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AME820S- ADVANCED MACROECONOMICS- 1ST OPP- NOV 2023 |
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nAmlBIA UnlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ECONOMICS ACCOUNTING AND FINANCE
QUALIFICATION:
BACHELOR OF ECONOMICS HONOURS DEGREE
QUALIFICATION CODE:
08HECO LEVEL:
8
COURSE CODE:
AME820S COURSE NAME: ADV AN CED MACROECONOMICS
SESSION:
NOV 2023 PAPER:
THEORY
DURATION:
3 HOURS MARKS:
100
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER (S)
Prof. T. Sunde
MODERATOR:
Dr Reinhold Kamati
INSTRUCTIONS
1. Answer ALL the questions.
2. Write clearly and neatly.
3. Number all the answers.
PERMISSIBLE MATERIALS
I.Ruler
2. Calculator
THIS QUESTION PAPER CONSISTS OF 3 PAGES INCLUDING THE COVER PAGE
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QUESTION 1
[25 marks]
a) Why is it important to learn about macroeconomics, and how does an increase in
unemployment negatively impact society's well-being? Include at least five such impacts
m your response.
[15]
b) Explain a demand and supply model for bread, identifying all the endogenous variables
and two exogenous variables. Also, briefly describe how prices behave in the short and
long run.
[1 O]
QUESTION 2
[25 marks]
1. In the prosperous nation of Namiland, the economy is steered by producing and selling
various goods and services. This analysis will concentrate on three pivotal goods: A, B,
and C. For four years, from 2019 to 2022, these goods played an instrumental role in the
macroeconomic adjustments of Namiland. The table below offers a detailed perspective
on these goods' price (P) and quantity (Q) over the mentioned years.
Good A
2019
p
Q
$20
500
2020
p
Q
$22 550
2021
p
Q
$25
530
2022
p
Q
$26
520
GoodB
$150
100 $152 105 $155
103
$156 104
GoodC
$5
1000 $6 980 $7
970
$7.5 960
a) Compute the nominal GDP for each of the years from 2019 to 2022 for Namiland.
[5]
b) Using 2019 as the base year, compute the real GDP for each subsequent year up to
2022 for Namiland.
[5]
c) Based on your calculations from (a) and (b), determine the GDP deflator for each year
for Namiland.
[5]
d) Calculate the inflation rate for each year starting from 2020 for Namiland. Discuss its
implications regarding Namiland's economic trajectory during this period. [5]
e) Observing the data table, which good, A, B, or C, underwent the most considerable
percentage change in its price from 2019 to 2022 in Namiland? How might economic
dynamics account for this transformation?
[5]
QUESTION 3
[25 marks]
a) Explain the distinctions between the standard IS-LM model and the Mundell-Fleming IS*-
LM* model. How do these models differ in their assumptions and implications for policy
effectiveness in open and closed economies?
[1 O]
b) Evaluate the effectiveness of monetary, fiscal, and trade policies in a small open economy,
particularly focusing on the impacts of an increase in government expenditure, an increase
in money supply, and import restrictions. Analyse the outcomes of these policies under
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both floating and fixed exchange rate systems, and consider their implications for economic
stability, growth, and international trade.
[ 15]
QUESTION 4
a) Consider an economy characterised by the equations:
Y = C +I+ G + NX,
Y = 5,000,
G = 1000,
T = 1,000,
C = 250 + 0.75(Y - T),
I = 1000 - 50r,
NX = 500 - 5001:,
r = r *= 5.
[25 marks)
1. Calculate the values of national savings, investment, trade balance, and the equilibrium
exchange rate in the initial scenario.
[10]
11. Assess the impact on these variables when government expenditure increases to 1,250
and explain the economic mechanisms behind the changes observed.
[5]
m. Analyse the effect of a rise in the world interest rate from 5% to 10% (with G returning
to 1,000) on national saving, investment, trade balance, and equilibrium exchange rate,
and interpret the economic implications.
[5]
b) In the context of the economy above, critically evaluate how changes in government
spending and world interest rates affect critical economic variables, such as investment,
national saving, trade balance, and the equilibrium exchange rate. Use your calculations
from pai1 (a) to support your arguments and provide insights into the potential policy
implications and responses that might be considered to mitigate any adverse effects.
[5]
QUESTION 5
[25 marks]
Given the current recession and rising unce11ainties in Namibia leading to delayed expenditures
by households and businesses:
a) Utilise the AD-SRAS-LRAS framework to analyse the anticipated short-run and long-run
effects of the recession on the following economic variables:
• Price level
• Real GDP
• Employment
• Consumption
• Investment
• Exports
Incorporate a detailed discussion on how the recession, compounded by heightened
uncertainties and deferred expenditures, influences each variable. Utilise graphical
illustrations to support your analysis, showcasing the shifts in the AD, SRAS, and LRAS
curves and the resultant equilibrium points.
[15]
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b) Enumerate the policy measures available to the Bank of Namibia to counteract the
recessionary pressures in the short run. Evaluate each policy option's potential effectiveness
and limitations, considering Namibia's specific economic and institutional context.
[5]
c) Extend your analysis to explore the long-term implications of these policy choices.
Consider the impacts on inflation, unemployment, fiscal balance, and external trade.
Discuss the potential trade-offs and challenges the Bank of Namibia might face m
balancing short-term recovery eff01is with long-term economic stability and growth.
[5]
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