THE UNIVERSITY OF BAMENDA

HIGHER INTITUTE OF COMMERCE AND MANAGEMENT(HICM)

PRINCIPLES OF MACROECONOMICS EXAMINATIONS

SECOND SEMESTER 2018/2019

INTRUCTIONS:(ANSWER ALL QUESTIONSIN THE TWO SECTIONS. TIME ALLOWED

3 HOURS

SECTION A (30 MARKS)

QUESTION ONE (5 MARKS)

i). Occurrence of inflation in an economy ii) Economic growth occurs, iii) Political instability like wars in

the economy iv) Free education and unemployment benefits to the citizens. (2,2,2,4, marks)

QUESTION THREE (15 MARKS)

How are interest rates determined in an economy? What factors may cause a fall in interest rate (use

either the Classical or Keynesian models to illustrate your answers i.e. graphs needed in each argument)

(5,10 marks).

SECTION B. EXCERCISES (40 Marks)

QUESTION ONE (20 marks)

Use the data below and answer the questions that follows:

An economy has it aggregate monetary demand represented as

ii. Injections/withdrawals approach.

iii) Determine the value of the multiplier.

b) Based on the information to question (I) above, government activities are introduced where G -40.

i. income/expenditure approach

ii. Injections/withdrawals approach.

iii. Determine the value of the multiplier

c) Now the government introduces taxes and transfer payments, where 1 = 0.2y, Tr of 0.1 y. Calculate

equilibrium national income using

i. Income/expenditure approach

ii. Injections/withdrawals approach.

iii. Determine the value of the multiplier

d) Given the information in the two and three sectors above, international trade comes into play. The

value of import is given as M = 0.125yd and export X= 80. Determine the national income using.

Complete the table below.

Year Output(M.FCFA)

%din

output

Existing

capital

Required

capital

1

1000

2

2000

a) State four assumptions of the above principle (2 marks)

b) Complete the table (6 marks)

c) Explain the significance of the capital output ratio as observed in (b) above (2 marks)

EXERCISE THREE (10 marks)

Consider an economy with government spending given as 150 billion FCFA, Planned investment of 100

billion FCFA, Net export of 25 billion FCFA, Autonomous taxes are 125 billion. Given that income tax it

rated at 0.05 of income, and finally Marginal propensity save of 0.25

Given that Consumption (C) is 300 billion FCFA, when income (Y) is equal to 2000 billion, and Yf is

2500 billion FCFA.

a) Solve for autonomous consumption and induced consumption.

b) Solve for the equilibrium level of output in the following two scenarios:

i) there is an income tax t=0.1

ii) there is no income tax in the economy. Denote these two variables by Y*wand Y

*

w

respectively

c) In the economy with an income tax of 10%, what is the budget balance of the government?