QUESTION 3
[30 Marks]
I. Suppose your presented with an opportunity to buy a 1200m 2 plot for N$70 000. The
plot is estimated to be worth N$100 000 in five years' time.
a)
Should you buy the plot if the interest rate is 5%? Show your calculation and
state the reason that informs your decision.
(5)
b)
Should you buy the plot if the interest rate is 10%? Show your calculation and
state the reason that informs your decision.
(5)
II. Enumerate and explain relationship between absolute income hypothesis and relative
income hypothesis.
(10)
Ill. Suppose that income in the current period Yt is given as N$10 000, net investment is
N$50 000 and the accelerator coefficient is 2. Given this information answer questions
(a) and (b) below:
a)
Calculate the value of national income in the previous period.
(5)
b)
If the depreciation value is N$5000, derive Gross investment.
(5)
QUESTION 4
[15 Marks]
An economy is represented by the following macroeconomic equations:
y=
C=
G=
=
Md =
M/P =
C+ I+ G
30 + 0.5V
50
90-l0r
0.5Y-10r
90
(a) Determine the equilibrium values of Y and r.
(10)
(b) Solve for the equilibrium levels of C, I and Md.
(5)
4