ASSIGNMENT I
Question 1
The following equations describe an economy. The interest rate is measured in percentage terms while all the other variables are measured in millions of Namibian dollars.
C = 0.8(1- t)Y
t = 0.25
I = 600 - 40i
G = 500
L = 0.5Y - 50i
M/P = 1000
(a) What is the equation that describes the IS curve?
(b) Briefly explain why the IS curve is downward sloping.
(c) What is the equation that describes the LM curve?
(d) Briefly explain why the LM curve is upward sloping.
(e) What are the equilibrium levels of income and the interest rate?
(f) What are the equilibrium levels of consumption and investment?
Question 2
(a) (i) What are the determinants of exports?
( i) Clearly explain how each of the determinants affects the level of exports.
(b) Using illustrative diagrams explain how an increase in foreign government spending affects domestic output and trade balance.
Question 3
(a) Explain fully the conditions on which a worker's bargaining power depends.
(b) Define a reservation wage and explain why firms may want to pay more than the reservation wage.
(c) Use an illustrative diagram to show and explain how the natural rate of unemployment is affected by an increase in unemployment benefits.
Question 4
a) Distinguish between the nominal and real exchange rates, and explain how the two concepts are related.
b) Distinguish between the nominal and real depreciation of the exchange rate.
c) Use illustrative diagrams to explain the effects of a monetary contraction on composition of output, interest rate, and on the exchange rate under flexible exchange rate system.
ASSIGNMENT II
Answer all questions
Question 1
(a) Using appropriate diagrams explain and illustrate how the LM curve is derived.
(b) Using the AD - AS model, show the effects of an increase in the quantity of money supply on the positions of the AD, AS, IS and LM curves in the long-run. Explain why the curves in your diagrams shift the way they do.
Question 2
a) (i) What are the determinants of imports?
(ii) Clearly explain how each of the determinants affects the level of imports.
(b) Use illustrative diagrams to explain the effects of an increase in the budget deficit on output, composition of output, interest rate, and on the exchange rate under the flexible exchange rate system.
Question 3
(i) Distinguish between demand for goods and the demand for domestic goods, and explain why the demand for domestic goods AA is flatter than the demand for goods curve DD.
(ii) Using illustrative diagrams explain the effects of exchange rate depreciation.
Question 4
(i) Briefly explain the determinants of the goods market equilibrium in an open economy.
(ii) Using appropriate diagram explain the effect of monetary expansion on output and interest rate in a closed economy.
(iii) Using appropriate diagrams explain and illustrate how the IS curve is derived