ECO 2004 Unemployment and GDP Business Worksheet

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ECO 2004

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ECO2004S TUTORIAL 1 Tutorial 1 : Unit 13 Hand in date : 10 Agust 2021 Instructions : Answer all questions in Sections A and B. : The word limit for Q2 (2a and b) in Section B is 500 words maximum. Total marks : 50 marks SECTION A MULTIPLE CHOICE QUESTIONS (20 marks) [2 mark for each correct answer, -0.5 for each incorrect answer, 0 marks for no answer] 1. Fill in the missing words. Unemployment generally________ during expansion and ________ can be effective for to ensure that the economy does not over hit. While ___________ fiscal policy during recession by _________ can be effect to smooth the economy back to stable levels. A. B. C. D. E. Increase, tax increase, expansionary, fall in government expenditure. Falls, tax increase, contractionary, increase in government expenditure. Falls, tax increase, expansionary, increase in government expenditure. Falls, tax reduction, expansionary, increase in government expenditure. Falls, increase in government spending, expansionary, increase in government expenditure. 2. Which of the following statements is correct regarding measuring GDP? A. GDP can be measured either as the total spending on domestically produced goods and services, or the total value added in domestic production, or the sum of all incomes received from domestic production. B. Information about exports but not imports is necessary to calculate GDP. C. Government production is not included in the GDP. D. The value-added of government production is computed using the price that public goods and services are sold in the market. Use the table below to answer question 2020 Product Quantity Price Cost price of inputs per outputs Quantity unit per unit 5 7 10 2021 Cost Price of price outputs inputs per per unit unit 6,5 12 Phone 5 Orange 20 4 8 24 4 9 Laptop 35 2 11 41 4,00 15,00 3. Assuming that country ABC there are only three products reflecting the overall economy (holding all other factors constant), the nominal gross domestic product in 2021 is _________ the real GDP in 2021 is __________ when the based year 2020. The GDP (measured as value added) in 2021 is __________ and the real GDP growth rate in 2021 is __________? A. B. C. D. 159; 100; 200; 9% 713; 951; 812; 43% 951; 713; 626; 22.93% 120;216 ; 451; 7% 4. The unrest and burning of shops that happened in KwaZulu-Natal and Johannesburg resulted in many businesses shutting down. The government has made initiatives to help businesses with funds to restart businesses. This act by government to support businesses reflected the ___________. On the other hand, it was noted that other businesses had savings that business use and reinvested in their business this reflected ____________ from the business side. Which of the following is most correct? i. ii. iii. iv. v. A. B. C. D. Co-insurance; self-insurance Co-insurance; fiscal policy Fiscal policy; Co-insurance Co-insurance; expansionary fiscal policy Contractionary fiscal policy; expansionary fiscal policy iv is most correct. iii and iv are most correct. ii is most correct. i is most correct 5. The following diagram shows the path of income for a household that receives news about an expected rise and fall in future income at the depicted times. Assume that the household prefers to smooth out its consumption if it can. Based on this information, which of the following statements is correct? A. B. C. D. If the household is not credit-constrained, then it will consume the same level after t = 1. If the household is credit-constrained and has ‘weakness of will’, then its consumption will match precisely its income path. If the household is not credit-constrained but has ‘weakness of will’, then it will borrow at t = 1 and save at t = 3. If the household is credit-constrained but does not have ‘weakness of will’, then it will borrow at t = 1 and save at t = 3. Use the table below to answer question Alpha Low Investment High Investment R50 R75 Low Investment R30 Breakaway R50 R70 R95 High Investment R84 R60 6. The profit matrix shows two tour operating firms, Alpha and Breakaway that must choose between a high-investment strategy and a low-investment strategy. Which of the following statements is most correct? A. Alpha’s dominant strategy is high investment and Breakaway’s dominant strategy is low investment. B. Both have a dominant strategy of high investment and Nash equilibrium. C. Neither firm has a dominant strategy and Nash equilibrium. D. The dominant strategy of both Alpha and Breakaway is low investment and Nash equilibrium. 7. Consider a local economy comprising of just two firms, Firm A and Firm B. Currently, both firms have low capacity utilization. The following table shows the profits (or losses if negative) when the firms invest or do not invest: Based on this information, which of the following statements is correct? A. B. C. D. Investing is a dominant strategy for both firms. The only Nash equilibrium is for both firms to invest. Firm A investing and Firm B not investing is a Pareto-inefficient Nash equilibrium. To achieve the Pareto-efficient Nash equilibrium, the firms have to coordinate in some way or develop business confidence. Use the table below to answer the question. The base year 2019 CPI basket Item Quantity Price Oranges 80 2 Haircuts 65 20 Cost of CPI basket at the current period price. The year 2020 CPI basket Item Quantity Price Oranges 80 3 Haircuts 65 25 Cost of CPI basket at the current period price. 8. What is the inflation rate in the year 2020? (Round off your final answer two dismal places.) A. B. C. D. 38,36% 63.83% 23.63% 25.00% 9. If inflation was 10% in a particular year and you received a 20% increase in income during the same year, then over the year your: A. B. C. D. real and nominal income both fell. real and nominal income both rose. real income fell, but nominal income rose. real income rose, but nominal income fell. 10. Simon borrowed R10 000 from the bank at the end of 2011 at a fixed interest rate of 20%. At the end of 2012, the inflation rate was 25%. Inflation has been ________ to Simon; the real value of his loan plus interest payments changed to ________. A. B. C. D. beneficial; R9 600 beneficial; R4 800 beneficial; R8 000 costly; R12 500 SECTION B WRITTEN QUESTIONS Question 1:(15 marks) 1. An economic agent that has no financial constrain or credit constrain how can the agent smooth consumption when the agent has not been working, just started a new job with an expected promotion in 3 years to come which will increase income. a) Make use of the graphical presentation to show income, consumption path over time? (in the question only the graph is needed and label your graph well) (5 marks) b) Given your graph in question 1 a: explain the income and consumption path over time (holding all other factors constant) when the economic agent has no financial constrained. (Maximum words to answer question 1.b is 300 words) (10 marks) Question 2 (15 marks) Given the table below answer questions 2a and 2b. Apple** Low Investment High Investment R576 R1152 Low Investment R1152 Google-Android* R0 R0 R512 High Investment R576 R512 2. The profit matrix shows two technology firms, Apple and Google-Android which must choose between a high-investment strategy and a low-investment strategy. a) Define dominant strategy, do these firms have a dominant strategy? (Maximum words to answer the question (2.a) is 300 words) (10 marks ) b) Define Nash equilibrium, is it achieved in the above table? (Maximum words to answer the question (2.b) is 200 words) (5 marks)
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Explanation & Answer

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Section A
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Section B

1. Initially, the economic agent’s consumption and income are equal and move on the same path.
Due to them being unemployed, their ab...


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