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AME820S - ADVANCED MACROECONOMICS - 2ND OPP - JAN 2020 |
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NAMIBIA UNIVERSITY
OF SCIENCE AND TECHNOLOGY
FACULTY OF MANAGEMENT SCIENCES
DEPARTMENT OF ACCOUNTING ECONOMICS AND FINANCE
QUALIFICATION:
BACHELOR OF ECONOMICS HONOURS DEGREE
QUALIFICATION CODE:
O8HECO | LEVEL:
8
COURSE CODE:
AME820S | COURSE NAME: ADVANCED MACROECONOMICS
SESSION:
JANUARY 2020 | PAPER:
THEORY
DURATION:
3 HOURS | MARKS:
100
SECOND OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER (S)
Prof. T. Sunde
MODERATOR:
Prof. J.P.S. Sheefeni
INSTRUCTIONS
1. Answer ALL the questions.
2. Write clearly and neatly.
3. Number the answers clearly.
PERMISSIBLE MATERIALS
1. Ruler
2. Calculator
THIS QUESTION PAPER CONSISTS OF 4 PAGES
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QUESTION 1 [25 marks]
(a) Place each of the following transactions in one of the four components of expenditure:
consumption, investment, government purchases and next exports.
i. Boeing sells an airplane to the Air force.
ii, | Boeing sells an airplane to American Airlines
iii. | Boeing sells an airplane to Air Namibia
iv. Boeing sells an airplane to Mr Lazarus Indongo
v. Boeing builds an airplane to be sold next year
[5 Marks]
(b) Consider whether each of the following events is likely to increase or decrease real
GDP in each case do you think economic well-being most likely changes in the same
direction as real GDP. Why or why not?
i. The discovery of a new, easy-to-grow strain of wheat increases farm harvests.
ii. Increased hostility between labour unions and management sparks a rash of
strikes.
iii. Firms throughout the country experience falling demand causing them to lay
off workers.
iv. More high school students drop out of drop out of school to take jobs mowing
lawns.
v. | Fathers around the country reduce their workweeks to spend more time with
their children.
[15 Marks]
(c) Ina speech that Senator Robert Kennedy gave when he was running for president in
in the USA in 1968, he said the following about GDP:
“GDP does not allow for the health of our children, the quality of their education, or the joy
of their play. It does not include the beauty of our poetry or the strength of our marriages,
the intelligence of our public debate or the integrity of our public officials. It measures
neither our courage, nor our wisdom, nor our devotion to our country. It measures
everything, in short, except that which makes life worthwhile, and it can tell us everything
about America except why we are proud that we are Americans”.
Was Robert Kennedy right? If so, why do we care about GDP?
[5 Marks]
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QUESTION 2 [25 marks]
Consider a macroeconomy that produces three goods. Use the information below to
answer the following questions.
Product
A
B
C
D
Quantity
2010
2012
100
160
40
20
20
60
30
40
Price
2010
2012
$4
$4
$8
$16
$4
$4
$10
$12
(a) Calculate nominal and real GDP for 2010 and 2012 using 2010 as the base year. Is the
economy growing? If so, by how much?
[7]
(b) Assuming that the typical consumer’s basket of goods is given by 2010 quantities,
calculate the CPI for 2010 and 2012 using 2010 as the base year. What is the inflation
rate?
[7]
(c) Calculate the inflation rate from the GDP deflator and compare it to CPI inflation?
Which measure is larger and why?
[7]
(d) What are the differences between CPI and the GDP deflator? Which of the two is a
better measure of inflation?
[4]
QUESTION 3 [25 marks]
a) Ifasmall open economy cuts defense spending what happens to saving, investment,
the trade balance, the interest rate and the exchange rate?
[10 Marks]
b) The country Namibia is a small open economy. Suddenly, a change in world fashions
makes the exports of Namibia unpopular.
i. What happens in Namibia to savings, investment, net exports, the interest rate
and the exchange rate?
[4 Marks]
ii. The citizens of Namibia like to travel abroad. How will this change in the
exchange rate affect them?
[3 Marks]
iii. The fiscal policy makers in Namibia want to adjust taxes to maintain the
exchange rate at its previous level. What should they do? [4 Marks]
iv. If they do this (iii), what are the overall effects on saving, investment, net
exports and the interest rate?
[4 Marks]
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QUESTION 4 [25 marks]
(a) State the equations of motion and the Golden rule level of capital (k*gold) for the following
three cases:
i. There is no population growth and no technological progress
ii, | There is population growth, but no technological progress
iii. | There is both population growth and technological progress.
[9 Marks]
(b) Suppose an economy described by the Solow model has the following production function:
Y = (K)?(L)¥?
i. For this economy, what is the per worker production function (f(k))? [5 Marks]
ii. | Use your answer in part (a) to solve for the steady state value of "y" as a function of
s,n, and 6.
[5 Marks]
iii. © Two neighbouring economies Namibia and Zambia have the same production as
above, but they have different parameter values. Namibia has a saving rate of 28
percent and a population growth rate of 1 percent per year. Zambia has a saving rate
of 10 percent and population growth rate of 4 percent per year. In both countries the
depreciation rate is 5 = 0.04. Find the steady state value for each country. [6 Marks]