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Econ 220 Year 2010 Question Paper

Econ 220 Year 2010

Course:Bachelor Of Science In Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2010

INSTRUCTIONS:

Answer any THREE questions

1. Distinguish between
a) Cost-push inflation and demand pull inflation (5 marks)
b) Short-run Phillips curve and long-run Phillips curve. (5 marks)
c) Marginal efficiency of capital and marginal efficiency of investment.
(4.3 marks)
d) Disguised unemployment and structural unemployment. (5 marks)
e) Balance of trade on visibles and overall balance of payments.
(4 marks)

2. A national income model is given below
C = 4,000 + 0.7 Yd
(Consumption function)
I = 8,000 (Investment Expenditure)
G = 5,000 (Government expenditure)
X = 3,000 (Export expenditure)
T = 1,000 + 0.2 Y (Tax function)
M = 2,000 + 0.01 Y (Import function)
a) Derive the saving function. (3 marks)
b) Compute the equilibrium level of income, consumption and imports?
(7 marks)
c) Solve for the government expenditure multiplier and interpret your results.
(3 marks)
d) Solve for the import multiplier and interpret your results. (3 marks)
e) What is the position on: government budget and balance of payment?
(4 marks)
f) Compute the value of the average propensity to import at equilibrium and
interpret your result. (3.3 marks)

3. Discuss,
a) The solutions given for unemployment problem under the classical and
Keynesian schools. (6 marks)
b) Six factors affecting inducement to invest. (6 marks)
c) The theory of demand for money according to Keynes’. (8 marks)

4. Discuss briefly,
a) The causes of inflation in Kenya. (12 marks)
b) Four instruments of monetary policy which have been employed by the
Central Bank of Kenya to control for inflation. (8 marks)

5. In a certain economy, the marginal propensities to consume (out of disposable
income) and import are 0.8 and 0.05 respectively. The autonomous consumption
expenditure, import, government expenditure and tax are 200, 700, 600 and 500
respectively. The tax rate is 25%. Given further that the income tax rate as 25%,
money supply as fixed at 90 and the following information

I = 20 – 2000 r (Investment Expenditure)
L = Y – 1000 r (demand for money)

a) Derive equations for IS and LM curves. (10 marks)
b) Compute equilibrium levels of interest rate (R) and income (Y).
(4 marks)
c) Explain any two factors that cause shift in IS and LM curves.
(3 marks)
d) Explain any two factors that cause shift in IS and LM curves (3 marks)

Econ 220 Year 2010 Question Paper

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