INTERMEDIATE MACROECONOMICS

ECO 3002 ASSIGNMENT

GROUPS: BBA FIN3, EBBA3, EBBA
FIN4

INSTRUCTIONS:

1. The paper is divided in four sections 1, 2, 3 & 4.

2. All questions are compulsory.
3. These questions comprise of problem solving exercises and short essay questions and
contribute to 16% of your final grade.
4. All assignments are COMPULSORY and should be type written (inclusive of graphs)

and submitted in a portfolio.

5. Each cover page should have the PARTICIPATING individual group member’s

names and their ID numbers.

6. This portfolio is due the week of November 8-12, 2010 in your respective
tutorial sessions. Each group should comprise of a maximum of 4-5 persons.

7. READ ALL QUESTIONS CAREFULLY!

 Assignment 1

1. Refer to the information provided in Table below to answer the questions that follow for the
Macrovian economy. All quantities are given in millions of Macrovian dollars (M$).

a) Calculate gross private investment. (1 mark)

b) Calculate Macrovian GDP. (2 marks)
c) Calculate gross national product (GNP). (1 mark)
d) Calculate net national product (NNP). (1 mark)
e) Calculate domestic national income. (1 mark)
f) Calculate personal income. (1 mark)
g) Calculate disposable personal income. (2 marks)

Assignment2
th
From Mankiw 6 edition textbook

chapter page question marks

2. #1 a-c 10
8 242 3. # 4 a-c 10

4. Two countries, Highland and Lowland, are described by the Solow growth model. Both
countries are identical, except that the rate of labor-augmenting technological progress is higher
in Highland than in Lowland.

a) State and graphically show in which country is the steady-state growth rate of output per
effective worker higher? (4 marks)
 b) Explain in which country is the steady-state growth rate of total output higher? (1
marks)

Assignment 3

From Mankiw 6th edition textbook

chapter page question marks

5. #1a-c 10
10 301 6. #2a-d 10

7.Suppose the country Condupta have an income-expenditure model of the form:

C = 50 + 0.85Yd Yd = Y – T T = 400
I = 150 G = 300 EX = 80 IM = 10 + 0.05Y

a) Compute the equilibrium values of Y, C, and IM. (3 marks)

b) Verify your answer by showing that Y* = C* + I* + G* + (EX* - IM*), where “*”

denotes equilibrium value. (1/2 mark)

c) Compute and state the slope of the aggregate expenditure function. (1/2 mark)

d) Compute the government spending multiplier for the economy. (1 mark)

e) At equilibrium Y, is the government budget in surplus or deficit, and by how much?

(1 mark)

f) Assume that G increased by 200, compute the new equilibrium output. (1 mark)

g) Draw a carefully labeled aggregate expenditure diagram using information found in (a)
and (e) identifying the old and new equilibrium. Be sure to label the

i. the axes; ii. the curves ; iii. The initial values;

iv. the direction the curves shift; and v. the terminal values. (3 marks)

8a. An economy is initially at the natural level of output. There is an increase in government
spending. Use the IS-LM model to illustrate both the short-run and long-run impact of this policy

change. Wwhere AB represents the short run and AC represents the long run. (3 marks)

8b. Explain in words the short-run and long-run impact of the change in government spending on

output and interest rates. (2 mark)

 Assignment 4

From Mankiw 6th edition textbook

chapter page question marks

9. #1a-d 10
11 327-8 10. #3a-g 10

11 .The following equations describe a small economy called Hamptonian . Figures are in
millions of dollars; interest rate (r) is in percent per annum. Assume that the price level (P) is
fixed.
Goods Market
C = Co + cYD (Private consumption) YD = Y + TR – T (Disposable income)
T = To + tY (Total taxes) I = Io – br (Private investment)
G = Go, TR = TRo (Gov. Expenditure and Transfers, respectively)
Y = C + I + G (Goods mkt. equilibrium condition)

Money Market
L = kY- hr (Demand for real balances) Ms = Mo/P (Real money supply)
L = Ms (Money mkt. equilibrium condition)
Endogenous Variables: C, YD T, I, Y, L, Ms and r
Exogenous Variables: Co = 300, To = 80, Io = 450, Go = 300, TRo = 100, Mo = 350, P =1
Parameters: c = 0.85, t = 0.15, b = 50, k = 0.25 and h = 62.5
Policy variables: Fiscal policy: (G, t and TR) Monetary policy: (Mo, P)

Using the above information answer the following questions:

a) Derive the equation for the IS curve (2 marks)
b) Derive the slope of the IS curve (1/2 mark)
c) Derive the LM curve (2 marks)
d) Derive the slope of the LM curve (1/2 mark)
e) Determine the equilibrium level of income (Y*) and the rate of interest (r*). (2 marks)
f) Illustrate the above information in a well labeled diagram. (3 marks)
END OF ASSIGNMENTS