Intermediate Macroeconomics (ECST3201)

DIPET 1 in Economics - ECNT

Semester: Second Semester

Level: 300

Year: 2009

Answers (200 )
INSTRUCTIONS: ANSWER QUESTION 1 AND TWO FROM SECTION B.
SHOW ALL WORKING WHERE NECESSARY. PRESENT ANSWERS IN AN ORDERLY FORMAT.
PUT ANSWERS TO 2 DECIMAL PLACES
SECTION A (30 Marks)
l) The following equations describe a macro economy that follows the IS-LM framework. Figures are in
millions of francs CFA.
Consumption: . C = 120 + 0.8Y
Investment: I = 80— l0r
Transaction demand for money: L
1
= 0.5Y
Speculative demand for money: I
S
= 500 - l0r
Money supply: 1000
a) Determine an equation for the IS curve and for the LM curve. Calculate the equilibrium level of income
and graph the solution.
b) To the model above, add a government sector that spends l40.
i) -Determine the equation of the new IS curve
ii) What is the new equilibrium?
iii) Using the results above [in (a)], and the just calculated equilibrium, deterinine a fiscal multiplier for this
economy.
iv) Draw a graph that shows the new equilibrium and its relation to the equilibrium in part (a) above.
c) Suppose the money supply above [that is in part (a)] is increased to 1,700
i) Determine the new LM curve and the new equilibrium
ii) Draw a graph that-shows die new equilibrium and its relation to the equilibrium in part (b) above.
d) List two other factors each that can cause the IS-LM schedules to.-shift.
SECTION'D: ANSWER ANY TWO QUESTIONS (40 marks)
2) In the 1970s, rising prices were accompanied by falling employment: To what extent is this consistent with the
Phillips curve? How relevant is the Phillips curve to the government of Cameroon?
3) How did the Relative Income Hypothesis of Duesenburry explain the short ran, long run, and different
short-run consumption functions?
4) Write short notes on the following concepts:
a) Classical dichotomy b) Inflationary gap c) Paradox of thrift
5) Suppose the government of Cameroon waits to design a fiscal and monetary policy that would increase national
income without changing the interest rate. What would you advise the government to do? A
UNIVERSITY OF YAOUNDE I
ENS ANNEX BAMBILI
SECOND SEMESTER RESIT EXAMINATION
Department: Economics
Examiner: Dr. Do
bdinga Cletus F.
Academic year: 2008/2009
Course code: Eco 202
Date: 14/09/2009
Course title: Intermediate Macroeconomics
Time allowed: 2 HOURS
Credit value:
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