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Ac 102: Elements Of Macroeconomics Question Paper

Ac 102: Elements Of Macroeconomics

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2008

DATE: Wednesday 28th May 2008 TIME: 11.30 am – 1.30pm

INSTRUCTIONS: Answer question 1 and any other two questions. Question 1
carries 30 marks the other questions carry 20 marks each.

Question One (Compulsory)
(a)
Define the term National Income
(b)
Explain the three approaches that can be used to determine the national income of
a country.
(c)
The information given below is from a certain economy. Use the information to
determine the national income based on expenditure approach.

Consumer expenditure

367,853

Gross domestic fixed capital formation

95,442

Value of physical increase in stock and work in progress
5,303

General government final consumption

121,899

Net property income from abroad

328

Capital consumption

63,968

Taxes on expenditure

83,023

Subsidies

5,878
Imports of goods and services

140,415

Export of goods and services

135,115

Statistical discrepancy

-445
[10 marks]
(d)
State and explain the reason why national income is not a good measure of
material well being of the people.
(e)
State four problems encountered in measuring the national income of a country.

[4 marks]

1
Question Two
(a)
The following equations describe a certain economy

C = 500 + 0.65 yd

(consumption function)
I = 400 – 100 r

(investment function)
T = 70 + 0.2 Y

(tax function)
G = 200
(government expenditure)

X = 20

( exports)

M = 250 + 0.08Y

(imports)

Ms = 5000
(money supply)

Md = 0.4y – 20r

(money demand)
Required:
(i)
Derive the IS and the LM equations.

[4 marks]
(ii)
Calculate the equilibrium income and interest rate.
[4 marks]
(iii)
Calculate the equilibrium consumption, savings, imports, tax and money
demand.

[5 marks]
(b)
With the help of a diagram show the effect of the following on general
equilibrium.

(i)
A decrease in investment.

[2 marks]

(ii)
A decrease in money supply.

[2 marks]
(iii)
Simultaneous increase in investment and money supply by equal amounts.
[3 marks]
Question Three
(a)
Trade deficit is one of the most challenging problems of less developed countries.
Explain four methods that can be used to correct trade deficit.
[8 marks]
(b)
Explain any four forms of protection that can be used by a country showing their
effect on international trade.

[8 marks]
(c)
Explain the J-Curve phenomenon as used in international trade.
[4 marks]

Question Four
(a)
Discuss the following theories, which have been advanced to explain the demand
for money.

(i)
The fisher

[3 marks]

(ii)
Cambridge

[2 marks]

(iii)
Keynesian

[6 marks]
(b)
Distinguish between marginal efficiency of investment and marginal efficiency of
capital.

[3 marks]
(c)
Various hypotheses have been advanced to reconcile the discrepancy between
short and long run function of consumption. Explain relative income hypothesis
and life cycle income hypothesis.

[6 marks]

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Ac 102: Elements Of Macroeconomics Question Paper

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