NATIONAL OPEN UNIVERSITY OF NIGERIA

FACULTY OF SOCIAL SCIENCES

DEPARTMENT OF ECONOMICS
2018_1 EXAMINATION
COURSE TITLE: ADVANCED MACROECONOMICS
COURSE CODE: ECO 442
UNITS: 3
TIME ALLOWED: 3 HOURS
INSTRUCTIONS: ANSWER QUESTION ONE AND ANY OTHER THREE QUESTIONS
1a. Provide a proof for the equality of savings and investment at equilibrium level of national
income. (5 marks)
b. Graphically explain the 3-sector economy in a circular flow of national income (5 marks)
c. Differentiate between GNP at factor cost and GNP at market price (5 marks)
d. Explain the difference between nominal and real Gross Domestic Product (GDP) (5 marks)
e. Using a numerical example, define and explain the concept of multiplier (5 marks).

2a. Use the concept of leakages and injections to illustrate Balanced budget. (8 marks)
b. Distinguish between the3-sector economy and 4-sector economy (7 marks)
3. Given the following structural model; Y = C + 1 + G + (X – M)
Where:
C = 400 + 0.540Yd
I = 220 + 0.200Y
G = 400
X = 620
M = 100 + 0.150Y
Yd = Y – T
T = 80 + 0.120Y
Calculate
a) Equilibrium national income (7 marks)
b) If government expenditure is increased by 40% determine the new equilibrium national
income (3 marks)
c) Estimate the Saving function and aggregate savings at equilibrium level of income (Ye)
(5 marks)
4a). Inflation is a known monetary phenomenon that is presence in every economy of the world
with varying degree of magnitude and frequency. What are the causes, effects and remedies to
this menace? (12 marks)
b).Clearly discuss the wage-price spiral of inflation and unemployment nexus. (3 marks)
5a. Explain the following ‘effects’ in accordance with James Duesenberry consumption theory,
“Rachet Effect” and “Demonstration Effect”. (8 marks)
b. Differentiate between long run and short run consumption function (7 marks)

6. Given the following product and money markets situation, evaluate the general equilibrium
rate of interest(r) and level of real income (Y):
C = 25 + 0.75Y;
I = 70 - 0.15r; and government spending is autonomously given as
G = 95
Msp= 10 - 0.10r + 0.40Y (Precautionary Demand for Money)
MTr = 0.25Y (Transactionary Demand for Money)
Ms = 490 (Money supply)
(15 Marks)