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Econ 120: Introduction To Macroeconomics March 2010 Question Paper

Econ 120: Introduction To Macroeconomics March 2010

Course:Bachelor Of Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2010

COURSE CODE: ECON 120
COURSE TITLE: INTRODUCTION TO
MACRO ECONOMICS
STREAM: Y1S2
DAY: TUESDAY
TIME: 2:00 – 4:00 P.M.
DATE: 16/03/2010
INSTRUCTIONS:
1. This papers contains five (5) questions
2. Answer question ONE and ANY OTHER TWO questions
3. Question ONE carries THIRTY (30) marks and all other questions carry TWENTY (20)
marks each.

QUESTION 1
(a) Distinguish between economic growth and economic development. (4 marks)
(b) Explain the problem faced in calculating national income particularly in developing
countries. (6 marks)
(c) An economy without government participation and without the foreign sector in
described by the following behavioral equations.

Y = C+I ……….(i)
C = Co + bY …..(ii)
I = Io ……..(iii)

Where: Y = level of income
C = Consumption
I = Investment.

(i) Explain what equation (i) represents. (2 marks)
(ii) Derive the simple Keynesian investment multiplier and explain what determines the
effectiveness of the multiples process in an economy. (8 marks)
(iii) Derive the marginal propensity to consume and explain why it is always less than
unity but greater than zero. (4 marks)
(iv) Derive the equilibrium level of consumption. (6 marks)

QUESTION 2
Irving Fisher’s Quantity theory of money is given by the following identity:

PT = MV

(a) Explain each of these variables of the identity and state why the identity holds true.
(6 marks)
(b) By partial analysis show how this identity is used to determine the value of money in an
economy. ( 6 marks)
(c) What are the major shortcomings of this theory? (8 marks)

QUESTION 3
(a)
(i) Define the term investment. (1 marks)
(ii) Explain the factors that influence investment in a country. (5 marks)
(b) Define the term unemployment and explain why unemployment is considered one of the
major macroeconomic problems in Kenya. (12 marks)
(c) Distinguish between balance of trade and terms of trade. (2 marks)

QUESTION 4
(a) Define and explain business cycles ( 6 marks)
(b) Explain and graphically present how changes in aggregate demand expenditures will lead to
changes in output, employment and general and general price level in a country. (14 marks)

QUESTION 5
(a)
(i) Define monetary policy. (1 mark)
(ii) Explain the effects of an expansionary monetary policy in a country. (5 marks)

(b) Explain the main causes of balance of payment problems in Less Developed countries.
State three solutions to this problem. (8 marks)
(c) Under what conditions is inflation justified? (6 marks)

Econ 120: Introduction To Macroeconomics March 2010 Question Paper

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