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THE UNIVERSITY OF THE WEST INDIES
OPEN CAMPUS
SEMESTER I □ SEMESTER II  SUPPLEMENTAL/SUMMER SCHOOL □

Examinations of December Course Code and Name Title:



/

April/May 

/ July □

2010

MACROECONOMICS
Date: Duration ___2_______Hrs. Materials required: Answer booklet: Calculator: (where applicable)

ECON1002
Time: Paper No:

INTRODUCTION

TO

 Programmable □
Normal Numerical

Special



Not Required □

Non Programmable Alphabetical


Included

Multiple Choice Answer Sheets:







Auxiliary/Other material(s) – Please specify: …………………………………………………………………………………………………………… ………………………………………………………………………………………………………….... Candidates are permitted to bring the following items to their desks: …………………………………………………………………………………………………………....

INSTRUCTIONS TO CANDIDATES:  This paper has 3 pages and 7 questions.  Students are required to answer Question 1 and any other three (3) questions.

©The University of the West Indies Course Code: ECON1002 8/29/2010 ____________________________________________________________________________________ ____ DO NOT WRITE OR TYPE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the FIRST AND SECOND EXAMINERS. Completed forms should be handed to the Assistant Registrar (Examinations).

..................................... First Examiner Date: 8/29/2010

............................................ Second Examiner Date: 8/29/2010

Page 2

1.

You are given the following information about an economy: $millions 1,669.4 290.5 48.7 39.0 75.9 273.4 16.8 10.0 10.5 19.2 355.6 490.1 297.3 25.7

GDP at Market Prices Imports Gross Domestic Capital Formation Income accruing to the Public Sector Retained Business Earnings Exports Subsidies Factor Payments from Abroad Capital Consumption Allowance Income Payments to Foreigners Direct Taxes Public Sector Consumption Expenditure Indirect Taxes Transfer Payments Derive the following: (i) National Income (ii) Net Investment (iii)Personal Income (iv) Disposable Income (v) Household Consumption Expenditure

[4 marks] [2 marks] [3 marks] [3 marks] [3 marks]

2.

(i) Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard of living mean and state the four main factors of labour productivity. [5 marks] (ii) The catch-up effect says that countries with low income can grow faster than countries with higher income. However, in studies that include many diverse countries, we do not observe the catch-up-effect unless we consider other variables that affect productivity. Considering the determinants of productivity, list and explain some things that would tend to prohibit or limit a poor country’s ability to catch up with the rich ones. [5 marks] (iii) Why are property rights important for the growth of a nation's standard of living? [5 marks]

3.

(i) Explain why the demand for loanable funds curve slopes downward and the supply of loanable funds curve slopes upward. [5 marks] (ii) St. Kitts and Nevis recently implemented a valued added tax. If they use the proceeds from this tax to reduce income tax rates, what happens in the loanable funds market? [10 marks]

PLEASE TURN OVER

Page 3

4.

Suppose that the T-account for The Open Campus National Bank (OCNB) is as follows: Assets Reserves $100,000 Loans 400,000 Liabilities Deposits $500,000

the

(i) If the central bank requires banks to hold 10% of deposits as reserves, how much in excess reserves does OCNB now hold? [5 marks] (ii) If OCNB decides to reduce its reserves to only the required amount, by how much would economy’s money supply increase? [10 marks]

5. (i) Explain the adjustment process that creates a change in the price level when the money supply increases. [5 marks] (ii) Explain with the aid of a diagram what happens to the money supply, money demand, the value of money, and the price level if the central bank...
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