School of Business

Economic Studies

DEGREE EXAMINATION

MODULE EC22002

MACROECONOMICS AND ECONOMIC STATISTICS

April/May 2014Time allowed 2 hours

THREE questions to be attemptedTWO from section A and ONE from section B.

Please write your name and matriculation number, as instructed, on all books and graph paper used.

Authorised calculators may be used in this examination.

EC22002Page 1 of 4SECTION A

Answer TWO questions from Section A

1. The impact on real income of a loosening in macroeconomic policies in the IS/LM model depends on the type of exchange rate regime and not on the slopes of the IS and LM curves. Discuss.

2. Explain with reference to the AD/AS Macroeconomic model:(i) The effects of an increase in technology.(ii) The effects of a loosening in fiscal policy in the short and long runs.(iii) The effects of an increase in the wage level in the short run.(iv) Giving reasons, the appropriate macroeconomic policy in response to the increase in the wage costs in part (iii) of this question.

3. Explain using a combination of the IS/LM and Aggregate Demand/Aggregate Supply macroeconomic models why in the very long run changes in the money supply affect the price level but changes in fiscal policy have no effect on the price level.

4. Unemployment is either due to high real wages or low aggregate demand. Discuss.

SECTION BYOU MUST SHOW ALL WORKING IN YOUR ANSWER BOOK

Answer ONE question from Section B

5.The equation for the exponential method for smoothing data can be written as:

where and are the exponentially smoothed values for time periods t and t-1 respectively, is the actual value in time period t, and is the smoothing constant.The table below shows the end-of-day share price for the Great Ketchup Co of Aberdeen (GKCoA) for 8 days.(a) With reference to the multiplicative model of data generation, explain the objective of exponentially smoothing data.(b)

What is the range of values that the smoothing constant can take? Explain how large and small values of affect the smoothing of the data.(c) Smooth the share price data in the table below using the exponential smoothing method. When smoothing the data assume a smoothing constant of 0.35, a starting value of 16.4, and report your answer to 2 decimal places.(d) Graph the share price data and the exponentially smoothed share price series.

DayGKCoA Share Price

116.4

217.6

316.1

415.5

517.2

616.8

718.1

817.0

6. Looking at your production line, you wonder if the 1000 gram jars of curry paste are underweight. You take a sample of 100 jars of curry paste and measure the contents and find that the mean weight of curry paste in each jar is 994 grams with a standard deviation of 3 grams of curry paste. With this information answer the following:

(a) Explain the empirical rule.

(b) With reference to the estimated sample mean weight and standard deviation of curry paste in the jars, what proportion of jars on the production line do you expect to contain less than 1000 grams of curry paste? Explain each step of your answer.

(c) What sample mean weight of curry paste per jar is necessary so that you can be confident that 97.5 % of the jars on the production line contain more than 1000 grams of curry paste? Assume the standard deviation is still 3 grams of curry paste per jar. Explain each step of your answer.

(d) Explain how to calculate the z-score of an observation and why it is useful when explaining how likely an event might occur.

End of paper.