Question 1 (a) Explain what productivity measures. (b) List and describe 3 factors of labour productivity. (c) International data show a positive correlation between political stability and economic growth. (i) Through what mechanism could political stability lead to economic growth? (ii) Through what mechanism could strong economic growth lead to political stability?
Question 1
(a) Explain what productivity measures.
(b) List and describe 3 factors of labour productivity.
(c) International data show a positive correlation between political stability and
growth.
(i) Through what mechanism could political stability lead to economic growth?
(ii) Through what mechanism could strong economic growth lead to political
stability?
Question 2
(a) Distinguish between a government deficit and
(b) Would you rather live in a nation with a with a high per capita GDP and a low growth
rate, or in a nation with a low per capita GDP and a high growth rate?
(c) Briefly explain the quantity theory of money and how it is related to inflation.
(d) Suppose A&K Sound System is considering building a record studio in Cayman Islands.
(i) Assume that A&K Sound System needs borrow money on the bond market. Why
would an increase in interest rates affect the decision whether to build the studio?
(ii) If A&K Sound System has enough of its funds to finance the new studio without
borrowing, would an increase in interest still affect the decision about whether to
build the studio? Explain your answer.
Question 3
(a) Distinguish between legally
(b) Why don’t banks hold a 100 percent reserves?
How is the amount of reserves bank hold related to the amount of money the banking system
creates?
Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000
increase in demand deposits.
- Calculate the money multiplier?
- How much additional new demand deposits could the $3,000 deposit support?
Question 4
Consider the following policy scenarios and for each scenario diagrammatize and fully explain
using analysis for the market for loanable funds how the following government policies affect
the economy’s saving and investment. [Kindly note: Each Diagrams and Detailed
Explanation needed
(a) Scenario Policy 1: Suppose the government starts with a balanced budget and then,
because of a tax cut or spending increase, starts running a budget deficit.
(b) Scenario Policy 2: Suppose the government changes the tax code, allowing individuals to
reduce their taxable income if they save money in registered retirement savings plans
(RRSPs).
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