1. Explain how pro-cyclical lending criteria applied by financial institutions could amplify…

1. Explain how pro-cyclical
lending criteria applied by financial institutions could amplify fluctuations
in real GDP.

2. What is meant by the paradox of
aggregates? Of what importance might they be for how we analyse macroeconomic
problems?

3. An economy is currently in
equilibrium. The following refer to elements in its national income accounts.

(a) What is the current
equilibrium level of national income?

(b) What is the level of
injections?

(c)

1. Explain how pro-cyclical
lending criteria applied by financial institutions could amplify fluctuations
in real GDP.

2. What is meant by the paradox of
aggregates? Of what importance might they be for how we analyse macroeconomic
problems?

3. An economy is currently in
equilibrium. The following refer to elements in its national income accounts.

(a) What is the current
equilibrium level of national income?

(b) What is the level of
injections?

(c) What is the level of
withdrawals?

(d) Assuming that tax revenues are
_7
billion, how much is the level of saving?

(e) If national income now rose to
_80
billion and, as a result, the consumption of domestically produced goods rose
to _58 billion, what is the mpcd ?

(f) What is the value of the
multiplier?

(g) Given an initial level of
national income of _80 billion, now assume that spending on exports rises by _4 billion,
spending on investment rises by _1 billion, while government expenditure falls by _2 billion. By
how much will national income change?

(h) Given this new level of
national income, assume that full employment is achieved at a national income
of _100 billion. Is there an inflationary or a deflationary gap?

(i) What is the size of this gap?

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