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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

Exam Date Exam Duration Session Venue

17 NOVEMBER 2014 2 HOURS 08:30 OLD MUTUAL SPORTS HALL

-------------------------------------------------------------------------------------------------------------------------
University of the Witwatersrand, Johannesburg

ECON2001 and ECON2008

Course or topic number

ECONOMICS IIB
PAPER II ECONOMIC STATISTICS AND
MATHEMATICAL ECONOMICS

Course or topic name

Paper number and title

EXAMINATION: November 2014

Examination/Test to be held during

month of

SECOND YEAR

Year of study
(Arts & Science leave blank)

B.A., B.COM., B.ECON. SCIENCE &

B. SCIENCE

Degrees/Diplomas for which this course

is prescribed [BSc (Eng) should indicate
which branch]

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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

ARTS; COMMERCE, LAW & MANAGEMENT;

SCIENCE; ENGINEERING

Faculty/ies presenting candidates

Mr. Aldo Sitoe (78254); Mrs. Rubina Jogee (78093);

Mr. Mthokozisi Mlilo (78099); Mrs Nimisha Rama
(78125)

Internal examiner(s) and telephone

extension number(s)

Dr. B Moyo

External examiner(s)

2 ANSWER BOOKS

Special materials required (graph/music/

drawing paper) maps, diagrams, tables,
computer cards, etc)

Course no. | ECON2001/8 | Hours | 2

Time allowance

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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

THIS PAPER HAS TWO SECTIONS

SECTION A: Economic Statistics
SECTION B: Mathematical Economics
Read ALL instructions before answering any part of this
paper.
Answer all questions
Answer each section in a different coloured book.

Instructions to candidates (examiners

may wish to use this space to indicate,
inter alia, the contribution made by this
examination or test towards the year
mark, if appropriate)

Instructions to Candidates:
Answer all questions in both sections
Provide all calculations, calculators are permitted
Section A is Economic Statistics
Section B is Mathematical Economics.
Answer each section in a separate booklet provided
You may round off answers to two decimal places if required.

_____________________________________________________________________________
_

SECTION A: ECONOMIC STATISTICS (TOTAL MARKS: 60)

QUESTION 1
In a study of Child Mortality in 34 countries a researcher considered three models yielding the following
results:
Where
CM is Child Mortality (number of deaths of children under age of 5 in a year per 1000 live births)
PGNP is Per Capita Gross National Income
FLR is Female Literacy Rate
TFR is Total Fertility Rate

Model 1

CM 0 1 PGNP u (1)

SUMMARY OUTPUT
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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

Regression Statistics
Multiple R 0.423292
R Squared -
Adjusted R
Squared -
Standard Error 58.84551
Observations 34

ANOVA
Significanc
df SS MS F eF
Regression - 24188.36 24188.36 6.985213 0.012617
Residual - 110809.4 3462.794
Total - -

Coefficient Standard Upper

s Error t Stat P-value Lower 95% 95%
Intercept 151.1076 11.18643 13.50812 0.000 128.3216 173.8936
PGNP - - - 0.012617 -0.0134 -0.00174

Model 2

CM 0 1 (1 / PGNP) u (2)

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.63249
R Squared 0.400044
Adjusted R
Squared -
Standard Error 50.30926
Observations 34

ANOVA
Significanc
df SS MS F eF
Regression - - - 21.33726 -
Residual - - -
Total - -

Coefficient Standard Upper

s Error t Stat P-value Lower 95% 95%
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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

Intercept 93.80936 12.93951 7.249841 0.000 67.45244 120.1663

(1/PGNP) - 4474.289 - 0.000 11553.93 -

Model 3

CM 0 1 FLR 2 PGNP 3TFR u (3)

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.855203
R Squared 0.731372
Adjusted R
Squared -
Standard Error 34.76791
Observations 34

ANOVA
Significanc
df SS MS F eF
Regression - - - - -
Residual - - -
Total - -

Coefficient Standard P- Upper

s Error t Stat value Lower 95% 95%
Intercept 181.0444 36.88078 4.908909 0.000 105.7238 256.365
FLR -1.72323 - - - - -1.12027
PGNP -0.00494 0.001732 -2.85453 - - -
TFR 9.753504 - - - - 19.57666

a) Find and interpret the slope coefficient of model 2. [7 marks]

b) What is the average elasticity of PGNP in model 2? ( 0.002 and 138.353)
[4 marks]
c) Construct a 99% confidence interval for and use the interval to test the null hypothesis that
PGNP in model 3 has no effect on CM. [8 marks]
d) Among the CLRM assumptions that are required to obtain BLUE estimators indicate and explain
the assumption that is not required to obtain BLUE estimators in model 1. [6 marks]

e) In relation to model 3 is (are) the restriction(s) imposed by model 1 valid? Show that to be the
case. (Or not.) [11 marks]
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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

f) In considering the goodness of fit would you choose model 1 over model 2? [5 marks]

g) Differentiate between a Type I error and a Type II error. [4 marks]

h) Explain what is the difference between R2 and the adjusted-R2? Calculate the adjusted-R2 for
model 3. [8 marks]

i) For each of the following scenarios write down the functional form of the regression
model theory would suggest. Justify your choice of functional form.

(i) Suppose X represents expenditures on family planning awareness and Y represents

the level of teenage pregnancy. (Y will never fall all the way to zero). [2 marks]
(ii) Suppose you want to calculate the compound growth rate of government expenditure, G.
[3 marks]
(iii) Suppose X is the quantity of labour and Y is the quantity of capital and you want to
calculate the elasticity of substitution between capital and labour. [2 marks]

Total: [60 marks]

PERCENTAGE POINTS OF THE T-DISTRIBUTION

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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

UPPER PERCENTAGE POINTS OF THE F-DISTRIBUTION (extract)

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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

SECTION B: MATHEMATICAL ECONOMICS (TOTAL MARKS:60)

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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

Answer ALL questions in this section

QUESTION 1: 33 MARKS

Use the extract and information below to answer the questions that follow:

Food prices to rise for South Africans, BD news (03/08/2012)

Droughts, mergers and input costs are expected to push up food prices in the coming months,
economist Mike Schussler said on Friday. He said the current drought in the United States was
already pushing maize prices up, as the US was the largest maize-growing region and the world's
major exporter. At present, the SA maize price was 44.4 percent higher in the first seven months
of 2012 compared to the first seven months of 2011. He said that input costs such as electricity,
fuel and seeds would still cause high food prices in South Africa, even when the US drought was
over. The poorest of the South African consumers will be the hardest hit, because they spend 40
percent of their income on food. Schussler said.

Assume that South Africa is an open economy.

The aggregate consumption function is of the form:

C C cYd 0 c 1
Taxes are endogenous.

The aggregate investment function is of the form

where (i e ) is the expected real interest rate, e denotes inflationary
expectations.

Government expenditure is endogenous, and the function is of the form ,

Exports, , is exogenous.

Imports are endogenous, and the function is of the form ,

The aggregate demand for money is given by the Keynesian money demand function,
M
M d yY i i , while the real money supply, M s , is exogenously determined by the
P
central bank.

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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

a) Show mathematically how a change in disposable income will impact government spending.
Interpret your solution. [2]

b) Derive the goods market equilibrium with respect to the equilibrium output level. [5]

c) Using the article above, show mathematically how expected food price increases will impact
on equilibrium income (Y) in the goods and services market only. Provide an economic
reasoning to your result. [4]

d) Derive the equilibrium income that exists in both markets. Show workings. [7]

e) Using the article above, show mathematically how expected food price increases will impact
on the simultaneous equilibrium income (Y) in both markets. [3]

f) Show and explain in economic terms why the effect in (e) is less than the effect in (c). [5]

g) If there is an increase in the marginal propensity to consume, c, which of the mediator

variables will it affect in the IS/LM model? Show mathematically how a decrease in that
particular variable affects the change in E. What effect will this change have on the
countervailing force? [7]

Total for Q1: [33 marks]

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ECONOMICS IIA (ECON 2001/8) Economic Statistics and Mathematical Economics Final Examination - 2014

QUESTION 2: 27 MARKS

Assume that the cellphone starter pack industry in South Africa is characterized by the following
sets of equations:

Market for MTN starter packs:

Demand:
Supply:
Market for Cell C starter packs:
Demand:
Supply:
Market for Vodacom starter packs:
Demand:
Supply:

QM - Quantity demanded for MTN starter packs

QC - Quantity demanded for Cell C starter packs
QV - Quantity demanded for Vodacom starter packs
PM Price of MTN starter packs
PC Price of Cell C starter packs
PV Price of Vodacom starter packs

a) Set up this system into matrix form. [7]

b) Solve this system of equations using the cofactor-adjoint method. [12]

c) Use the cross price elasticity equation to explain how MTN starter packs and Cell C
starter packs are related, and how Vodacom starter packs and MTN starter packs are
related. [8]

Total for Q2: [27 marks]

Total for Mathematical Economics: [60 marks]

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