Econ1002 Introduction to Macroeconomics

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THE UNIVERSITY OF THE WEST INDIES
OPEN CAMPUS
SEMESTER I √ SEMESTER II




SUPPLEMENTAL/SUMMER SCHOOL □

Examinations of December

/ April/May □ / July □ 2011
Time: Paper No:

Course Code and Name Title: ECON1002 INTRODUCTION TO MACROECONOMICS Date: Duration ___2_______Hrs. Materials required: Answer booklet: Calculator: (where applicable)

√ 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 11/1/2011 ________________________________________________________________________________________ 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: 11/1/2011 ............................................ Second Examiner Date: 11/1/2011

Page 2

1.

You are given the following information about an economy: $millions 2,310.5 361.4 146.2 46.0 93.9 312.4 0.0 2.9 96.1 13.7 425.3 387.4 215.3 43.7 [4 marks] [2 marks] [3 marks] [3 marks] [3 marks]

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 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) What are the ways in which a government policymaker can try to raise the growth in living standards in a society? [5 marks] (iii) Higher saving means more capital goods can be produced which can be used to produce more output. Why might policymakers restrain from encouraging a higher rate of saving? [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) Illustrate the effect of an increase in government borrowing in the loanable funds market? [5 marks] (iii) What are some of the ways in which policymakers can increase investment? [5 marks]

PLEASE TURN OVER
©The University of the West Indies Course Code: ECON1002 11/1/2011 ________________________________________________________________________________________ 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: 11/1/2011 ............................................ Second Examiner Date: 11/1/2011

Page 3

4.

(i) Why don’t banks hold 100 percent reserves? How is the amount of reserves banks hold related to the amount of money the banking system creates? [5 marks] (ii) Why can’t the money supply be perfectly controlled? (iii) Discuss the effectiveness of traditional monetary policy tools in the Caribbean. [5 marks] [5 marks]

5.

(i) What are the functions of money in the economy? How does inflation affect the ability of money to serve...
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