1. The paper is divided in four sections 1, 2, 3 & 4.

2. All questions are compulsory.
3. These questions comprise of problem solving exercises and short essay questions and

contribute to 16% of your final grade.
4. All assignments are COMPULSORY and should be type written (inclusive of graphs)

and submitted in a portfolio. 5. Each cover page should have the PARTICIPATING individual group member’s names and their ID numbers.
6. This portfolio is due the week of November

8-12, 2010 in your respective

tutorial sessions. Each group should comprise of a maximum of 4-5 persons. 7. READ ALL QUESTIONS CAREFULLY!

All quantities are given in millions of Macrovian dollars (M$). Calculate personal income. Calculate gross national product (GNP). are described by the Solow growth model. Calculate disposable personal income. Calculate domestic national income. Calculate net national product (NNP). #1 a-c 3. Two countries. Refer to the information provided in Table below to answer the questions that follow for the Macrovian economy. # 4 a-c marks 10 10 th 4. Both countries are identical. Calculate Macrovian GDP. except that the rate of labor-augmenting technological progress is higher in Highland than in Lowland. a) b) c) d) e) f) g) Calculate gross private investment.Assignment 1 1. Highland and Lowland. a) State and graphically show in which country is the steady-state growth rate of output per effective worker higher? (4 marks) . (1 mark) (2 marks) (1 mark) (1 mark) (1 mark) (1 mark) (2 marks) Assignment2 From Mankiw 6 edition textbook chapter 8 page 242 question 2.

Suppose the country Condupta have an income-expenditure model of the form: C = 50 + 0. and by how much? (1 mark) f) Assume that G increased by 200.IM*). iv. #1a-c 6. There is an increase in government . where “*” denotes equilibrium value. The initial values. An economy is initially at the natural level of output. c) Compute and state the slope of the aggregate expenditure function. (1 mark) g) Draw a carefully labeled aggregate expenditure diagram using information found in (a) and (e) identifying the old and new equilibrium. the direction the curves shift. d) Compute the government spending multiplier for the economy.85Yd I = 150 Yd = Y – T G = 300 EX = 80 T = 400 IM = 10 + 0. (3 marks) 8a. C.05Y (3 marks) (1/2 mark) (1/2 mark) (1 mark) a) Compute the equilibrium values of Y. is the government budget in surplus or deficit. the terminal values.b) Explain in which country is the steady-state growth rate of total output higher? (1 marks) Assignment 3 From Mankiw 6th edition textbook chapter 10 page 301 question 5. the axes. iii. b) Verify your answer by showing that Y* = C* + I* + G* + (EX* . ii. compute the new equilibrium output. e) At equilibrium Y. and IM. Be sure to label the i. the curves . and v. #2a-d marks 10 10 7.

spending. Wwhere AB represents the short run and AC represents the long run. Explain in words the short-run and long-run impact of the change in government spending on output and interest rates. Use the IS-LM model to illustrate both the short-run and long-run impact of this policy change. (3 marks) 8b. (2 mark) .

Assignment 4 From Mankiw 6th edition textbook chapter 11 page 327-8 question 9. P) Using the above information answer the following questions: a) Derive the equation for the IS curve b) Derive the slope of the IS curve c) Derive the LM curve d) Derive the slope of the LM curve f) Illustrate the above information in a well labeled diagram.5 Policy variables: Fiscal policy: (G. #3a-g marks 10 10 11 . YD T. I. Io = 450. Y. To = 80. interest rate (r) is in percent per annum. b = 50. t and TR) Monetary policy: (Mo. equilibrium condition) Money Market L = kY. P =1 Parameters: c = 0. Mo = 350.85. k = 0. L. respectively) e) Determine the equilibrium level of income (Y*) and the rate of interest (r*).15. Ms and r Exogenous Variables: Co = 300.25 and h = 62. Expenditure and Transfers. Goods Market C = Co + cYD (Private consumption) T = To + tY (Total taxes) Y = C + I + G (Goods mkt. t = 0. Figures are in millions of (Demand for real balances) L = Ms (Money mkt. TR = TRo (Gov. Assume that the price level (P) is fixed.The following equations describe a small economy called Hamptonian . TRo = 100. (2 marks) . (2 marks) (1/2 mark) (2 marks) (1/2 mark) (3 marks) Ms = Mo/P (Real money supply) YD = Y + TR – T (Disposable income) I = Io – br (Private investment) G = Go. equilibrium condition) Endogenous Variables: C. #1a-d 10. Go = 300.


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