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SECTION B (Answer all questions in this section - Total points to be accumulated is 30 marks ). A. Consider an exchange economy with Kofi

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SECTION B (Answer all questions in this section - Total points to be accumulated is 30 marks ). A. Consider an exchange economy with Kofi Nisi and Esi Gyatowa as the only consumers in that economy. U = X0.80.8 Ntsi's utility function is given as while U = X0.5y0.5 Esi's utility function is also given as Ntsi has 6 unit of good X and 4 unit of good Y as the initial endowments while Esi has 4 unit of good X and 6 unit of good Y as the initial endowments. a) Represent the above information on the Edgeworth box (4 marks). b) Derive the contract curve (4 marks). c) Calculate the equilibrium price and quantity. (7 marks). Now, assuming the Ghanaian economy is open with external participation which is summarized as follows; C = 102 + 0.7Yd, I= 150 - 100r, Ms =300, M: = 0.4Y, Mz=125-200r, export(X)=100-0.10Y, import(M)=50, G=100 and Taxes(T)= 100 where, Y= income, C= consumption, I= investment, Ms= money supply, M,= transactional- precautionary money demand, My= speculative money demand and r= interest rate. i. The equilibrium income and interest rate in this new economy. (4 marks). ii. The level of C, I, Mu, and Mz when the economy is in equilibrium (4 marks). ifi. Assuming capital is perfectly mobile in this economy, graphically sketch the IS-LM- BOP frame work of this economy. Comment on the balance of payment situation in this economy. (4 marks). iv . What exchange rate policy should government implement in (iii) to enhance income and why? (3 marks). SECTION C (Candidates should attempt ONE question-Total points to be accumulated is 15 marks). A. With the aid of diagrams, brieftly explain the effectiveness of fiscal and monetary policy under flexible exchange rate system with perfect capital mobility within the IS-LM-BOP framework 15 marks. B. Define and give an example of each of the following: (a) external economy of production, (b) external economy of consumption, (c) external diseconomy of production, (d) external diseconomy of consumption, (e) moral hazard, and (f) public good. 15 marks. Wishing you all the best

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