Scribd
Upload
72 views3 pages

Eco 212 Final Exam - 2022

The document is an examination paper for the ECO 212 Intermediate Macroeconomics course at the University of Botswana for the 2021-2022 academic year. It includes instructions, questions on various macroeconomic concepts such as IS and LM equations, crowding out, investment decision-making, and Okun's equation. The exam is structured to assess students' understanding of macroeconomic theories and their application in real-world scenarios.

Uploaded by

Keolebogile Chitutu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
72 views3 pages

Eco 212 Final Exam - 2022

The document is an examination paper for the ECO 212 Intermediate Macroeconomics course at the University of Botswana for the 2021-2022 academic year. It includes instructions, questions on various macroeconomic concepts such as IS and LM equations, crowding out, investment decision-making, and Okun's equation. The exam is structured to assess students' understanding of macroeconomic theories and their application in real-world scenarios.

Uploaded by

Keolebogile Chitutu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

UNIVERSITY OF BOTSWANA

DEPARTMENT OF ECONOMICS

ECO 212- INTERMEDIATE MACROECONOMICS

SECOND SEMESTER MAIN EXAMINATION 2021-2022

COURSE NO. ECO 212 DATE: UPLOADED: 15 May 2022@9am


SUBMISSION: 15 May 2022 by 11am
DURATION: 2hrs

TITLE OF THE PAPER: INTERMEDIATE MACROECONOMICS

SUBJECT: ECONOMICS

TOTAL MARKS: 60

INSTRUCTIONS:

1. Answer ALL questions.

2. Write your student ID. Number (CLEARLY), Surname & initials, lecture number on
the cover page of your answer paper.

1
Question 1

A. Given that

C = 200+ 0.5Yd (where Yd = Y –T)


I = 200 – 600i
G = 110
T = 20 + 0.2Y
Ms/P =300
Md/P = 50 + 0.5Y – 600i

Where C = consumption
Y = income
I = Investment
G = government spending
T = taxes
i = interest rate
Ms/P = Real Money Supply
Md/P = Real Demand for Money

(i) Define and derive the IS and LM equations. [10 Marks]

(ii) Obtain the equilibrium level of income and the interest rate [5 Marks]

B. With the aid of diagram(s), explain in detail the concept of crowding out and how it
occurs. [8 Marks]

C. Assume that in a given year, the monetary base increased by P100 million. If the
currency deposit ratio is 20% while the reserve-deposit ratio is 10%,
(i) Calculate and interpret the money multiplier. [4 Marks]

(ii) What is the total change in money supply? [3 Marks]

2
Question 2

A. An ice cream vendor considers buying a soft serve machine that costs P2, 000. The
machine will last for two years and is expected to produce 1,000 ice cream cones per
year. During the first year, each ice cream cone is expected to sell for P2 each; labour
and raw material costs are expected to be P0.90 per ice cream (all other operating costs
are assumed negligible). During the second year, each ice cream cone is expected to
sell for P2.50; labour and raw materials are expected to be P1.00 per unit; and
maintenance costs are expected to be P290. Scrap value is zero and all revenues and
costs are at the end of the year.

(i) Should the ice cream vendor buy the machine if interest rate is 12 percent?
Justify your answer and clearly show your workings [3 Marks]

(ii) What would your answer be to (i) if the interest rate is 8 percent? [3 Marks]

(iii) What do your answers to (i) and (ii) above suggest about the relationship
between interest rate and the decision to invest? [2 Marks]

B. Discuss the approaches used in the investment decision making process? [6 marks]

C. Derive the LM curve (diagrammatically) and explain why it is upward sloping


[7 Marks]

D. Suppose that output of Botswana grew by 6% in 2009, use Okun’s equation to


calculate and interpret the change in the unemployment rate [6 Marks]

E. Define investment. How is it differentiated from the capital stock? [3 marks]

***END OF THE EXAMINATION***

You might also like