2019, macroeconomics memo summer

Question One:

1.1. Define and discuss GDP:

Gross Domestic Product (GDP) is a key economic indicator that measures the total monetary value of all
goods and services produced within a country's borders over a specific period, usually a year or a
quarter. GDP serves as a fundamental metric for assessing the size and performance of an economy. It
can be calculated using three different approaches: production, income, and expenditure. Each
approach should yield the same GDP figure, as they represent different facets of the same economic
activity.

1.2. Calculate GDP deflator in years 2010, 2011, 2012, 2013, and 2014:

The GDP deflator is a measure of the overall price level in an economy and can be calculated using the
formula:

GDP Deflator = (Nominal GDP / Real GDP) * 100

To calculate it for each year, you would need nominal and real GDP figures for those years.

1.3. Calculate economic growth rates in the years 2011, 2012, 2013, and 2014:

The economic growth rate is typically calculated as the percentage change in real GDP between two
consecutive years. The formula is:

Economic Growth Rate = ((Real GDP in Year 2 - Real GDP in Year 1) / Real GDP in Year 1) * 100
To calculate it for each year, you'll need real GDP figures for the respective years.

2.2. List and explain the two phases and two turning points of the business cycle:

The business cycle consists of four main phases:

1. Expansion (Recovery): This phase is characterized by increasing economic activity, rising employment,
and growing production and spending. It's a period of recovery from a previous recession.

2. Peak: The peak represents the highest point of economic activity during the cycle. It's when the
economy is operating at or near its full potential, and usually precedes a slowdown.

3. Contraction (Recession): In this phase, economic activity decreases, unemployment rises, and
production and spending decline. It's a period of economic downturn.

4. Trough: The trough is the lowest point of the cycle, and it marks the end of the recession. It's when
the economy starts to recover and transition into the expansion phase.

Question Two:

2.3. Calculate the unemployment rate in Namibia in 2019:

The unemployment rate is calculated as the number of unemployed individuals divided by the labor
force, expressed as a percentage.

Unemployment Rate = (Number of Unemployed / Labor Force) * 100

You'll need the data for the number of unemployed and the labor force in Namibia in 2019 to calculate
this rate.

2.4. Calculate the labor force participation rate in Namibia in 2019:

The labor force participation rate is calculated as the labor force divided by the working-age population,
expressed as a percentage.
Labor Force Participation Rate = (Labor Force / Working-Age Population) * 100

You have the data for the working-age population and the labor force in Namibia in 2019 to calculate
this rate.

Question Three:

3.1. List and discuss the four economic functions that depository institutions provide their customers:

Depository institutions, such as banks, credit unions, and savings institutions, offer several essential
functions to their customers:

a) Safekeeping: They provide a secure place for individuals and businesses to deposit and store their
money, reducing the risk of theft or loss.

b) Payment Services: These institutions offer a wide range of payment services, including checks,
electronic transfers, debit and credit cards, and online bill payment, facilitating transactions.

c) Savings and Investment: Customers can earn interest on their savings and access various investment
products like certificates of deposit (CDs) and savings accounts to grow their money.

d) Lending: Depository institutions provide loans to individuals and businesses, supporting economic
growth and development. These loans can include mortgages, personal loans, and business loans.

3.2. In the economy of brisk land, the commercial banks have deposits of $500 billion. Their reserves
are $950 billion, 90 percent of which is in deposits with the central bank. There is $20 billion in Central
Bank notes outside the banks, and there are no coins.

a) What is the monetary base?

The monetary base is the sum of currency in circulation (outside the banks) and total bank reserves.

Monetary Base = Currency in Circulation + Bank Reserves

Monetary Base = $20 billion (currency in circulation) + $950 billion (bank reserves) = $970 billion

b) If all the deposits are money, what is the total quantity of money?

If all deposits are considered part of the money supply, then the total quantity of money is equal to the
sum of currency in circulation and total deposits.

Total Quantity of Money = Currency in Circulation + Total Deposits

Total Quantity of Money = $20 billion (currency in circulation) + $500 billion (deposits) = $520 billion

c) What is the banks' reserve ratio?

The reserve ratio is the proportion of total deposits held in reserves.

Reserve Ratio = (Bank Reserves / Total Deposits) * 100

Reserve Ratio = ($950 billion / $500 billion) * 100 = 190%

d) What is the currency drain as a percentage of the quantity of deposits?

The currency drain, also known as the currency deposit ratio, is the proportion of currency held outside
banks relative to total deposits.

Currency Drain = (Currency in Circulation / Total Deposits) * 100

Currency Drain = ($20 billion / $500 billion) * 100 = 4%

Question Four:

This section does not have specific questions, and it's unclear what information you need regarding GDP
and aggregate expenditure. Please provide more context or specific questions if you need assistance.

Question Five:

The data for Yellow land’s GDP demanded and GDP supplied is provided in the table:
- 2010: GDP Demanded = 120, GDP Supplied = 300, Potential GDP = 450

- 2011: GDP Demanded = 130, GDP Supplied = 250, Potential GDP = 550

a) Plot the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate
supply curve.

The aggregate demand (AD) curve slopes downward, and the short-run aggregate supply (SRAS) curve
and the long-run aggregate supply (LRAS) curve are vertical. The AD curve intersects the SRAS and LRAS
curves.

b) Is Yellow land’s short-run macroeconomic equilibrium a full-employment equilibrium, below full-

employment equilibrium, or above full-employment equilibrium? What is the recessionary gap? What
is the inflationary gap?

In this case, Yellow land’s short-run macroeconomic equilibrium is below full-employment equilibrium.
The recessionary gap represents the difference between the potential GDP and the short-run
equilibrium GDP supplied. The inflationary gap represents the difference between the potential GDP and
the short-run equilibrium GDP demanded.

c) Suppose aggregate supply decreases by $150 billion. Plot the new aggregate supply curve. How do
real GDP and the price level change in the short run?

If aggregate supply decreases by $150 billion, the SRAS curve shifts to the left. In the short run, this will
lead to a decrease in real GDP and an increase in the price level.

d) Is Yellowland's new short-run macroeconomic equilibrium a full-employment equilibrium, below

full-