Intermediate Macroeconomics (ECST3201)
DIPET 1 in Economics - ECNT
Semester: Second Semester
Level: 300
Year: 2016
HIGHER TECHNICAL’TEACHER TRAINING ECOLE NORM ALE SUPERIEUREDE
COLLEGE L’ENSEIGNEMENT TECHNIQUE
P.O. BOX 39, BAMBILI
Tel: (+237)33 15 64 19
Director: Dr. Daniel A.-Akume, Associate Professor
Deputy Director: Dr. Thomas KANAA
Secretary General: Dr. Onabid A. Mathias
Dean of Studies : Dr. Simon TATA NGENGE, Associate Professor
COURSE TITLE: Intermediate Macroeconomics.
Instructions - Answer ALL Questions. SHOW ALL WORKINGS
DATE: 19/07/2016 Academic year: 2015/2016 TIME ALLOWED: 2 HOURS
Question one (20 marks)
In an imaginary economy the following information is provided:
C = 400 + 0.8Y
d
; I = 600; G = 700; X = 150; M = B.034Y and T= 0.02Y
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 experiencinga deflationary or an inflationary gap?
ii) What is the value of this gap?
iv) 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 millions of FCFA
Question two (15 marks)
A project has an initial investment cost of 4,000,000 FCFA with the following income streams;
Year 1
2
3 4
Income
(FCFA)
2,000,000 1,400,000
600,000 1,000,000
Cost
0
400,000 400,000. 0
Assume that at the end of 4 years, the equipment in the investment project can be sold at a scrap of 600,000 FCFA. If
the discount rate in the economy is 10%, use the Net Present Value (NPV) technique to evaluate the worthiness of
the project.
Question three (20 marks)
What do you understand by the consumption puzzle? How did the relative income hypothesis resolve this puzzle?
Question four (15 marks)
Propose a policy mix for the following actions using graphs only;
a) Increase output while leaving interest rate fixed
b) Increase interest rate while output is fixed
c) Increase both output and interest rate
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