POME02-6 Principles of Macroeconomics Assignment Solutions
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SECTION A (50 MARKS) – PARAGRAPH QUESTIONS
Question 1
Read the scenario and answer the questions that follow:
The table below shows the volume of windows and doors produced in two countries each week:
| Windows | Doors | |
| Country A | 800 | 2 600 |
| Country B | 900 | 4 000 |
1.1 Explain the conditions under which any country has absolute advantage and identify the country that has absolute advantage in the production of windows.
1.2 Explain the concept of comparative advantage, and clearly show the products in which the two countries have comparative advantage. Note: show all your calculations.
1.3 Explain the reasons countries trade.
Question 2
Consider a closed economy that is described by the following model: C = 300m + 0.60Y
Where:
Y = income
C = consumption
I = 150m I = investment
G = 400m G = government spending
T = 0.25Y T = taxes
2.1 Calculate the marginal propensity to save.
2.2 Calculate the multiplier.
2.3 Calculate the total autonomous spending.
2.4 Calculate the equilibrium income.
2.5 Use a fully labelled Keynesian graph to illustrate your calculations in 2.3 and 2.4.
2.6 Calculate the government budget and explain whether there is a surplus or a deficit.
Question 3
Write an essay in which you discuss the effects of inflation on the economy and evaluate how South Africa has been performing in terms of controlling the levels of inflation. Use examples to support your discussion.
SECTION B (20 MARKS) – ESSAY
Question 1
Write an essay in which you evaluate the five main macroeconomic objectives of macroeconomic policy in South Africa and the trade-off that exists in attaining these goals.
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