Mid-term Examination
This paper consists of FOUR (4) questions. Answer ALL questions
1. Using own example, explain the double counting issue in measuring real Gross
Domestic Product. (6 marks)
2. The table shows the CPI rate of inflation (%) in Country X from 2006 to 2013.
Comment about the price level. Using own example, explain how would this
affect a fixed income worker. (6 marks)
3. The table gives selected data for an economy.
Employment status Number in Thousand (000)
Civilian non-institutional population 261,338
Full time employed 151,602
Part time employed 20,337
Unemployed 9,484
Discouraged 369
Calculate the followings and give your answer in 1 decimal place. You are
required to show your workings clearly.
a) Unemployment rate. (2 marks)
b) labor participation rate. (2 marks)
c) Using own example, explain what is a discouraged worker. Suggest ONE
possible reason why the number of discouraged workers rises during
recession. (4 marks)
ECO152 Page 1 of 2
4. Suppose the following information describes an economy.
Income Investment Government Tax
Consumption
Y Expenditure
0 200 50 100 20
100 280 50 100 20
200 360 50 100 20
300 440 50 100 20
a) What is the amount of autonomous consumption? (1 mark)
b) Calculate the marginal propensity to consume (MPC) (2 marks)
c) Based on the information given in the table, derive the consumption
function. (3 marks)
d) Compute the equilibrium level of income using Y=AE approach. Show your
workings clearly. (2 marks)
e) Compute the equilibrium level of income using injection-leakage approach.
Show your workings clearly. Compare your answer found in part c).
(3 marks)
f) Assume the government has increased their spending to 140. What is the
change in the equilibrium level of income? Use a multiplier approach.
(3 marks)
g) From your answer in e), assume that a tax of 0.1Y is imposed. Calculate
the value of tax. (2 marks)
f) With the aid of relevant diagram, show the level of equilibrium obtained.
(4 marks)
ECO152 Page 2 of 2
