ECO 112- Final Exam -2017 PDF

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UNIVERSITY OF BOTSWANAFACULTY OF SOCIAL SCIENCESDEPARTMENT OF ECONOMICSSECOND SEMESTER EXAMINATION 2016-ECO 112- BASIC MACROECONOMICSCOURSE NO. ECO 112 DURATION: 2 HRS DATE:TITLE OF THE PAPER: BASIC MACROECONOMICSSUBJECT: ECONOMICSTotal: 60 MarksINSTRUCTIONS:1 Question-1 in Section-A (Compulsory)2 a...

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UNI VERSI TYOFBOTSWANA FACULTYOFSOCI ALSCI ENCES DEPARTMENTOFECONOMI CS SECOND SEMESTER EXAMI NATI ON 201617

ECO 112-BASI C MACROECONOMI CS

COURSENO.ECO 112 DURATI ON:2HRS

DATE:

TI TLE OFTHE PAPER:BASI C MACROECONOMI CS SUBJECT:ECONOMI CS Tot al :60Mar ks

I NSTRUCTI ONS:

1.AnswerQues t i on1i nSect i onA( Compul sor y) 2.AnsweranyTWO quest i onsi nSec t i onB 3.Wr i t eyourI D.Number ,Gr oup,Sur name& i ni t i al sandName oft heLect ur eront hecov erpageoft heans werbook.

DO NOT OPEN THI S PAPER UNTI L YOU ARE TOLD TO DO SO BY THE I NVI GI LATOR

NUMBER OFPAGES I NCLUDI NG THI S PAGE: PAGES

6

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ECO 112 - BASIC MACROECONOMICS

SECTION- A (Compulsory) QUESTION-1 Multiple Choice Questions (Each question carries 1 Mark = 16 Marks) 1. Required reserves are: a) Amount of funds equal to a specified percentage of a bank`s total deposit

liabilities. b) Those assets acceptable for meeting reserve requirements behind the public`s

deposits. c) Reserves that commercial banks have to keep over and above those required by

law. d) All of the above

2. Dineo`s monthly disposable income increases from P2000 to P2500. As a result, her monthly saving increases from P300 to P450. This implies that her marginal propensity to consume (MPC) is:

a) 0.30 b) 0.70 c) 0.76 d) 0.82

3. Which of the following statements is correct?

a) For money to serve as a medium of exchange, it must be readily acceptable and therefore of known value; have a high value relative to its weight; be divisible and difficult to counterfeit

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b) For money to serve as a medium of exchange, it must be readily acceptable and therefore of known value; have less value relative to its weight; be divisible and difficult to counterfeit c) For money to serve as a medium of exchange, it must be readily acceptable and therefore of unknown value; have a high value relative to its weight; be divisible and difficult to counterfeit d) None of the above 4. For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?

a) Households are producers of goods and services and consumers of resources. b) Households are users of resources, and businesses are sources of saving. c) Households are suppliers of resources and consumers of goods and services. d) Businesses are users of taxes, and households are sources of taxes. 5. The function of commercial banks is to: a) b) c) d)

Issue currency used in the monetary system Accept deposits Determine the reserve ratio All of the above

6. A tax is regressive if its: a) Average rate decreases as income decreases b) Average rate decreases as income increases c) Average rate increases as income decreases d) Average rate increases at a decreasing rate

7. Which types of unemployment are unavoidable within an economy?

a) Frictional and cyclical b) Structural and cyclical 3

c) Structural and frictional d) All are avoidable

8. The slope of the savings schedule or line in a given economy is the:

a) Marginal propensity to consume b) Marginal propensity to save c) Average propensity to consume d) Average propensity to save 9. Nominal interest rate is:

a) Unadjusted for inflation b) Adjusted for inflation c) Real interest rate less inflation d) All of the above

10. Taxes may be used by government to:

a) To create wealth b) To increase negative externalities c) To reduce positive externalities d) To reduce pollution

11. The Okun’s law:

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a) Is a convenient estimate of unemployment b) Measures the change in unemployment resulting from a change in GDP c) Measures the change in GDP resulting from a change in unemployment d) Measures the change in GDP gap resulting from a change in unemployment 12. The effect of unanticipated inflation is: a) Beneficial to savers b) Harmful to savers c) Of no effect on savers d) Similar for both savers and debtors

13. Demand pull inflation is caused by:

a) Increases in costs of production which reduce demand b) Increase in taxes which reduce disposable income c) Increase in aggregate spending beyond the economy’s capacity to produce d) Increases in aggregate demand and aggregate supply

14. A high marginal propensity to consume implies which of the following? a) b) c) d)

A small change in consumption when income changes A high savings rate An equilibrium level of income near full employment A low marginal propensity to save

15. A country’s government runs a budget deficit when the following occurs in a given year? a) The amount of new loans to developing nations exceeds the amount of loans paid off by developing nations. b) Government spending exceeds tax revenues. c) The debt owed to foreigners exceeds the debt owed to the country’s citizens. d) Interest payments on the national debt exceed spending on goods and services. 5

16. Which of the following combinations of changes in government spending and taxes is necessarily expansionary? a) b) c) d)

Increase in government spending and increase in taxes Increase in government spending and decrease in taxes Decrease in government spending no change in taxes Decrease in government spending and increase in taxes

SECTION-B (Answer any TWO questions) QUESTION-2 A) Discuss any three characteristics/properties of money

[3 marks]

B) State and explain how any two factors/situations may underestimate the official unemployment rate in a country.

[4 marks]

C) Distinguish between the following concepts: i)

Transactions demand for money and asset demand for money

ii)

Gross national product (GNP) and gross domestic product (GDP) [2 marks]

iii)

Progressive tax and Regressive tax

[3 marks]

[2 marks]

D) Given the following simple Keynesian Model: Y = C + I + G + Xn, where

Consumption schedule is given as C= 100 +0.8Y Investment (I)

= 100

Government (G) = 20 Net exports (Xn) = 20 i.

Calculate the equilibrium level of income

[2 Marks]

ii.

Calculate the equilibrium level of consumption

[2 Marks]

iii.

Calculate and interpret the value of the multiplier

[2 Marks]

iv.

Assume investment (I) increases by 50; calculate the new equilibrium level of Income

[2

Marks]

QUESTION-3

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A) Compare demand pull and cost push inflation and their respective causes.

[4 marks]

B) What is money?

[2 Mark]

C) Suppose the price level and the value of Pula in 2015 are 1.0 [price index=100] and P1 respectively. Use this information to answer the following: i. If the price level rise to 1.60 (price index = 160) in 2016. What is the new value of the Pula?

[1

mark] ii. If instead the price level falls to 0.20 (price index = 20) in 2016, what is the value of the Pula?

[1 mark]

D) Discuss any two characteristics of public goods.

[4 marks]

E) What’s the difference between gross and net investment and which one is used for the calculation of GDP?

[3 marks]

F) State any four functions of commercial banks

[4 marks]

G) What is the benefit-received principle and what are its possible shortcomings. [3 marks]

QUESTION 4

A) List any three functions of the central bank (Bank of Botswana)

[3 marks]

B) Explain the following i)

Budget deficit and Budget surplus

[2 marks]

ii)

Recession and Recovery

[2 marks]

C) Discuss any two types of unemployment and the relevant remedial measures for each of them

[4 marks]

D) Under what circumstances will real GDP be higher than Nominal GDP

[3 mark]

E) Distinguish between contractionary fiscal policy and expansionary monetary policy. [4 marks] F) Draw the circular flow diagram for a private closed economy and explain the relationships between the role players in the diagram. [4 marks]

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