IMPORTANT NOTE 

 
As part of your evaluation assignment, you need to answer any
one question of your choice. 
Please download and use the answering template available on
step 1. 
Kindly elaborate as much as possible. 
Macroeconomics
1.

The implication of Prebisch-Singer Hypothesis is:

a) Raw materials and labour intensive goods are exported by the developing
countries
b) That because the price elasticity of demand for primary goods is relatively
inelastic, it is pointless for developing countries to seek to export these.
c) That because the income elasticity of demand for primary goods is inelastic, over
time there will be a decline in primary commodity prices and therefore the
incomes derived from primary goods.
d) Trade will always be mutually beneficial between a developed and a developing
country as long as they both seek to exploit their comparative advantages.

2.

State what the theory of comparative advantage forecasts: When there are two countries
A and B, and two goods are produced by them: good X and Y.

a) Trade between A and B will only take place if both countries are at a
comparatively similar stage in the development of their economies.
b) Trade can take place even if country A has an absolute advantage in both
providing that B chooses to specialize in the good in which it has the least
comparative disadvantage, and A specializes in the one in which it has the greater
comparative advantage.
c) Trade can only take place if country A has an absolute advantage in producing
one of the goods, and country B has an absolute advantage in producing the other.
d) None of the above.

3.

The graph represents the market for $(dollars), which is in equilibrium:

In order to achieve an exchange rate of $1=£2.50, the US government should?

a) Buy $10billion
b) Buy $20 billion
c) Sell $10billion
d) Sell $20billion

4.

Let elasticity of demand for exports for a certain country be ex and elasticity of demand
for imports is em. Assume that the country devalues its currency. Its balance of payment
will almost certainly show an improvement if:

(A) ex =em=1
(B) ex +em >1
(C) ex +em <1
(D) ex + em=1

5.

What will be the money supply, if the central bank purchases a government bond from an
individual who deposits all the money that has been received from the sale in the bank?

a) Rise by an amount that depends on the banks reserve ratio

b) Fall by exactly the amount of the deposit as long as the bank does not change its
reserve ratio
c) Rise by less than the amount of the deposit
d) Be unchanged