UNIVERSITY COLLEGE OF THE CARIBBEAN
Incorporating Institute Of Management Sciences &
Institute Of Management & Production
A Member of the Commonwealth & OAS Consortia of Universities
ASSOCIATE OF SCIENCE DEGREE
IN
BUSINESS ADMINISTRATION
END OF MODULE EXAMINATION
CENTRE
: WORTHINGTON AVENUE & OCHO RIOS CAMPUSES
MODULE
: PRINCIPLES OF MACROECONOMICS [ECN202]
DATE
: APRIL 20, 2011
TIME
: 6:00 PM
DURATION : 3 Hours
INSTRUCTIONS:
1. Please read all instructions carefully before attempting any question.
2. This paper consists of seven (7) printed pages and three (3) sections [A, B & C].
3. Section A contains twenty (20) multiple choice questions that must be answered in the answer
booklet. This section is worth 20 %.
4. Section B consists of eight (8) essay type questions. Students are required to answer any three
of these questions. Each question is worth 20 % and the section is worth 60 %.
5. Section C consists of one (1) essay type question which is compulsory that all students are to
answer. This question is worth 20 %.
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ALL QUESTIONS MUST BE ANSWERED IN THE ANSWER BOOKLET
PLEASE ENSURE THAT YOU NUMBER YOUR QUESTIONS CORRECTLY.
CLEARLY WRITE THE NUMBER OF THE QUESTION ON EACH OF THE RELEVANT PAGES.
WHERE QUESTIONS HAVE MULTIPLE PARTS, ALL PARTS MUST BE ANSWERED.
START THE RESPONSE TO EACH QUESTION ON A NEW PAGE.
Write your REGISTRATION NUMBER clearly on each page of your answer booklet.
DO NOT WRITE YOUR NAME.
NB. Your script will not be marked if it has your name.
DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO
Section A – Multiple Choice
Answer all questions
THE MULTIPLE CHOICE QUESTIONS HAVE BEEN
REMOVED
Section B
Answer any three (3) questions
Question 1
a) The term Gross Domestic Product (GDP) is an abstract term used in Macroeconomics.
Explain what is meant by “gross domestic product” (GDP) and describe four (4) of its
basic characteristics.
(6 marks)
b) If “gross domestic product” (GDP) was to be recognized as an effective measure of
national output, a number of important economic activities would have to be included.
Describe three (3) important economic activities for which no adjustments have been
made in the calculation of “gross domestic product” (GDP).
(6 marks)
c) Real GDP is preferred over nominal GDP as a measure of nominal output. Use an
example to differentiate between the two measures.
(4 marks)
d) Explain the following concepts (use diagrams)
i. Inflation.
ii. Stagflation
(2 marks)
(2 marks)
Question 2
a) Explain the following macroeconomic terms:
i. “the employed”.
ii. “the unemployed”.
iii. “out of the labour force”.
(2 marks)
(2 marks)
(2 marks)
b) The aim of the macroeconomists is to keep the unemployment rate as low as possible.
Using examples describe three (3) types of unemployment which may exist in an
economy.
(9 marks)
c) In 2003 the average student spent $200,000, but spent $350,000 in 2005.If the
Consumer Price Index was 180 in 2005:
i. Calculate the value of real spending in 2005.
(3 marks)
ii. What is the difference in real spending between the two (2) years. (2 marks)
Page 2 of 4
Question 3
a) Using the “circular flow” diagram explain what is meant by “aggregate demand”.
(9 marks)
b) i. List the three methods of measuring GDP.
(3 marks)
ii. Describe two factors which are exceptions to the rule of measurement of GDP.
iii. Define Aggregate Demand and Aggregate Supply.
(4 marks)
c) Differentiate between final goods and intermediate goods with examples. (4 marks)
Question 4.
a) Outline three advantages that a money economy has over a barter economy.
(6 marks)
b) Explain what is meant by “money supply”.
(4 marks)
c) The Bank of Jamaica is the “top” bank in the country. Describe three (3) functions of
the Bank of Jamaica as the financial authority in the country.
(6 marks)
d) Explain the following economic terms:
i. Commodity money
(2 marks)
ii. Bank runs
(2 marks)
Question 5
a) Explain the concept of “multiplier. Derive the formula for calculating multiplier.
(4 marks)
b) Assume that the multiplier of an economy is 10 and an investor enters the economy
with $ 500m:
i. Calculate the value of the Marginal Propensity to Consume (MPC).(4 marks)
ii. By how much equilibrium GDP will change with the injection of the $500m.
(4 marks)
iii. Show in tabular form the cumulative spending increase after five “rounds” of
spending.
(5 marks)
iv. If the MPC of the economy is adjusted to 0.6 what would be the value of the
multiplier .
(2 marks)
Page 3 of 4
QUESTION 6
MARGINAL
MARGINAL
CONSUMER DISPOSABLE PROPENSITY
PROPENSITY
INCOME
TO
MULTIPLIER
YEAR SPENDING
TO SAVE
($M)
($m)
CONSUME
(MPS)
(MPC)
2004
400
440
2005
480
540
2006
600
740
2007
660
840
2008
760
960
2009
800
1,020
b) The above table represents consumption expenditure and disposable income data for
an economy. Copy and complete the table. (Show the workings)
(6 mark)
b) Using the above data construct a consumption function.
(4 mark)
c) Define the term consumption function.
(2 marks)
d) With the aid of a diagram explain “movement along” and “shift” of the consumption
function.
(4 marks)
e) Describe two (2) factors which will cause the shift of the consumption function.
(4 marks)
Question 7
a) Discuss three (3) of the arguments that have been developed against free trade
between nations.
(6 marks)
b) Distinguish between tariff and quotas and their effects on domestic production and
prices.
(6 marks)
c) Discuss three (3) reasons why countries trade with each other?
(3 marks)
c) Use an example to explain the laws of “absolute” and “comparative” advantage.
(5 marks)
SECTION C
Recession, inflation and unemployment are some of the macroeconomic problems.
Using diagrams as aid, answer the following questions.
a) The Ministry of Finance has asked you to prepare a report on Jamaica’s inflation.
Outline two fiscal policies which will alleviate the inflationary gap.
(6 marks)
b) Jamaica is affected by the global meltdown. Explain what is meant by a recession and
outline two monetary policies to alleviate the recessionary gap.
(6 marks)
c) Discuss two social and two economic costs of unemployment in Jamaica and outline
two government policies to decrease the unemployment rate. (8 marks)
END OF QUESTION PAPER
Page 4 of 4