UNIVERSITY OF TECHNOLOGY, JAMAICA
SCHOOL OF BUSINESS ADMINISTRATION
INTRODUCTION TO MACROECONOMICS
TUTORIAL SHEET #7
1. What are the two types of macroeconomic policy channels that are available to the
government and describe how they work?
2. If the government wants to reduce unemployment what are some ways it should change
spending and taxes?
3. Define budget deficit and budget Surplus.
4. Describe the crowding out effect and the crowding in effect.
5. Given that Yd  C + S, prove that Y  C + S + T. Explain the importance of this relationship.
6. Write out the modified algebraic representation of the consumption function when taxes are
included.
7. Assume that the economy is in equilibrium at $9 trillion and the government increases
spending by $100 billion. What would happen to unplanned inventories? Why?
8. Assume the following equations for a macroeconomy:
C = 100 + .9Yd , I = 50, T = 100, X=25, Im=30 and G = 110.
Calculate the equilibrium level of output, net exports, total consumption.
State whether the economy has a budget surplus/deficit. Find its value.
9. Assume the following equations for a macroeconomy:
C = 100 + .9Yd , I = 50, T = 0.2Y , X=100, Im=0.22Y and G = 250.
Calculate the equilibrium level of output, net exports, and total consumption.
State whether the economy has a budget surplus/deficit. Find its value.
10. A country is currently at $2,000 billion below its potential GDP thereby resulting in rising
unemployment. To address the rising unemployment, the government plans to implement
expansionary fiscal policies. We are told that for every $1 increase in income, consumption
rises by 0.9 cents. Based on the information given, calculate:
a) the multiplier
b) The increase in government expenditure needed to take the country out of a recession
(i.e. Actual GDP = potential GDP)
11. Define the 3 major tax structures.
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13. What are indirect taxes and direct taxes?
14. What are tax evasion and tax avoidance?
15. Calculate average and marginal tax for the following question in percentages, assuming that
the income tax threshold is equal to $10,000
Income
$’000
5
Tax
$
0
10
0
25
1,400
50
5,150
100
18,800
250
70,000
1,000
366,300
Average tax
rate (%)
Marginal tax
rate (%)
16. Fill in the missing values in the following table.
Income
$
20,000
Tax
$
2,000
30,000
2,700
40,000
3,200
50,000
3,500
Average tax
rate (%)
Marginal tax
rate (%)
17. What is discretionary fiscal policy?
18. Explain and show graphically expansionary and contractionary fiscal policies.
19. What are automatic stabilizers?
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