Question
1.Consider the impact of a negative production externality in a perfectly competitive industry. The government can use a tax on production to internalise the external
1.Consider the impact of a negative production externality in a perfectly competitive industry. The government can use a tax on production to internalise the external effect and eliminate the efficiency loss. How would the government ensure efficiency when the externality occurs in a monopoly market?
2.Read the extract of the article that appeared in the SMH on September 2 at the end of this document and available at (https://www.smh.com.au/politics/federal/australia-in-recession-biggest-economic-contraction-since-great-depression-abs-confirms-20200902-p55rk4.html).
Use the Keynesian Cross or AD/AS model to explain the current macroeconomic conditions.
3.Use the current economic conditions and the results for unemployment in the most recent quarter to distinguish between frictional, structural, cyclical and hidden unemployment.
4.Consider an economy with the following characteristics:
Consumption function is C = 200 + 0.8Y;
Planned investment:I = 50;
Government expenditure:G = 50;
Exports of the country:X = 20
The import function: M = 10 + 0.1Y.
Assume there are no transfer payments and no autonomous taxes.
All variables are in billions of dollars. C is consumption expenditure; Y is real GDP; G is government purchases of goods and services; I is planned investment expenditure; X is exports, and M is imports.
a.Write the aggregate expenditure function and calculate the value of the equilibrium level of income in the economy.
b.What is the value of consumption expenditure in the economy?
c.Define the concept of the multiplier. Calculate the size of the effect on the economy if the covid 19 shutdown reduces Consumption to C = 150 +0.8Y and planned Investment falls by $20 billion.
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