Question

INSTRUCTIONS: THERE ARE TWO SECTIONS IN THIS PAPER; SECTIONS A AND B
ANSWER ALL QUESTIONS IN SECTION A AND ONLY ONE IN SECTION B

SECTION A
QUESTION ONE.
In a given economy, the following hold true.
1.There are only two sectors-household and business sectors operating in the economy.
2. The percentage of every extra income which goes into consumption is 80%.
Given that an initial amount of 1000 currency units is introduced as investment in the economy. Draw up a table which tracks successive expenditure, income consumption and savings in the economy, up to the sixth round assuming the initial injection kicks in a multiplier process.
Using your table, calculate the total amount of income and consumption and deduce the value of the national income multiplier.
QUESTION TWO
Explain the difference between the criteria used to measure absolute and comparative cost advantages in international trade.
Assuming there are only two countries in the world, Oceania and Atlantis each having one resource unit which they use to produce either Cereals or Machine tools and the table below depicts the production possibilities of each country.

Maize (tons)
Machine Tools (Units)

Oceania
6
2

Atlantis
2
1

Determine which country has i. absolute cost advantage ii. Comparative cost advantage.
                                                                                                                                        

Answer 1

FIRST QUESTION-

The size of the multiplier is 5 this means that in the nation one dollar invested would increase the level of income by $5

SECOND QUESTION-