PLEASE EXPLAIN !!!!!!!!!! PLEASE EXPLAIN !!!!!!!!!! PLEASE EXPLAIN !!!!!!!!!! PL
ID: 1216107 • Letter: P
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PLEASE EXPLAIN !!!!!!!!!! PLEASE EXPLAIN !!!!!!!!!! PLEASE EXPLAIN !!!!!!!!!! PLEASE EXPLAIN !!!!!!!!!! PLEASE EXPLAIN !!!!!!!!!!
46. The figure bellow illustrates the reaction of the economy in the AS-AD model for an open economy (initial shift from point (1) to point (2) and subsequent reaction of the economy towards point (3)). Which of following is correct?
a) The figure shows the reaction of the economy to the fiscal expansion under fixed exchange rate regime.
b) The figure shows the reaction of the economy to the fiscal expansion under floating exchange rate regime.
c) The figure shows the reaction of the economy to the monetary expansion under fixed exchange rate regime.
d) At point (2) there is combination of the internal and external imbalance of the economy.
e) When shifting from point (1) to point (2) the exchange rate depreciates.
47. Theory of rational expectation assumes or argues that:
a) Prediction errors are always equal to zero.
b) Errors in prediction (or expectations) of some variable could be on average different from zero only if there is some relevant economic theory that explains developments of this variable.
c) Publicly available recommendations of analysts could be very good guideline for investments on the capital markets (in the case when these markets are efficient).
d) Errors in prediction (or expectations) cannot be correlated with any other information available at the time of construction of the prediction.
e) For any two different future moments the errors in prediction of some variable in those periods positively correlated (if the shock appears in one moment there is positive probability that it appears also in the second).
48.Consider the model of consumption according to Irving Fisher for two periods, income in each period is Y1=20 000 and Y2=15 000, respectively, and the interest rate r is 50%. It therefore holds that:
a) Maximum possible consumption in the first period is in interval [25; 30)
b) Maximum possible consumption in the second period is in interval [25; 30)
c) Maximum possible consumption in the first period is in interval [30; 40)
d) Maximum possible consumption in the second period is in interval [30; 40)
e) Maximum possible consumption in the first period is in interval [40; 50)
c) MPL+MPK units
d) MPL . MPK units
50.For efficiency of fiscal and monetary policies (in the sense of influencing output) in the IS-LM model it holds that:
a) Efficiency of fiscal policy falls with increasing marginal propensity to consume.
b) Efficiency of monetary policy increases with falling tax rate.
c) Efficiency of fiscal policy falls with falling sensitivity of investment to the interest rate.
d) Efficiency of monetary policy increases with increasing sensitivity of the money demand to output.
e) Efficiency of fiscal policy increases with fall of sensitivity of the money demand to the interest rate.
AS Y*Explanation / Answer
47The theory of rational expectations says that the actual price will only deviate from the expectation if there is an 'information shock' caused by information unforeseeable at the time expectations were formed. In other words, ex ante the price is anticipated to equal its rational expectation:
[P=P^*+epsilon]
[E[P]=P^*]
where [P^*] is the rational expectation and [epsilon] is the random error term, which has an expected value of zero, and is independent of [P^*]
48.Fisher two-period model, the consumer achieves his or her optimum combination of current and future consumption by selecting the combination on his or her highest indifference curve that is tangent to his or her budget constraint. In Irving Fisher's two-period model, if the consumer is initially a saver and the interest rate and first-period consumption increase, then we can conclude that the income effect was greater than the substitution effect. In Irving Fisher's two-period model, if the consumer is initially saving in period one and the real interest rate rises, then first-period consumption will: either rise or fall while fall in case of other way round.
46.Monetary Policy- Increase in the Real money stock shifts LM curve to the right. the process of adjustment to the monetary expansion. At the initial equilibrium point, 1, the increase in the money supply creates an excess supply of money to which the public adjusts by trying to buy other assets. In the process, asset prices increase and yields decline. Because money and asset markets adjust rapidly, we move immediately to point 2, where the money market clears and where the public is willing to hold the larger real quantity of money because the interest rate has declined sufficiently. At point 2, however, there is an excess demand for goods.
49.If the output and the input are infinitely divisible, so the marginal "units" are infinitesimal, the marginal product is the mathematical derivative of the production function with respect to that input. Suppose a firm's output Y is given by the production function
[Y=F(K,L)]
where K and L are inputs to production (say, capital and labor). Then the marginal product of capital (MPK) and marginal product of labor (MPL) are given by:
[MPK= rac{partial F}{partial K}]
[MPL= rac{partial F}{partial L}] .
50.IS-LM model shows that expansionary fiscal policy :The IS curve represents equilibrium in the goods market. The curve is given by:Y = C(Y T) + rI )( + G )The LM curve represents money market equilibrium. The curve is given by: L Y r),( P M = The intersection of the two curves determines the unique combination of Y and r that satisfies equilibrium in both markets. Consumption function: ( ) C = C0 + c Y T Where C0 >0 is a constant and 0 < c < 1 is the Marginal Propensity to Consume. Y is real income and T is the tax level, so (Y-T) is the disposable income. Investment function: I = I br 0 Where I0 >0 is a constant and b > 0 measures the responsiveness of investments to the interest rate. Government expenditure is exogenous and equal to G.
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