FACULTY NAME: MANAGEMENT SCIENCE NAME OF DEPARTMENT: ACCOUNTING, ECONOMICS AND FINANCE. Intermediate Macro-Economics

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1 FACULTY NAME: MANAGEMENT SCIENCE NAME OF DEPARTMENT: ACCOUNTING, ECONOMICS AND FINANCE COURSE NAME: COURSE CODE: Intermediate Macro-Economics IMA612S DATE: January 2016 MARKS: 100 DURATION: 3 Hours SECOND OPPORTUNITY EXAMINATION: QUESTION PAPER Examiner Mr. Pinehas Nangula Mr. Immanuel Nashivela Mr. Eslon Ngeendepi Ms Kasnath Kazeveri Moderator Mr. T. Sunde Instructions: 1. Candidates must answer all questions in this paper. 2. Number your answers in accordance with the question paper. 3. Start each answer on a new page 4. Write clearly and legibly This paper consists of 5 pages, including this front page.

2 Section A Multiple Choice Questions 1. Crowding out refers to the decrease in a) national output caused by higher taxes b) domestic production caused by increased imports c) private investment due to increased borrowing by the government d) employment caused by higher inflation 2. Which of the following would indicate that economic growth has occurred? a) The production possibilities curve shifts to the left. b) The long-run aggregate supply curve shifts to the right. c) The aggregate demand curve shifts to the right. d) The Phillips curve becomes flatter. 3. An increase in which of the following is most likely to promote economic growth? a) Consumption spending b) Investment tax credits c) The natural rate of unemployment d) The trade deficit 4. The concept of opportunity cost would no longer be relevant if a. poverty in an economy no longer existed b. the supply of all resources were unlimited c. resources were allocated efficiently d. real wages were flexible 5. Suppose that autonomous consumption is N$400 and that the marginal propensity to consume is 0.8. If disposable income increases by N$1,200, consumption spending will increase by a) N$1,360 b) N$1,200 1

3 c) N$ 960 d) N$ When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant? a) Nominal national income b) The international value of the currency c) Real interest rates d) Nominal interest rates 7. A short-run Phillips curve shows an inverse relationship between a) inflation and unemployment b) income and consumption c) prices and quantity demanded d) inputs and output 8. The marginal propensity to save is defined as a) saving divided by disposable income. b) the change in saving divided by the change in disposable income. c) disposable income divided by saving. d) the change in disposable income divided by the change in saving. 9. The multiplier is calculated as the a) change in real GDP/ change in induced spending. b) change in autonomous expenditure/ change in real GDP. c) change in nominal GDP/ change in autonomous expenditure. d) change in real GDP/ change in autonomous expenditure 10. An increase in the price level results in a(n) in the quantity of real GDP demanded because. a) increase; a higher price level reduces consumption, investment, and net exports. b) decrease; a higher price level increases consumption, investment, and net exports. 2

4 c) decrease; a higher price level reduces consumption, investment, and net exports. d) increase; a higher price level increases consumption, Section B [80 marks] Question One Write brief notes on the followings: a) Absolute Income Hypothesis [5 marks] b) Permanent Income Hypothesis [5 marks] c) Life Cycle Income Hypothesis [5 marks] d) Relative Income Hypothesis [5 marks] Question Two a) Compare and contrast the Classical theory of full employment and the simple Keynesian theory of employment. [15 marks] b) What are the limitation of Keynesian theory. [5 marks] Question Three The table relates to National Income Accounting data. Total Injections Total Withdrawals Aggregate demand Y C G S X M T I ??? ??? ??? ??? ??? a) Use the information in the table to complete the last three column [1 x 15 =15 marks] 3

5 b) Identify equilibrium national income in the table above and make sure you explain your answer. [5 marks] Question Three a) Consider a single profit-maximizing firm deciding whether or not to undertake an investment. Suppose a machine which has a known life of only one year is expected to yield N$ at the end of the year. The machine currently cost N$ and the current rate of interest is 4%. i. Calculate the rate of return [3marks] ii. Use the answer in part i) to determine if the investment is profitable or not. [3 marks] b) Distinguish between autonomous and induced investment [4 marks] c) What is the main difference between economic growth and economic development?[4 marks] d) Outline the main determinants of economic growth. [6 marks] All the best 4

6 Answer sheet to Section A A B C D 5