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Ees404:Economic Modelling And Computer Simulation Question Paper
Ees404:Economic Modelling And Computer Simulation
Course:Bachelor Of Economics
Institution: Kenyatta University question papers
Exam Year:2012
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2011/2012
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
ECONOMICS
EES 404: ECONOMIC MODELLING AND COMPUTER SIMULATION
DATE: MONDAY, 2ND APRIL 2012 TIME: 11.00 A.M. – 1.00 P.M.
INSTRUCTIONS:
1.
This paper consists of six (6) Questions.
2.
Answer Question One (Compulsory) and any other two (2) questions.
3.
Show all your workings, wherever applicable.
QUESTION ONE: (30 MARKS)
(a)
Explain the characteristics of Economic Models.
(10 marks)
(b)
What, in your view, is the importance of Modelling in Economic Analysis.
(5 marks)
(c)
Simulation, by use of computer software, has evolved as a powerful tool in economic
analysis. Explain the term Simulation and identify at least two modern simulation
software.
(7 marks)
(d)
What are the advantages and disadvantages of simulation in economic analysis. (8 marks)
QUESTION TWO: (20 MARKS)
(a)
Distinguish between Discreet and Continous events as applied in System Dynamics,
giving examples.
(8 marks)
(b)
Examine the salient features of system Dynamics as an aspect of economic modeling.
(15 marks)
Page 1 of 4
(c)
Given the following economic variables:
Savings, savings rate, capital accumulation, depreciation, depreciation rate, income,
leisure and work effort.
Use System Dynamics to examine the interrelationship among these variables, clearly
distinguishing between Stock Variables and Flow Variables.
(7 marks)
QUESTION THREE (20 MARKS)
(a)
Consider the following Keynesian Model for income determination:
Y = C + I + G + X – M
C = a + b (Y-T)
T = T0 + T1Y
M = M0 + M1Y
I = I0 G = G0 X = X0
(i)
Derive the model for Equilibrium National Income that incorporates all
behavioural equations and autonomous variables.
(3 marks)
(ii)
Given the Baseline scenario is presented as:
a = 1000, b = 0.5, T0 = 2000, T1 = 0.4, M0 = 1500, M1 = 0.8,
I0 = 500, G0 = 1200, X0 = 300
Perform sensitivity analysis for the following:-
Scenario 1: T0 changes by 200 to 2200.
(2 marks)
Scenario 2: b changes to 0.75.
(2 marks)
Scenario 3: G0 changes by Z so that Y changes by 10%.
(3 marks)
(iii)
Briefly explain how you would perform the above scenarios in software Excel.
(4 marks)
(b)
Apart from Mathematical Models, illustrate three other types of Economic Models.
(6 marks)
Page 2 of 4
QUESTION FOUR (20 MARKS)
(a)
Economic dynamics are an integral part in the study of dynamic behaviour of economic
relationships. Explain the three attributes of economic dynamics.
(5 marks)
(b)
Solve for each of the following economic dynamic problems:-
(i)
y? ? 2y ? 6t given y
? 1
(3 marks)
(0)
(ii)
3
5 y
x? ? 20y ? 10x
(3 marks)
(iii)
y?
? ? 6y? ? 8y ? t 2 ? t
4
(5 marks)
(iv)
max ? 1 5xdx
u
0
x? ? x ? u, x )
0
( ? ,
2 x )
1
( ? Fre ,
e u ?
).
3
,
0
(
(4 marks)
QUESTION FIVE (20 MARKS)
(a)
Compare and contrast between decision-making under certainty and decision making under
uncertainty.
(b)
Multilevel modelling is an important technique for Data analysis.
(i)
Using an example, explain the concept for multi-level modelling.
(4 marks)
(ii)
Explain the difference between fixed effects and random effects in multilevel
modeling.
(4 marks)
(c)
A duopoly model is presented as P = 120 – Q for two firms A and B in the market.
Find the profit maximizing output levels under the assumptions:
(i)
Cournot Model
(3 marks)
(ii)
Stacklberg Model
(4 marks)
QUESTION SIX (20 MARKS)
(a)
Discuss the following concepts as used in Game theory:
(i)
Static games of complete information
(2 marks)
(ii)
Dynamic games of incomplete information
(2 marks)
(b)
Illustrate the important operating characteristics of a queuing system.
(6 marks)
Page 3 of 4
(c)
James and Paul are undergraduate students at Kenyatta University. In an attempt to make
extra money, they have both decided to look into the possibility of starting a small company
that would provide word-processing services to students who need term papers or other
reports prepared in a professional manner. They have identified three strategies.
Strategy 1 is to invest in a fairly expensive microcomputer system with a high-quality laser
printer. In a good market, they should be able to obtain a net profit of Kshs.10,000 over the
next two years. If the market is bad, they could lose Ksh.8,000.
Strategy 2 is to purchase a cheaper system. With a good market, they could get a return
during the next two years of KSh.8,000. With a bad market, they could incur a loss of
Ksh.4,000. Their final strategy, strategy 3, is to do nothing. James is basically a risk taker,
while Paul tries to avoid risk.
i)
What would be James’ decision be?
(2 marks)
ii)
What would be Paul’s decision?
(2 marks)
iii)
If James and Paul were indifferent to risk, what would be their decision? (2 marks)
(d)
Lilian is considering the possibility of opening a small dress shop on Moi avenue, a few
metres from a nearby stall. She is considering there different alternatives: small shop,
medium size shop or no shop at all, and the market outcomes for either alternative could be
good, average or bad as shown below.
Market outcomes
Alternative
Good Market
Average Market
Bad Market
Small shop
KSh.75,000
KSh.25,000
KSh.40,000
Medium-sized shop KSh.100,000
KSh.35,000
KSh.60,000
No shop
KSh.0
KSh.0
KSh.0
Probabilities
0.3
0.5
0.2
Basing your analysis on Expected Monetary Value criterion, which alternative would you
recommend?
(4marks)
*********************
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