02 Jun Question 1. The economy of Microland is producing the following three goods:
Question
1. The economy of Microland is producing the following three goods:
Output 2000 Output 2001 Price 2000 Price 2001
Pens 6 5 $1.00 $0.50
Pencils 10 12 $0.50 $1.00
Binders 2 3 $5.00 $5.00
(a) Calculate the nominal GDP for 2000.
(b) Calculate real GDP for 2001 using 2000 as the base year.
(c) Calculate the percentage increase in Real GDP from 2000 to 2001 using 2000 as the base year.
(d) Calculate Real GDP in 2000 using 2001 as the base year.
(e) Calculate the percentage increase in Real GDP from 2000 to 2001 using 2001 as the base year.
2. The economy of Macroland is represented by the following:
C=100+0.5Yd, T=2000, G=2000, I=200
(a) Calculate the equilibrium level of output. Graph your solution.
(b) If the government spending increases by 100 what is the new equilibrium level of output? Use the government spending multiplier.
(c) If the government increases taxes by 100 what is the new equilibrium level of output? Use the tax multiplier.
(d) If the government increases taxes and spending by 100 what is the new equilibrium level of output?
(e) Calculate the equilibrium level of output in case where taxes depend on income according to the following: T=-50+0.25Y.
3. By using clearly labeled AD and AS curves to illustrate your points, discuss the impacts of the following events on the equilibrium price level and equilibrium level of output in the short run.
(a) An expansionary fiscal policy with the economy operating near full capacity.
(b) A contractionary monetary policy during a period of high unemployment and excess industrial capacity.
(c) A strong hurricane destroys energy plants which causes energy prices to increase, assuming that the Fed attempts to keep interest rates constant by accommodating inflation.
(d) A contractionary fiscal policy supported by a cooperative Fed acting to keep output from falling.
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