LATIHAN EKONOMI 7

1. "As investors in the Greek bond market lost confidence in Greek bonds, the interest
rates in Greece began to rise sharply above the European average interest rate".
Explain why.
2. "An inelastic LM line will make fiscal expansion less effective on output". Do you
agree? Explain why.
3. Should exports of primary products such as agricultural commodities and ores be
promoted, or should policy support export diversification?
4. Assume a consumer has $40 to spend and for both products the marginal utilities
are shown in the following table: Quantity. MU A. MU B 1. 35 80 2. 20 40 3. 12 18
Assume that each product sells for $10 per unit.
A. ) How many units of each product will the consumer purchase?
B. ) Assume the price of product B rises to $20 per unit. How will this consumer
allocate her budget now?
C. ) If the price of both products rise to $20 per unit , what will be the budget
allocation?

5. Solve the following problems on Price elasticity of demand and classify the nature
of elasticity and good.

1) The demand for a CDs is 1000 units and the price is Rs. 20/- per CD. Later on the
price rises

to Rs.22/- per CD as result the demand falls to 870 units.

2) The demand for a commodity is 80 units and the price is Rs. 14 /- per unit. In the
next month,

the price falls to Rs.10/- per unit and the demand rises to 88 units.