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Econ 120: Introduction To Macroeconomics December 2009 Question Paper

Econ 120: Introduction To Macroeconomics December 2009

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2009

COURSE CODE: ECON 120
COURSE TITLE: INTRODUCTION TO MACROECONOMICS
STREAM: Y1S2

INSTRUCTIONS:
1. This paper contains five (5) questions
2. Answer question ONE (1) and any other Two (2) questions
3. Question ONE carries Thirty (30) marks and all others carry Twenty (20) marks each

QUESTION ONE (Compulsory) (30mks)
(a) Distinguish between the concepts GDP and GNP which of the two is higher in Kenya and
why?
(6mks)
(b) The following information represents a given economy
Y= C + I + G + X – M
C = a + bY
M = mo + MY
Where Y = Equilibrium level of income
C = Consumption expenditure
I = Investment
G = Government expenditure
X = Exports
M = Imports
(i) What is an “open economy”? (2mks)
(ii) Explain the economic interpretations of the parameters a, b, mo and m (8mks)
(iii)Calculate the equilibrium national income (4mks)
(iv)Assuming that the economy is now a closed economy, what will be the equilibrium
level of income and consumption (6mks)
(v) Explain the effects of injections and withdrawals on the equilibrium level of national
income (4mks)
QUESTION TWO
What are the causes of the balance of payment problems in less developed countries? What are the
possible options open to a country suffering from the balance of payment crisis?
(20mks)
QUESTION THREE
(a) Define the term money and explain fully why people hold money (8mks)
(b) Define the simple Keynesian multiplier and explain its importance and the factor that
determine its effectiveness in a country (12mks)
QUESTION FOUR
(a) What is “Philips Curve”? (4mks)Page3 of Page 3
(b) Explain the difference between demand pull inflation and cost push inflation. Fully explain the
economic policies that can be used to combat the inflation problem experienced in less
developed countries.
(16mks)
QUESTION FIVE
(a) (i) Differentiate between structural unemployment and disguised unemployment. Briefly give
the causes of the two types of unemployment. (8mks)
(ii) Indicate solutions to these types of unemployment in a (i). (6mks)
(b) What is a cash reserve ratio and how does it determine the credit creation process in a country?
(6mks)

Econ 120: Introduction To Macroeconomics December 2009 Question Paper

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