Define the term budget deficit.

(ii) State, with examples, two ways in which a recession can increase the size of the

government's budget deficit. Illustrate your answer with a diagram.

(iii) Describe what is meant by the structural deficit or surplus.

(i) Define the real exchange rate index.

(ii) Over the past year, Country X's nominal exchange rate index has decreased by 10%, the

index of its export prices has increased by 20% and the index of its import prices has

decreased by 20%. Calculate the percentage change in the real exchange rate index.

Explain, with the aid of an example, what is meant by the international trade multiplier and state

the key influence on its value for a particular country.

(i) Use the IS-MP model to illustrate and explain the effect on interest rates and national

income of:an increase in the demand for exports

a loosening of monetary policy.

(ii) Use the extended IS-LM analysis for an open economy, assuming that the BP curve is

flatter than the LM curve, to illustrate and explain the effect on national income of an

increase in the money supply. You should assume the economy operates a floating

exchange rate system.

X3.38 Describe policies that a government could introduce to encourage economic growth.

On 1 January 1997 a life insurance company issued a number of 30-year pure endowment contracts to lives then aged 35. Level premiums arc payable annually in advance throughout the term of the contract or until earlier death. In each case, the only benefit is a sum assured of C20,000, payable on survival to the end of the term. On 1 January 2005, 600 policies were still in force. During 2005, 3 policyholders died. Assuming that the company uses net premium policy reserves, calculate the profit or loss from mortality for calendar year 2005 in respect of this group of policies. Basis: mortality: AM92 Ultimate interest: 4% pa