CODE 0

Problem 1 (2 points): Consider the two-sector model:

= 0.5(C + I – Y)
C = 0.5Y + 600
I = 0.3Y + 300

a/ Find expressions for Y(t), C(t) and I(t) when Y(0) = 5500;
b/ Is this system stable or unstable, explain why?

Problem 2 (2 points): A project requires an initial outlay of $75000 and produces a

return of $20000 at the end of year 1, $30xyz at the end of year 2, $20000 at the end
of year 3, and $20000 at the end of year 4, where x, y, z are the last three digits of
your student code (for example: if a student code is 17071365 then x = 3, y = 6, z = 5
and $30xyz=$30365).
a/ Use the trial-and-error method or another appropriate method to determine the
internal rate of return IRR of the project (express IRR in percentage, rounded to
one decimal place);
b/ Find the net present value NPV of the project if the market rate r is equal to the
value of IRR as found above, then give a comment.

Problem 3 (2 points):

Problem 4 (2 points): Consider the a/ Use the method of Lagrange multipliers

tooptimization problem of maximizing Cobb–Douglas production function: Q = 20
K1/2 L1/2, subject to cost constraint: K + 4L = 48.
find the maximum value of the production function;
b/ Estimate the change in the optimal value of Q if the cost constraint is changed to:
K + 4L = 50, and state the new maximum value of the production function.

Problem 5 (2 points): A manufacturer produces two models of racing bike, A and B,

each of which must be processed through two machine shops. Machine shop 1 is
available for 92 hours per month and machine shop 2 for 134 hours per month. The
manufacture of each bike of type A takes 6 hours in shop 1 and 4 hours in shop 2.
The corresponding times for B are 4 and 10 hours, respectively. Due to a contract,
the manufacturer must produce at least 5 bikes of type B per month. If the profit is
$90 and $75 per bike of type A and B respectively, how should the manufacturer
arrange production to maximize total profit?
CODE 1
Problem 1 (2 points):
Problem 2 (2 points): An annuity pays out $5000 at the beginning of each year in
perpetuity. If the interest is 5% compounded annually, find:
a/ The present value of the whole annuity;
b/ The present value of the annuity for payments received, starting from the end of
20th year.

Problem 3 (2 points): Consider the optimization problem of maximizing Cobb–

Douglas production function: Q = 20 K1/2 L1/2, subject to cost constraint: K + 4L = 48.
a/ Use the method of Lagrange multipliers to find the maximum value of the
production function;
b/ Estimate the change in the optimal value of Q if the cost constraint is changed to:
K + 4L = 50, and state the new maximum value of the production function.

Problem 4 (2 points): A manufacturer produces two models of racing bike, A and B,

each of which must be processed through two machine shops. Machine shop 1 is
available for 92 hours per month and machine shop 2 for 134 hours per month. The
manufacture of each bike of type A takes 6 hours in shop 1 and 4 hours in shop 2.
The corresponding times for B are 4 and 10 hours, respectively. Due to a contract,
the manufacturer must produce at least 5 bikes of type B per month. If the profit is
$90 and $75 per bike of type A and B respectively, how should the manufacturer
arrange production to maximize total profit?

Problem 5 (2 points): Consider the two-sector model:

= 0.5(C + I – Y)
C = 0.5Y + 600
I = 0.3Y + 300
a/ Find expressions for Y(t), C(t) and I(t) when Y(0) = 5500;
b/ Is this system stable or unstable, explain why?
CODE 2
Problem 1 (2 points): The values of nominal prices of a good at the end of each year between 2016
and 2019 (with 2016 being the base year) are listed in the table which also shows the annual rates of
inflation:
Year 2016 2017 2018 2019
Price 150 158 170 179
Inflation 5% x% y% z%

where x, y, z are the last three digits of your student code (for example: if a student code is
17071435 then x = 4, y = 3, z = 5).
a/ If the index number of the real price for 2020 is 110 and the rate of inflation for this year is 7%,
work out the value of nominal price in 2020;
b/ If the index number of the nominal price for 2015 is 90, work out the value of real price in 2015.
Problem 2 (2 points): The demand function for a firm’s domestic and foreign markets are:
P1 = 25 – 2.5Q1
P2 = 15 – 2Q2
and the total cost function is: TC = 25 + 5Q, where Q = Q1 + Q2.
a/ Determine the prices needed to maximize profit with and without price discrimination;
b/ Find the maximum profit values in these two cases and give your comment.
Problem 3 (2 points) Given the demand function P = - QD2 – 2QD + 64, and the supply function P =
QS2 – 2QS + 14.
a/Assuming pure competition, find the consumer’s surplus and the producer’s surplus; b/ Explain
the meaning of values of the surpluses as found in question a/.
Problem 4 (2 points): Consider the macroeconomic model defined by
National income: Y = C + I + G* (G* > 0)
Consumption: C = aY + b (0 < a < 1, b > 0)
Investment: I = cr + d (c < 0, d > 0)
Money supply: MS* = k1Y + k2r (k1> 0, k2< 0, MS* > 0)
Show that this system can be written as Ax = b, where

a/ Use Cramer’s rule to find I; b/ Write down the government expenditure multiplier for I and
deduce it’s meaning.
Problem 5 (2 points): Consider the supply and demand equations:
QSt = 0.4Pt-1 – 5 QDt = - 0.8Pt + 55
a/ Assuming that the equilibrium conditions prevail, find an expression for Pt and Qt when P0 = 75;
b/ Is this system stable or unstable, explain why?
CODE 3
Problem 1 (2 points): An annuity pays out $30xyz at the beginning of each year in
perpetuity, where x, y, z are the last three digits of your student code (for example:
if a student code is 17071827 then x = 8, y = 2, z = 7 then $30xyz=$30827). If the
interest is 5% compounded annually, find:
a/ The present value of the whole annuity;
b/ The present value of the annuity of payments received starting from the end of
20th year.
Problem 2 (2 point): A firm’s production function is Q = 24√𝐊𝐋 + 2L. Given K = 160
and L = 90.
a/ Find the values of the marginal products, MPK and MPL, then estimate the overall
effect on Q when K increases by 3 units and L decreases by 2 units.
b/ State the value of the marginal rate of technical substitution MRTS and give an
interpretation of this value. Estimate the change of Q if L increases by 2 units and K
decreases by 4 units.
Problem 3 (2 points): If the rate of net investment flow is given by I(t) = 200e0.1t,
calculate:
a/ The capital formation from the end of the third year to the end of the tenth year;
b/ The number of years required before the capital stock exceeds $50000.
Problem 4 (2 points): Consider the macroeconomic model defined by
National income: Y = C + I + G* (G* > 0)
Consumption: C = aY + b (0 < a < 1, b > 0)
Investment: I = cr + d (c < 0, d > 0)
Money supply: MS* = k1Y + k2r (k1> 0, k2< 0, MS* > 0)
Show that this system can be written as Ax = b, where
𝟏 −𝟏 −𝟏 𝟎 𝐘 𝐆∗
𝐀 = [−𝐚 𝟏 𝟎 𝟎 ],𝐱 = [𝐂 ] 𝐚𝐧𝐝 𝐛 = [ 𝐛 ]
𝟎 𝟎 𝟏 −𝐜 𝐈 𝐝
𝐤𝟏 𝟎 𝟎 𝐤𝟐 𝐫 𝐌𝐒∗
a/ Use Cramer’s rule to find C;
b/ Then write down the money supply multiplier for C and deduce it’s meaning.
Problem 5 (2 points): Consider the supply and demand equations:
QSt = 0.8Pt-1 - 12
QDt = -1.6Pt+ 60
a/ Assuming that the equilibrium conditions prevail, find an expressios for P t and Qt
when P0 = 80;
b/ Is this system stable or unstable, explain why?
CODE 4
Problem 1 (2 points): A manufacturer produces two models of racing bike, A and B,
each of which must be processed through two machine shops. Machine shop 1 is
available for 92 hours per month and machine shop 2 for 134 hours per month. The
manufacture of each bike of type A takes 6 hours in shop 1 and 4 hours in shop 2.
The corresponding times for B are 4 and 10 hours, respectively. Due to a contract,
the manufacturer must produce at least 5 bikes of type B per month. If the profit is
$90 and $75 per bike of type A and B respectively, how should the manufacturer
arrange production to maximize total profit?
Problem 2 (2 points): Consider the two-sector model:

= 0.5(C + I – Y)
C = 0.5Y + 600
I = 0.3Y + 300
a/ Find expressions for Y(t), C(t) and I(t) when Y(0) = 5500;
b/ Is this system stable or unstable, explain why?
Problem 3 (2 points): A project requires an initial outlay of $75000 and produces a
return of $20000 at the end of year 1, $30xyz at the end of year 2, $20000 at the end
of year 3, and $20000 at the end of year 4, where x, y, z are the last three digits of
your student code (for example: if a student code is 17071365 then x = 3, y = 6, z = 5
and $30xyz=$30365).
a/ Use the trial-and-error method or another appropriate method to determine the
internal rate of return IRR of the project (express IRR in percentage, rounded to
one decimal place);
b/ Find the net present value NPV of the project if the market rate r is equal to the
value of IRR as found above, then give a comment.
Problem 4 (2 points): An annuity pays out $5000 at the beginning of each year in
perpetuity. If the interest is 5% compounded annually, find:
a/ The present value of the whole annuity;
b/ The present value of the annuity for payments received, starting from the end of
20th year.
Problem 5 (2 points): Consider the optimization problem of maximizing Cobb–
Douglas production function: Q = 20 K1/2 L1/2, subject to cost constraint: K + 4L = 48.
a/ Use the method of Lagrange multipliers to find the maximum value of the
production function;
b/ Estimate the change in the optimal value of Q if the cost constraint is changed to:
K + 4L = 50, and state the new maximum value of the production function.
CODE 5 ->> Problem 1 (2 points): Consider the macroeconomic model defined by
National income: Y = C + I + G* (G* > 0)
Consumption: C = aY + b (0 < a < 1, b > 0)
Investment: I = cr + d (c < 0, d > 0)
Money supply: MS* = k1Y + k2r (k1> 0, k2< 0, MS* > 0)
Show that this system can be written as Ax = b, where

a/ Use Cramer’s rule to find I;

b/ Write down the government expenditure multiplier for I and deduce it’s meaning.
Problem 2 (2 points): Consider the supply and demand equations:
QSt = 0.4Pt-1 - 5 QDt = - 0.8Pt + 55
a/ Assuming that the equilibrium conditions prevail, find an expression for Pt and Qt when P0 = 75;
b/ Is this system stable or unstable, explain why?
Problem 3 (2 points): The values of nominal prices of a good at the end of each year between 2016
and 2019 (with 2016 being the base year) are listed in the table which also shows the annual rates of
inflation:
Year 2016 2017 2018 2019
Price 150 158 170 179
Inflation 5% x% y% z%
where x, y, z are the last three digits of your student code (for example: if a student code is
17071435 then x = 4, y = 3, z = 5).
a/ If the index number of the real price for 2020 is 110 and the rate of inflation for this year is 7%,
work out the value of nominal price in 2020;
b/ If the index number of the nominal price for 2015 is 90, work out the value of real price in 2015.
Problem 4 (2 points): The demand function for a firm’s domestic and foreign markets are:
P1 = 25 – 2.5Q1
P2 = 15 – 2Q2
and the total cost function is:
TC = 25 + 5Q, where
a/ needed to maximize profit with and without price discrimination;
b/ Find the maximum profit values in these two cases and give your comment.
Problem 5 (2 points) Given the demand function P = - QD2 – 2QD + 64, and the supply function P =
QS2 – 2QS + 14.
a/Assuming pure competition, find the consumer’s surplus and the producer’s surplus;
b/ Explain the meaning of values of the surpluses as found in question a/.
CODE 6
Problem 1 (2 points): Consider the macroeconomic model defined by
National income: Y = C + I + G* (G* > 0)
Consumption: C = aY + b (0 < a < 1, b > 0)
Investment: I = cr + d (c < 0, d > 0)
Money supply: MS* = k1Y + k2r (k1> 0, k2< 0, MS* > 0)
Show that this system can be written as Ax = b, where 0.

a/ Use Cramer’s rule to find C;

b/ Then write down the money supply multiplier for C and deduce its meaning
Problem 2 (2 points): Consider the supply and demand equations:
QSt = 0.8Pt-1 - 12
QDt = -1.6Pt+ 60
a/ Assuming that the equilibrium conditions prevail, find an expressions for Pt and
Qt when P0 = 80;
b/ Is this system stable or unstable, explain why?
Problem 3 (2 points): An annuity pays out $30xyz at the beginning of each year in
perpetuity, where x, y, z are the last three digits of your student code (for example:
if a student code is 17071827 then x = 8, y = 2, z = 7 then $30xyz=$30827). If the
interest is 5% compounded annually, find:
a/ The present value of the whole annuity;
b/ The present value of the annuity of payments received starting from the end of
20th year.
Problem 4 (2 point): A firm’s production function is Q = 24 + 2L. Given K
= 160 and L = 90.
a/ Find the values of the marginal products, MPK and MPL, then estimate the overall
effect on Q when K increases by 3 units and L decreases by 2 units.
b/ State the value of the marginal rate of technical substitution MRTS and give an
interpretation of this value. Estimate the change of Q if L increases by 2 units and K
decreases by 4 units.
Problem 5 (2 points): If the rate of net investment flow is given by I(t) = 200e0.1t,
calculate:
a/ The capital formation from the end of the third year to the end of the tenth year;
b/ The number of years required before the capital stock exceeds $50000
CODE 7
Problem 1 (2 points): An annuity pays out $5000 at the beginning of each year in
perpetuity. If the interest is 5% compounded annually, find:
a/ The present value of the whole annuity;
b/ The present value of the annuity for payments received, starting from the end of
20th year.
Problem 2 (2 points): Consider the optimization problem of maximizing Cobb–
Douglas production function: Q = 20 K1/2 L1/2, subject to cost constraint: K + 4L = 48.
a/ Use the method of Lagrange multipliers to find the maximum value of the
production function;
b/ Estimate the change in the optimal value of Q if the cost constraint is changed to:
K + 4L = 50, and state the new maximum value of the production function.
Problem 3 (2 points): A manufacturer produces two models of racing bike, A and B,
each of which must be processed through two machine shops. Machine shop 1 is
available for 92 hours per month and machine shop 2 for 134 hours per month. The
manufacture of each bike of type A takes 6 hours in shop 1 and 4 hours in shop 2.
The corresponding times for B are 4 and 10 hours, respectively. Due to a contract,
the manufacturer must produce at least 5 bikes of type B per month. If the profit is
$90 and $75 per bike of type A and B respectively, how should the manufacturer
arrange production to maximize total profit?
Problem 4 (2 points): Consider the two-sector model:
𝐝𝐘
= 0.5(C + I – Y)
𝐝𝐭
C = 0.5Y + 600
I = 0.3Y + 300
a/ Find expressions for Y(t), C(t) and I(t) when Y(0) = 5500;
b/ Is this system stable or unstable, explain why?
Problem 5 (2 points): A project requires an initial outlay of $75000 and produces a
return of $20000 at the end of year 1, $30xyz at the end of year 2, $20000 at the end
of year 3, and $20000 at the end of year 4, where x, y, z are the last three digits of
your student code (for example: if a student code is 17071365 then x = 3, y = 6, z = 5
and $30xyz=$30365).
a/ Use the trial-and-error method or another appropriate method to determine the
internal rate of return IRR of the project (express IRR in percentage, rounded to
one decimal place);
b/ Find the net present value NPV of the project if the market rate r is equal to the
value of IRR as found above, then give a comment.
CODE 8
Problem 1 (2 points): The demand function for a firm’s domestic and foreign markets are:
P1 = 25 – 2.5Q1 P2 = 15 – 2Q2
and the total cost function is: TC = 25 + 5Q, where Q = Q1 + Q2.
a/ Determine the prices needed to maximize profit with and without price discrimination;
b/ Find the maximum profit values in these two cases and give your comment.
Problem 2 (2 points) Given the demand function P = - QD2 – 2QD + 64, and the supply function P =
QS2 – 2QS + 14.
a/Assuming pure competition, find the consumer’s surplus and the producer’s surplus; b/ Explain
the meaning of values of the surpluses as found in question a Problem 3 (2 points): Consider
the macroeconomic model defined by
National income: Y = C + I + G* (G* > 0)
Consumption: C = aY + b (0 < a < 1, b > 0)
Investment: I = cr + d (c < 0, d > 0)
Money supply: MS* = k1Y + k2r (k1> 0, k2< 0, MS* > 0)
Show that this system can be written as Ax = b, where

a/ Use Cramer’s rule to find I;

b/ Write down the government expenditure multiplier for I and deduce it’s meaning.
Problem 4 (2 points): Consider the supply and demand equations:
QSt = 0.4Pt-1 – 5 QDt = - 0.8Pt + 55
a/ Assuming that the equilibrium conditions prevail, find an expression for Pt and Qt when P0 = 75;
b/ Is this system stable or unstable, explain why?
Problem 5 (2 points): The values of nominal prices of a good at the end of each year between 2016
and 2019 (with 2016 being the base year) are listed in the table which also shows the annual rates of
inflation:
Year 2016 2017 2018 2019
Price 150 158 170 179
Inflation 5% x% y% z%
where x, y, z are the last three digits of your student code (for example: if a student code is
17071435 then x = 4, y = 3, z = 5).
a/ If the index number of the real price for 2020 is 110 and the rate of inflation for this year is 7%,
work out the value of nominal price in 2020;
b/ If the index number of the nominal price for 2015 is 90, work out the value of real price in 2015.
CODE 9
Problem 1 (2 points): The demand function for a firm’s domestic and foreign markets are:
P1 = 50 – 4Q1 P2 = 40 – 5Q2
and the total cost function is:
TC = 25 + 12Q, where Q = Q1 + Q2.
a/ Determine the prices needed to maximize profit with and without price discrimination;
b/ Find the maximum profit values in these two cases and give your comment.
Problem 2 (2 points): If the rate of net investment flow is given by I(t) = 200e0.2t, calculate:
a/ The capital formation from the end of the second year to the end of the sixth year;
b/ The number of years required before the capital stock exceeds $200 000.
Problem 3 (2 points): Consider the macroeconomic model defined by
National income: Y = C + I + G* (G* > 0)
Consumption: C = aY + b (0 < a < 1, b > 0)
Investment: I = cr + d (c < 0, d > 0)
Money supply: MS* = k1Y + k2r (k1> 0, k2< 0, MS* > 0)
Show that this system can be written as Ax = b, where

a/ Use Cramer’s rule to find C;

b/ Then write down the money supply multiplier for C and deduce it’s meaning.
Problem 4 (2 points): Consider the supply and demand equations:
QSt = 0.8Pt-1 – 12 QDt = -1.6Pt+ 60
a/ Assuming that the equilibrium conditions prevail, find an expressios for P t and Qt when
P0 = 80;
b/ Is this system stable or unstable, explain why?
Problem 5 (2 points): An annuity pays out $25xyz at the beginning of each year in
perpetuity, where x, y, z are the last three digits of your student code (for example: if a
student code is 17071827 then x = 8, y = 2, z = 7 then $25xyz=$25827). If the interest is 5%
compounded annually, find:
a/ The present value of the whole annuity;
b/ The present value of the annuity of payments received starting from the end of 20th
year.