2002 - JAMB Economics Past Questions and Answers - page 2

The GNP deflator is calculated using the following formula:

GNP Deflator = (Nominal GNP / Real GNP) * 100

In this case, since the nominal GNP and the base year GNP (real GNP) are equal (N50 billion), the GNP deflator will be:

GNP Deflator = (N50 billion / N50 billion) * 100 = 1.0 * 100 = 100.

However, none of the provided options is 100. Let's analyze the formula again and assume that one of the values might be different.

If the Nominal GNP in the current year is N50 billion, and the Real GNP in the base year is N50 billion. If

The question deals with the concept of the multiplier effect in economics. The multiplier effect refers to the increase in final income arising from any new injection of spending.

Here's how to solve the problem:

1. Identify the relevant concept: The multiplier is calculated using the marginal propensity to consume (MPC).
2. Formula: The multiplier (k) is calculated as: k = 1 / (1 - MPC)
3. Substitute the given value: MPC is given as 0.6.
4. Calculate: k = 1 / (1 - 0.6) = 1 / 0.4 = 2.5
5. Average propensity to consume (APC) value of 0.8 is irrelevant.

Liquidity preference, in economics, refers to the desire to hold assets in a liquid form, such as cash. This is driven by several motives, including:

• Precautionary motive: Holding cash for unexpected expenses or emergencies.
• Transactions motive: Holding cash for day-to-day purchases.
• Speculative motive: Holding cash to take advantage of anticipated changes in interest rates or asset prices.

Option B, "wish to hold more funds for precautionary purpose," accurately captures the essence of liquidity preference by focusing on the desire to hold liquid assets for unforeseen circumstances.

Excess demand inflation occurs when aggregate demand exceeds aggregate supply, leading to rising prices. Contractionary policies aim to reduce aggregate demand, thereby curbing inflation.

• Contractionary fiscal policy involves measures like increased taxes or reduced government spending. These actions decrease the disposable income of households and reduce overall demand in the economy.
• Contractionary trade policy involves measures like tariffs and quotas, aimed at reducing imports and potentially demand, but it is not a primary or effective tool for controlling excess demand inflation.
• Expansionary fiscal policy (increased government spending or reduced taxes) and expansionary monetary policy (e.g., lowering interest rates, increasing the money supply) would stimulate demand, worsening the inflationary pressure.