TECO103 - Principles of Economics - Economics Assignment Help

Assignment Task

Question 1

Suppose that the components of planned spending in an economy are C=500 +0.8(Y-T), I=1500, G=2000, X=0, T=0.25Y, where t is the fraction of income paid in taxes (the tax rate). As we will see in this problem, a tax system of this sort serves as an automatic stabiliser, because taxes collected automatically fall when incomes fall.

a) Find a short-run equilibrium output in this economy.

b) Calculate the multiplier.

c) Explain how reducing the size of the multiplier helps to stabilise the economy, holding constant the typical size of fluctuations in the components of exogenous expenditure.

Question 2

a) The Japanese yen trades at 110 yen per dollar and the British pounds trade at 0.62 pounds per dollar. What is the nominal exchange rate between the yen and the pound?

b) A Japanese-made computer costs 250 000 yen and a similar British-made computer costs £1500. Given the nominal exchange rate from part a), which computer is cheaper? 

c) From the perspective of the British find the real exchange rate in terms of computers. Based on the real exchange rate you found which country’s computers are more competitively priced?

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