WOLDIA UNIVERSITY

FACULTY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

Macroeconomics Group assignment out of 20 % ( paper 10% & presentation 10%)

Note

 Direct copy paste from books, materials and Duplication from others are strictly forbidden

 Every group member should participate in the assignment since there is presentation
 Submission and Presentation date: march 17 2016 (Tentative date)

 Should write a maximum of eight and minimum of five pages

1. Suppose that you are an economic advisor of Ethiopia government and you are allowed
to advise the current macroeconomic fluctuation of Ethiopia. If so what solutions you
would recommend to the governmentt that should follow to adjust the current inflation
and unemployment problem in the short run and long run?

2. Briefly discuss and review about the economic status of Ethiopia in 2015 E.C from
inflation, budget deficit, trade balance, sectoral contribution to GDP and job opportunity
perspective.

3. Suppose a government cut taxes which causes a budget deficit. What measure should
Central Bank take to regain the effect of the tax cut if government uses a marginal tax
rate to collect taxes from income? In the presence of a budget deficit, if Central Bank
pursues a tight monetary policy. What effect is this policy mix likely to have?

4. Suppose Ethiopia's economy is growing at 7.2 % and the total GDP of the country is over
120 billion dollars. Even if the country achieves this high growth rate, standards of living
of most people in the country are not yet improving. Why? Briefly discuss the limitation
of GDP in the welfare aspects of the society.

5. Suppose that you are one of Ethiopia's economic policy makers and you are allowed to
advise the exchange rate system that the nation should follow. Then, which exchange
rate system (mange floating and fixed exchange rate) will you prefer and recommend to
the nation? Why? Justify!
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Target group:3rd year Statistics regular Students

6. Briefly discuss about the factors affect the short run and long run aggregate supply curve
and the short and long run equilibrium level of aggregate demand and aggregate supply
curve? Using graph

7. What is the main difference between Keynesian consumption theorem and Franco
Modigliani consumption theorem?

8. Consider the economy of Ethiopia.

 The consumption function is given by C = 200 + 0.75(Y − T ).

 The investment function is I = 200 − 25r.

 Government purchases and taxes are both 100.

 The money demand function is (M/P)d = Y − 100r.

 The money supply M is 1,000 and the price level P is 2.

Based on the above information,

a. Drive the IS function and graph the IS curve?

b. For this economy, graph the LM curve?
c. Find the equilibrium interest rate “r” and the equilibrium level of income “Y”.
d. Suppose that government purchases are raised from 100 to 150. How much does
the IS curve shift? What are the new equilibrium interest rate and level of
income?
e. Suppose instead that the money supply is raised from 1,000 to 1,200. How much
does the LM curve shift? What are the new equilibrium interest rate and level of
income?
f. With the initial values for monetary and fiscal policy, suppose that the price level
rises from 2 to 4. What happens? What are the new equilibrium interest rate and
level of income?
g. Derive and graph an equation for the aaggregate demand curve. What happens to
this aggregate demand curve if fiscal or monetary policy changes, as in parts (d)
and (e)?

Target group:3rd year Statistics regular Students

Year Qx Qy QZ Qw Qt Px Py Pz Pw Pt

2010 250 850 600 1500 50 60 10 6000 450 350

2011 210 950 610 2600 70 65 12 6500 470 370

2012 200 650 750 1800 60 62 15 7000 500 390

2013 260 450 800 3500 90 67 25 6800 525 400

2014 300 980 900 4500 95 70 30 6500 550 480

2015 350 1000 1050 4600 100 72 37 6900 560 510

9. Based on the above information, using 2012 as a base year,

a. Calculate the real and nominal GDP of each year?
b. Calculate the real economic growth between consecutive years
c. Calculate the inflation rate between the consecutive years
d. At which year of production inflation and real economic year is higher

Target group:3rd year Statistics regular Students