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EXERCISE Question 1 (Procyclicality and Countercyclicality) Identify the following variables as being procyclical or countercyclical with respect to economic output and activities. Motivate your answer. 1) Unemployment 2) Consumption expenditure 3) Inflation 4) Nominal interest rate 5) Badger basketball team going into the Final Four Question 2 (Leading/Coincident/Lagging Indicators) Identify the following variables as being leading, coincident, or lagging with respect to economic output and activities. Motivate your answer. 1) Business fixed investment 2) Residential investment 3) Inventory investment 4) Stock prices 5) Money supply 6) Nominal interest rates 7) Crime rates Question 3 (AD-AS Curves) It is sometimes argued that if economic growth is "too rapid," it will result in inflation. Suppose the economy is initially in its equilibrium. 1) Draw the AD, SRAS and LRAS curves that show the initial equilibrium. 2) There is an increase in aggregated demand; however, the increase in full-employment output does not catch with the AD shock. This result in higher price level at the new long-run equilibrium. Show this in the curves drawn in 1). Question 4 (Derivation of IS-LM/AD-AS Curves) IS Curve - The Relationship between Output and Real Interest Rate, Given Equilibrium in Goods Market 1) Outline the factor that shifts Investment curve. Also, what factors shift Saving curve? 2) Derive an IS curve from Investment and given a variation in income (Y) 3) How does the slope of Investment curve influence the slope of IS curve? 4) If the user cost of capital increases, what would happen to IS curve? Show your analysis in derivation. 5) If the government expenditure increase temporarily, what would happen to IS curve? Show your analysis in derivation. 6) Compare the result in 4) and 5). 7) Numerical example - Suppose the full-employment output is 1000, and consumption, investment and government expenditure are given by: C 200 + 0.9Y - 400r I 200 - 600r G=0 What is the equation for IS curve?38 Combination) Beans (Unit) Rice ( Unit) 45. Use the diagram below to answer questions 45 K 15 19 and 46 L 20 17 M 74 16 The table above shows the combinations of beans and Price rice that can be purchased by a consumer. The opportunity cost of moving from K to L is A. 2 units of rice B. 5 units of beans C. 17 units of rice Quartity D. 20 units of beans 39 One of the assumption of ordinary utility in 45. When there is a change from T to N, it implies consumer behaviour is that that A. er are irrational A. supply has increased marginal utility rises contionously B. quantity supplied has increased utility is measurable C quantity demanded has i ncreased utility can only be ranked D price has fallen A large standard deviation is an indication of A movement from M to T implies that there A. the size of the sample has been B. a wide spread around the mean A. a decrease in supply a wide difference between the mean and the B. an increase in demand mode C a decrease in price D the difference between teh highest and the D an increase in price lowest values. 47. A necessary condition for specialisataion in an 41. A major characteristics of a mixed economy is that economy is the existence of A economic decisions are emade by both the A. a regulated market rich and the poor a competitive market B. both primary and secondary production are a medium of exchange undertaken D adequate capital C the federal and the state governments undertake joint projects 48. A firm operating at full capacity will experience D economic activties are undertaken by both rising short-run totall costs when the public and private sectors A prices of its variable inputs rise B. prices of its variable inputs fall 42 Given the cost function C = 160+ 36Q, what is teh C. there is a change in management average cost at 20 units of output? D labour productivity increases A N720 B N216.00 C N44.00 D N880.00 19 In a textile factory, teh cost of cotton used is a typical example of 43. If an increase in the price of good X leads to an A. an average cost B. a variable cost increase in the supply of good Y, X and Y are said to C. a total cost D. a fixed cost be A. jointly supplied B. competitive 50. A black market can occur when composite D jointly demanded A supply is excess of deman consumption of the commodity is restricted 44 prices are set by government above the equilibrium D prices are set by government below the equilibrium The diagram above shows the shifts in both demand and supply curves. What is the new equilibrium point after the shifts? A. B. E, D. E,16 The maximum wage legislation seeks to 27. The excess of aggregate expenditure over full employent fix wages above the equilibrium wage rate level of output is referred to as set wages below the equilibrium wage rate A. GNP gap B. Deflationary gap deter employers from exploiting their employees C. Inflationary gap D. recessionary gap ensure an upper limit to the wages payable 28 The tax levied on goods and services at each stage of 17. The marketing of agricultural commodities in Nigeria production is is hampered by A. surfax B. VAT C. Ad valorem tax D. PAYE A. lack of adequate storage facilities the existence of farmers' associations 29 The number of shareholders in a private limited the existence of commodity exchange liability company ranges from the abolition of , arketing boards. A. two to seven B. two to three C. two to fifty D. two to twenty 18. Import duty concessions on industrial inputs directly benefit the 30 A major reason for having national development plan is to A. consumers B.external sector C. commercial sector A ensure efficient use of available resources D. manufacturers B. involve people in national programmes C make government spend more on production 19 The labour force in Nigeria falls between the ages of ensure that more citizens are involved in planning A. 18 and 45 B. 18 and 55 C.18 and 60 D. 18 and 30 31. The difference between payments and receipts for 20. Government's involvement in agricultural business in visible trade is called Nigeria's is most manifested in the A. bilateral trade B. current balance A. establishment of farm settlements in each C.balance of payment D. balance of trade state of the federation B establishment of credit guarantee schemes 32 One of the cause of the present high rate of inflation for small-scale farmers in Nigeria is C formation of farmers' cooperative socities A. Increasing budget surplus B. Increasing factors costs D procurement and distribution of fertilizers C. Exchange rate appreciation D. High capacity utilization 21. The difference between birth and death rates of a 33. The final stage in the production process of any commodity given population is referred to as the involves its movement from the A. mortality rate B. fertility rate C.natural growth rate A. retailer to the wholesaler B. producer to the wholesaler D. linear growth rate C. retailer to the consumer D. wholesaler to the retailer 22 Fiscal policy is the government's plan to control 34. A change in demand for a normal good means aggregate demand by manipulating A a shift in the demand curve A. the demand and supply of money a change in the price elasticity revenue and expenditure the demand changes as price changes D tastes and preferences of consumers a movement along a given demand curve D. the structure of production and employment 35. Commodity X 23. A country is said to have absolute advantage when she A. has a higher opportunity cost in the production of a good B. can sell to oother countries without buying from them :H' C.can produce more of any good with fewer resources T Commodity Y D.has a lower opportunity cost in the production of a good. In the diagram above, > I is the budget une while III 24. The European Union was formed to promote free and III represent indifference curves. A rational trade within member nations consumer will choose to consume at point A. Promote free trade within members nation. A. M B. J C. KD. L B. Promote economic integration in non-member countries C. Assist countries to achieve their economic goals 36. In order to increase revenue, the seller of a commodity D. Finance development projects in member nations. whose demand is fairly elastic is advised to 25. if budget deficits are financed by borrowing, the A. increase price B. reduce outpur crowding-out effects can be offset by an increase in C. reduce price D. retain price A government expenditure B. savings C.interest rates D. exchange rates 37. In any set of data, the median represent the A value that is most representative of the data 26 When the importation of a commodity is limited to a B. mid-position when the values are arranged definite quantity, the trade control means used is known as in ascending or descending order A. exchange control B. tax relief C mid-position when the values are arranged C devaluation D. quotas randomly D difference between the highest and the lowest values when arranged ascending order
