1. Answer the following questions assuming known IS and LM curves.

1. Derive the associated aggregate demand (AD) curve.
2. Why does it have a negative slope?
3. What is the effect of an increase in taxes on the AD curve?
4. What is the effect of a decrease in real money balances on the AD curve?
     

1) If you want to know how an increase in the price of ice cream at the Next Door Ice Cream Shoppe affects the demand for frozen yogurt in your shop, you would compute the:

            (a)        price elasticity of demand

            (b)        income elasticity of demand

            (c)        cross-price elasticity of demand

            (d)       price elasticity of supply

2) In what industry structure is the mutual interdependence of the firms a key characteristic?

            (a)        perfect competition

            (b)        monopolistic competition

            (c)        oligopoly

            (d)       monopoly

3) Antitrust law is legislation passed for the stated purpose of

            (a)        reducing the profits of chain stores

            (b)        promoting U.S. banking practices in foreign countries

            (c)        controlling labor union practices in various states such as New York, California and Texas

            (d)       controlling monopoly power and preserving and promoting competition

If a tax is imposed on sellers of a good, who is more affected- buyers or sellers? Can the buyers avoid the tax altogether? Use a diagram to explain.

1. Define the Marshall-Lerner condition. What are the likely effects of devaluation during a recession when supply elasticities are high?

2. Explain the J-curve phenomenon. Consider an economy with a fixed exchange rate with a fixed price level. What is the effect of depreciation on equilibrium income and trade balance in the first six months after depreciation?

3. Define uncovered interest parity. What is the relationship among the forward exchange rate, the spot exchange rate, and the interest rate? Suppose the (1-year) interest rate on bank deposits is 2% in Canada and 1.75% in United States. If the (1-year) forward US$–C$ exchange rate is C$1.25 per US$ and the spot rate is C$1.2 per US$, will the C$ depreciation or appreciation against the US$ over one year, and by how much?

In the 2017 “Asempa” budget, several tax reforms were proposed including the removal of (i) 5% VAT/NHIL on real estate sales and (ii) excise tax on petroleum products. Focusing on these two taxes provide answers to the following questions.
i. Using the Harberger triangle, explain why this tax reforms were hailed as a source of relief (use appropriate graphs where necessary).

Consider a simple economy with two types of workers. There are capable workers (type A), constituting 70% of the population, with remaining workers (type B) being of average ability. There are two types of job opportunities as well, labeled Good and Bad. In a Bad job, either type of worker produces 20 units of output. In a Good job, Type A worker produces 80 units, and the Type B worker produces 0. The economy is doing well so there is enough demand for workers. This means that for each type of job companies must pay what they expect the employee to produce. Companies must hire each worker without observing his type and pay him before knowing his actual output. But Type A workers can signal their qualification by getting educated. For a Type A worker, the cost of getting educated to level n is 0.4n2, whereas for a Type B worker, it is n2. These costs are measured in the same units as output, and n must be an integer.

(a) What is the minimum level of n that will achieve separation?

(b) Now suppose the signal is made unavailable. Which kind of jobs will be filled by which kinds of workers and at what wages? Who will gain and who will lose from this change?

In April 2020, the U.S. national debts has exceeded $23.8 Trillion. It is rising much faster than the U.S. economy, and it will soar to more than $34 trillion in 2029, according to the budget office.

Why does the U.S. national debt continue to rise?

What is the impacts of a huge and growing U.S. national debt on the U.S. economy?

How to reduce the U.S. national debt?

Some economists claim that inflation is always a “monetary phenomenon.” What do they mean by this claim and are they correct?

How do you think recessions influence elections?

Explain, why Perfect Competition is regarded as the best market structure for the society?

The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits, $50 million in government bonds, and $200 million in loans. Show your bank’s T-account. What is the required reserve ratio? What is the money supply multiplier? Suppose a customer withdraws $10 million. Show your bank’s new T-account. Does your bank now still meet the minimum reserve requirement? If not, what should be done to resolve the issue? What will happen to the supply of money? by what amount?

What is the CSME?

What would you strengthen in the CSME?

(2) List the properties of indifference curves and explain the intuition behind each property (that is, why must the indifference curve obey this property)?

Provide two reasons why a country may not want to specialize totally in the production of the good in which it has a comparative advantage.