namibia UniVERSITY OF SCIEnCE AnD TECHnOLOGY FACULTY OF MANAGEMENT SCIENCES DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE

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1 namibia UniVERSITY OF SCIEnCE AnD TECHnOLOGY FACULTY OF MANAGEMENT SCIENCES DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE QUALIFICATION: BACHELOR OF ECONOMICS QUALIFICATION CODE: 07BECO LEVEL: 5 COURSE CODE: PMA512S SESSION: NOVEMBER 2016 COURSE NAME: PRINCIPLES OF MACROECONOMICS PAPER: THEORY DURATION: 2 HOURS MARKS: 100 FIRST OPPORTUNITY EXAMINATION QUESTION PAPER EXAMINER(S} Kasnath Kavezeri, Eslon Ngeendepi, Eden Shipanga, Pinehas Nangula, Elina Mwatondange, Mekukuje Mbaha. MODERATOR: Mr lmannuel Nashivela INSTRUCTIONS 1. Answer ALL the questions. 2. Write clearly and neatly. 3. Number the answers clearly. PERMISSIBLE MATERIALS 1. Pens/pencils 2. calculator 3. Ruler THIS QUESTION PAPER CONSISTS OF 7 PAGES (Excluding this front page}

2 QUESTION 1 Select the letter that best represents your choice and write it in your examination book. 1. Which of the following is the primary use for national income accounting? (a) It provides a basis for assessing performance of the economy. (b) It measures economic efficiency in specific industries. (c) It estimates expenditures on nonproduction transactions. (d) It analyses the cost of pollution 2. To include the parts used in producing the automobiles turned out during a year in gross domestic product for that year would be an example of... (a) Including a nonmarket transaction. (b) Including a nonproduction transaction. (c) Including a noninvestment transaction. (d) Multiple counting. 3. The sale in the year 2016 of an automobile produced in the year 2015 would not be included in the gross domestic product for because including it would involve... (a) Including a nonmarket transaction. (b) Including a nonproduction transaction. (c) Including a noninvestment transaction. (d) Multiple counting. 4. Gross domestic product in an economy is N$3 452 million. Consumer expenditures are N$2 343 million/ government purchases are N$865 million/ and gross investment is N$379 million. What is the amount of net exports? (a) N$93 million. (b) N$123 million. (c) -N$45 million. (d) -N$135 million 5. The annual charge which estimates the amount of capital equipment used up in each year/s production is called... (a) Indirect business taxes. (b) Inventory reduction. (c) Depreciation. (d) Investment.

3 6. If a cobbler buys leather for N$100 and thread for N$50 and uses them to produce and sell N$500 worth of shoes to consumers, the contribution to GOP is... (a) N$50 (b) N$100 (c) N$650 (d) N$ If your grandparents buy a newly built retirement home, this transaction would affect... (a) Investment spending (b) Net exports (c) Government spending (d) Consumption spending 8. A financial intermediary is a middleperson between... (a) Buyers and sellers. (b) Husbands and wives. (c) Borrowers and lenders. (d) Labour unions and firms. 9. Which of the following is not a function of money? (a) hedge against inflation (b) medium of exchange (c) unit of account (d) storeofvalue 10. An example of fiat money is... (a) A ten Namibia dollar note. (b) Gold. (c) Silver coins. (d) Copper coins. 11. Which ofthe following statements about money is not true? (a) A debit card is not really money because it is only a means of transferring money between accounts. (b) All the wealth that people hold, in whatever form, should be considered as money. (c) Wealth held in the current account you hold with your bank is almost as convenient for buying things as wealth held in your wallet, so the wealth in current accounts should be included in measures of money. (d) In a complex economy it is not easy to draw a clear dividing line between assets that should be considered as money and those that should not. 2

4 12. If the banks in an economy operate with a reserve ratio of 20 per cent then the money multiplier is: (a) 4 (b) 20 (c) 25 (d) Which of the following is an example of a public good? (a) Hot dogs at a picnic. (b) Whales in the ocean. (c) National defence. (d) Apples on a tree in a public park. 14. A tax for which high income taxpayers pay a smaller fraction of their income than do low income taxpayers is known as... (a) A proportional tax. (b) A regressive tax. (c) An equitable tax. (d) A progressive tax. 15. An increase in the government budget deficit... (a) Has no impact on the real interest rate and fails to crowd out investment because foreigners buy assets in the deficit country. (b) Decreases the real interest rate and crowds out investment. (c) Increases the real interest rate and crowds out investment. (d) None of the above. 16. An economy that interacts with other economies is known as: (a) An export economy. (b) An open economy. (c) A balanced trade economy. (d) An import economy. 17. Which of the following statements is true about a country with a trade deficit? (a) Net exports are negative. (b) Net capital outflow must be positive. (c) Exports exceed imports. (d) Net exports are positive. 3

5 18. Which of the following people or firms would be pleased by a depreciation of the Namibia dollar? (a) A French exporter of wine to Namibia. (b) An American tourist visiting Windhoek. (c) A Namibian importer of French wine. (d) None ofthe above. 19. An increase in the marginal propensity to consume (MPC}... (a) Raises the value of the multiplier. (b) Has no impact on the value ofthe multiplier. (c) Lowers the value of the multiplier. (d) None ofthe above. 20. The amount of unemployment that the economy normally experiences is known as: (a) The natural rate of unemployment. (b) Cyclical unemployment. (c) Efficiency wage unemployment. (d) Frictional unemployment. 4

6 QUESTION 2 Indicate whether each of the following statements is true or false. 1. Net National Product always exceeds a nation's total income because of depreciation and taxes. 2. Money and wealth is the same thing. 3. When the central bank in an economy raises the repo rate, it encourages commercial banks to reduce their lending, thereby tending to reduce the money supply. 4. A positive externality is an external benefit that accrues to the buyers in a market while a negative externality is an external cost that accrues to the sellers in a market. 5. An excise tax is a tax on income. 6. Expenditure on national defence is an example of a government transfer payment. 7. If the government runs a budget deficit, it means that there is an excess of government spending over government receipts. 8. Wages are an example of a transfer payment because there is a transfer of payment from the firm to the worker. 9. Monetary policy affects the economy with a lag but fiscal policy has no lag. 10. Net exports are defined as exports minus imports. 11. If a country has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item. 12. Absolute advantage is a comparison based on productivity. 13. The gains from trade can be measured by the increase in total production that comes from specialization. 14. Tariffs tend to benefit consumers. 15. Opponents of free trade often argue that free trade destroys domestic jobs. 16. If the rand/euro exchange rate rises, the euro has appreciated. 17. If the marginal propensity to save is 0.80, then the value ofthe multiplier is If the unemployment rate falls, we can be certain that more workers have jobs. 19. An increase in the price level is the same as a decrease in the value of money. 20. A country with a larger GOP per person generally has a greater standard of living or quality of life than a country with a smaller GOP per person. 5

7 QUESTION 3 1. The table below shows the output and prices of a country that only produces product X. Production of X Year (Units) Price per Unit of X (N$) (a) Calculate the nominal GDP for this country for the years 2014 and (b) By what percentage did GDP increase in 2015? (c) Calculate the GDP in constant 2014 prices for (d) What was the growth rate of real GDP for this country in 2015? [4] [4] [2] [2] 2. Use the consumption function given below to answer the questions that follow. C= Y (a) Calculate the value multiplier. Round your answer to the nearest whole number. [2] (b) By how much will savings (S} increase if disposable income (Y} increases by N$115? [2] (c) Calculate the value of consumption (C) if disposable income increases by N$145. [3] (d) What is the figure of 140 in the consumption function called? [1] 6

8 QUESTION 4 1. Fill out the table below assuming that the government taxes 40 percent of the first N$10,000 of income and 10 percent of all income above N$10,000. Is this tax system progressive, regressive or proportional? [12] Income Amount of Tax Paid Percentage of Income Paid in Tax Suppose a worker in Germany can produce 15 computers or 5 tonnes of grain per month. Suppose a worker in Poland can produce 4 computers or 4 tonnes of grain per month. For simplicity, assume that each country has only one worker. (a) Which country has an absolute advantage in producing computers? (b) Calculate the opportunity costs: [1] [4] Germany: 1 computer= 1 ton of grain= Poland: 1 computer= 1 ton of grain= (c) Which country has a comparative advantage in producing grain? [1] (d) Which country should specialise in the production of computers and which country should specialise in the production of grain? [2] QUESTION 5 1. Use a diagram to illustrate a deflationary gap. [4] 2. Using diagrams, distinguish between demand-pull inflation and cost-push inflation. [10] 3. State the shortcomings of GDP per capita as a measure of economic development. [6] Total = 100 MARKS 7