Intermediate Macroeconomics (ECST3201)
DIPET 1 in Economics - ECNT
Semester: Second Semester
Level: 300
Year: 2016
DEPARTMENT: ECOMOMICS AND MANAGEMENT
Semester: Second Semester Examination 2015/2016 Level: 200
Course Code: ECO 202 Duration: 3 hours
Course Title: MACROECONOMICS Date
Lecturer: Dr. Dobdinga Venue: MPH
Instructions:- Answer ALL Questions, show working clearly
Question one (20
marks
)
In an imaginary economy the following information is provided:
C = 300 + 0.8 Y
d
; I = 500; G =200; X = 150; M= 100 and T = 100
Where C = Consumption; I = Investment; G = Government expenditure; T = Direct Taxes;
X = Export of goods and services, M = Import of goods and services and Y
d
- Disposable income.
a) Determine the equilibrium level of income,
b) What is the Balance of Payment situation for this economy?
c) If the full employment level of income is 5000 million FCFA;
i) Is the economy experiencing a deflationary or an inflationary gap?
ii) What is the value of this gap?
iii) What are the potential problems associated with the gap and what can be done by the
government to close this gap?
NB: All figures are in million of FCFA
Question two (20 marks)
Given an initial investment of 3,000,000 FCFA and a life span of 3 years, with the following income
streams
Year
1 2
3
Income
(FCFA)
2,000,000 1,400,00 600,000
Cost 0 500,000
0
Assume that at the end of 3 years, the investment project is valued at a scrap of 500,000 FCFA and
that the interest rate of. 10%, Using the Net Present Value (NPV) technique should the investment be
considered?
Question three (20 marks)
The Life Cycle Hypothesis (LCH) though was successful in resolving aspects of the consumption
puzzle; it was not without its criticisms. Discuss
Question four Write short notes on: (10 marks)
a)
Classical dichotomy
b)
Quantity theory of money
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