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Econ 120: Introduction To Macroeconomics August 2010 Question Paper

Econ 120: Introduction To Macroeconomics August 2010

Course:Bachelor Of Science In Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2010

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 the other questions carry Twenty (20)
marks each
4. Do not write anything on this question paper

QUESTION ONE
a) Define per capital income and evaluate its use in measuring the standard of living in a
country. (8mks)

b) A three sector model economy is represented by the following equations:
C= cO+c1Y [consumption function]
I=IO [investment]
G= Go [Government expenditure]
Using this information;
i) Explain the meaning of intercept and the coefficient of the consumption function
(4mks)
ii) Obtain the national income and consumption equilibrium equations. (6mks)
iii) Define and show the simple Keynesian multiplier and give its interpretation.
(6mks)
c) Explain how inflation can assist the country to grow. (6mks)
QUESTION TWO
a) Define balance of payment and explain the causes of balance of payment crisis in the
Less Developed countries stating any three solutions to this crisis. (10mks)

b) Why is unemployment viewed as a macroeconomic problem? (10mks)
QUESTION THREE
a) Explain fully the circular flow of income model explaining the conditions under which it
can operate uninterruptedly. (10mks)

b) Define a recession and explain the policies that a country can use to sort out a
recessionary period. Use appropriate diagrams to illustrate your answer. (10mks)
QUESTION FOUR
a) Distinguish between economic growth and economic development. (4mks)

b) Using a well-labeled diagram, show the relationship between actual and potential GDP,
and unemployment. (12mks)

c) Explain business cycle. (4mks)

QUESTION FIVE
a) Define the cash reserve ratio and explain how it determines the quantity of money in a
country. (8mks)

b) Explain the factors that influence the country’s productive capacity. (8mks)

c) Distinguish between monetary and fiscal policies. (4mks)

Econ 120: Introduction To Macroeconomics August 2010 Question Paper

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