Principles of Macroeconomics (ECNC2202)
Higher Institute of Commerce and Management (HICM)
Semester: Second Semester
Level: 200
Year: 2019
THE UNIVERSITY OF BAMENDA
HIGHER INSTITUTE OF COMMERCE AND MANAGEMENT (HICM) PRINCIPLES OF
MACROECONOMICS EXAMINATIONS SECOND SEMESTER 2018/2019
INSTRUCTIONS: ANSWER ALL QUESTIONS IN THE TWO SECTIONS. TIME ALLOWED:
3 HOURS
SECTION A (30 MARKS)
QUESTION ONE (5 MARKS)
In not more than a sentence, define the following concepts as used in principles of macroeconomics:
a) Crowding out effect b) Macroeconomic equilibrium C) Double counting d) Transfer payments e) Monetary
policy.
QUESTION TWO (10 MARKS)
Using diagrams, illustrate the following effects on the macroeconomic equilibrium in the short run and long run:
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 C = 50 + 0.75yd, 1=100 (when yd = y-T+Tr)
a) Calculate the equilibrium level of national income using
i. Income/expenditure approach
ii. Injections/withdrawals approach,
iii) Determine the value of the multiplier.
b) Based on the information in question (1) above, government activities are introduced where G =40. Calculate
the new level of national income using
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 T = 0.2y, Tr of O.ly. 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.
i. Income/expenditure approach
ii. Injections/withdrawals approach.
iii. Determine the value of the multiplier
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QUESTION TWO (10 marks)
1.) Suppose a firm has accumulated capital uniformly over 5years in such a way that 1000m FCFA worth of
machines are due replacements each year. The capital output ratio is 3:1.
Complete the table below.
Year
Output
(M.FCFA)
%A in
output
Existing
capital
Required
capital
Replacement
investment
Net
investment
% A in Net
investment
1 1000
2 2000
3
3000
4
3000
5
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)
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