change in equilibrium level of output when there is a k10 000 increase in investment spending and MPC=0.50, 0.75 AND 0.80.

Malawi and Zambia each produce both tobacco and maize in thousands of tons, as shown below
Tobacco Maize
Malawi 20 200
Zambia 10 150
Malawi appears to have an absolute advantage in the production of both commodities. Would you advice that trade should still take place between the two countries? Justify your answer.

In a close private economy the level of planned investment is 300 and the savings function is S=-100 +0.25Y. The equilibrium level of income and consumption respectively is

How can an economy benefit from the removal of agricultural protection?

Effect of monetary theory on liquidity trap

macroeconomics is aggregate of what happen at micro level. Would it be possible for what happens at the macro level to differ from how economic agents would react to some stimulus at micro level.